FFC on Expenditure Patterns in respect of Infrastructure, Conditional Grants & Equity in Education; DBE Audit Outcomes

Basic Education

16 November 2021
Chairperson: Ms B Mbinqo-Gigaba (ANC)
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Meeting Summary


In a virtual meeting, the Portfolio Committee on Basic Education was briefed by the Financial and Fiscal Commission (FFC) on expenditure patterns with respect to infrastructure and conditional grants and equity in education; the Auditor-General of South Africa (AGSA) also briefed the Committee on audit outcomes of the Department of Basic Education (DBE) for the 2020/21 financial year.

The Commission found regarding non-conditional grants there were improvements in spending with respect to the Learners with Profound Intellectual Disabilities Grant. The Mathematics, Science, and Technology grant saw significant underspending in 2019/20. A total of 80% of schools do not have access to laboratory facilities. Reasons for the underspending have to be addressed, as this grant is important for providing support and resources to embed the use of Information and Communications Technology across the school curriculum. The COVID-19 pandemic had an impact on the sector.

With respect to infrastructure conditional grants, more effective oversight over basic education conditional grants is required. This is especially in the case of infrastructure projects. Also, the delivery model of the Accelerated Schools Infrastructure Delivery Initiative (henceforth, ‘Infrastructure Delivery Initiative’) programme should be reviewed as it has not met its implementation timeframes. With respect to equity, the Commission said that this remains a challenge due to the education policies in place. The funding framework does not fully address barriers to the potential of education. Poor schools continue to experience structural systemic challenges.

The Auditor-General of South Africa presented on the Department of Basic Education portfolio audit outcomes. Umalusi has maintained its achievement of an unqualified audit opinion, with no findings. The Department’s outcome improved from qualified to unqualified with findings. The Department addressed previous reported findings on irregular expenditure and commitments. The South African Council for Educators achieved an unqualified audit opinion, with findings on compliance and pre-determined objective opinion.

Members were disappointed with some of the Auditor-General’s findings in that it pointed to misuse of funds and the lack of consequence management. The Department must address irregular expenditures that are not disclosed. It was asked to advise the Committee on measures to be taken to recover the fruitless and wasteful expenditure.

The Committees asked how the Commission could ensure necessary initiatives are completed within the prescribe timeframe. The Department spent 70% of the allocated Infrastructure Delivery Initiative budget since its introduction in 2013, yet the required infrastructure was not implemented within the specified timelines. Minimum norms and standards for school infrastructure require provincial MECs to report annually to the Minister of Basic Education on plans to address backlogs at the district level and then report on planned implementation. There is a massive problem with implementing agents, such as the Infrastructure Delivery Initiative Programme, on dealing with the issue of sanitation and this very same programme that is not performing. Not enough is being done. There is slow implementation of these programmes, money has been lost and there is a lack of service delivery. There needs to be a thorough investigation, a full review around Infrastructure Delivery Initiative programme, what has been delivered and what has happened to implementing agents that have not delivered but received money.

The Committee noted that the Commission talked about the Infrastructure Delivery Initiative programme as if it is the best service ever. There are many problems with the Infrastructure Delivery Initiative, especially the occurrence of irregular expenditure that was not mentioned. Reasons for this are demanded. The progress of meeting targets is very slow and the Infrastructure Delivery Initiative has not achieved their goals. It must be made clear why this is not mentioned, and the reasons be provided.

Members were concerned about the minimum norms and standards not being met, specifically the target of eradicating pit latrines, although it has declined it requires attention. The Department was asked what plans there are to assist and ensure schools progress without the adequate infrastructure available, such as laboratories. It was said the Committee needs to impose harsh review and penalties on non-compliant officials to meet the minimum norms and standards. This will break the ongoing annual cycle of delays to access to infrastructure.

Other Members were worried about unachieved infrastructure targets while budgets were spent, indicating deliberate disregard for the Committee regulations, while no action is taken against Basic Education officials.

Meeting report

The Chairperson opened the virtual meeting and welcomed everyone in attendance, Members and guest delegates.

She had some technical issues and Ms N Adoons (ANC) briefly took over the meeting.

The Chairperson then handed over to the Auditor-General of South Africa (AGSA) and Financial and Fiscal Commission (FFC) to do their presentations.

Briefing by the Auditor-General of South Africa (AGSA) on the audit outcomes of the education portfolio

Ms Kgabo Komape, Business Executive, AGSA, introduced the presentation on the Department of Basic Education (DBE) audit outcomes.

DBE Audit Outcomes

Mr Joshua Baganzi, AGSA Senior Audit Manager, said that analysis is best for a two-year period 2019/20 and 2020/21. He said that the overall audit outcomes of the portfolio have improved compared to the prior year. The DBE outcome improved from qualified to unqualified with findings. Umalusi has maintained its achievement of an unqualified with no findings audit outcome. The South African Council for Educators (SACE) has obtained an unqualified opinion with findings on compliance and predetermined objectives.

Quality of Submitted Financial Statements

Umalusi submitted financial statements that did not contain material misstatements. However, the DBE and SACE submitted financial statements that did contain material misstatements, affecting disclosure notes. Inadequate review by management resulted in this.

Quality of Performance Reporting

AGSA noted an improvement in the quality of the performance information submitted for audit in the portfolio. Umalusi maintained the quality of performance reporting from the prior year. The DBE had no findings in the usefulness and reliability of reported performance information. The SACE regressed in terms of outcomes for performance reporting, as material findings were discovered.

Compliance with legislation

There has been stagnation in the audit of compliance with legislation. The non-compliance areas for the DBE were: the quality of financial statements; procurement and contracts management; prevention of irregular, fruitless, and wasteful expenditure, and consequence management.

The irregular expenditure by the DBE increased to R3.204 million due to contravention of supply chain management (SCM) regulations. The fruitless and wasteful expenditure by DBE and Umalusi decreased from the previous year (from R84 million to R17 million). The R17 million relates to the DBE. This is due to an advance payment that was made to implementing agents for services that were not rendered.

There was a regression relating to consequence management. Processes are in place to investigate and follow up on irregular expenditure. In terms of the DBE, there was a lack of evidence that an investigation had been conducted against all officials who have caused the irregular expenditure. AGSA recommended that the DBE timeously investigate reported irregular expenditure and disciplinary actions must be taken against those who are responsible.

There was an overall improvement in supply main management compliance. The findings showed that the DBE did not follow competitive and fair procurement processes and declarations not being submitted by officials who do business with the state.

The implementation of expanded mandate in 2020/21 and the status of material irregularities in progress include:

-Learner material distributed to learners who did not qualify to be on the ‘Kha Ri Gude’ Programme, as controls to verify learners registered for the programme were ineffective.

-Interest paid on payments not made within 30 days;

-Prepayment for goods not delivered;

-Payments made not within 30 days resulting in the withdrawal of the contractor from site and the cancellation of the contractual agreement;

The AGSA recommends the following to the entities in the portfolio:

- Strengthening the processes relating to the preparation of the financial statements, including supporting schedules as well as underlying evidence to facilitate credible reporting;

-Strengthening daily and monthly controls as well regular reconciliations whilst ensuring in-depth reviews;

-Improving on the monitoring and controls relating to compliance with legislation;

- Proactively address irregular and fruitless and wasteful expenditure and instances of such possible expenditure for ensuring accountability;

-Overall, the Department will benefit greatly from the implementation of preventative controls throughout the value chain.

AGSA recommends to the Portfolio Committee:

- Progress on audit action plans must be put in place by the Department to further strengthen the controls around the management of the implementing agents.

- A follow-up must be done with the Department to ensure that remedial actions as well as consequence management processes are implemented.

- A follow-up must be done on the commitments made by the accounting officer towards addressing the material irregularities reported.

- Preventative and detective controls must be implemented.

The Chairperson thanked AGSA officials for providing information in the presentation on expenditure and infrastructure.

Briefing by the Financial and Fiscal Commission (FFC)

Mr Trevor Fowler, FFC Commissioner, apologised for the delay of the presentation. The FFC reflected on the implications that COVID-19 and the lockdown had on the education sector. The FFC discussed the expenditure patterns in infrastructure, expenditure patterns in respect of non-infrastructure conditional grants and equity in education budgets in schools.

School Infrastructure: Minimum Norms and Standards

Ms Sasha Peters, Research Specialist: Provincial Government Analysis, FFC, began the presentation on discussing infrastructure expenditure trends and expenditure patterns in respect of non-infrastructure conditional grants and equity in education budgets in schools. Legally-binding regulations on minimum standards and standards for school infrastructure were published. It set out was legal and acceptable when it comes to educational infrastructure. She reported that, in terms of access to basic infrastructure, such as water, sanitation, and electricity, the Commission has improved for 2018 and 2020. There was a slight improvement in 2019 (16%), where schools have more access to latrines, which has improved even more in 2020 (13.6%). The same can be said about electricity, as there was a decrease in schools that do not have electricity.

However, access is not indicative of quality or safe infrastructure, especially if legal implications are considered. The DBE must work harder to achieve their 2023 goals of access to sports, laboratory, and library facilities in schools. The lack of access to these facilities are greater in the Eastern Cape, KwaZulu-Natal, and Limpopo.

Analysis of Infrastructure Conditional Grant (ASIDI & EIG)

Ms Peters said that the DBE receives funding for the Accelerated School infrastructure Delivery Initiative (ASIDI) through the Schools Infrastructure Backlog Grant (SIBG), to eliminate backlogs in school infrastructure and to achieve goals of the minimum norms and standards policies. According to later plans to emerge with the Education Infrastructure Grant, this will make provision to deal with the backlogs that exist. A budget of R16.2 billion was estimated for 2011/12, where on average 76% (R14.6 billion) was spent through the ASIDI programme. Service delivery of infrastructure was slow and is indicative that its goals will not be met. COVID-19 pandemic and the lockdown impacted infrastructure spending, and this is evident in the statistics. Only certain people were allowed on site, and there were shortages of building materials for schools; this pulled down service delivery of infrastructure facilities. However, it was even less optimal before COVID-19.

SIBG is an indirect grant such as ASIDI that is spent by the National Department of Basic Education on behalf of provincial education departments. There is a perception that National Department is better for services delivery. She said that the analysis shows that this is not always the case, and that they do not automatically perform better. ASIDI projects create areas of weaknesses for the accountability chain, by employing numerous contractors to implement infrastructure. Poor joint planning, communication and sharing of information between these contractures, within these webs of contractors, blurs accountability and increases the risk of irregularity. Strong oversight is required.

For the Education Infrastructure Grant (EIG), a budget of R87.5 billion was allocated between 2011/12 and 2020/21; the grant has performed well, with an actual spending of 95.7% over this period. EIG was reduced, requiring provincial education departments (PEDs) to contribute from its revenue, to supplement the loss in budget and resources. The Eastern Cape allocated 0% from its Public Employment Services (PES), whereas Limpopo and North West allocated 0.2% for infrastructure to align with norms, standards, and related maintenance costs, due to PED budget reductions. The EIG allocation was almost entirely spent. The EIG was reduced by R2 billion for 2020/21.

A total of 1 882 schools have been vandalised in 2021, and school security should be improved. Furthermore, the delivery of provincial infrastructure projects is separated by planning, budgeting, and implementation. As a result, these projects cannot be managed properly. The FFC recommends attaching addendums to contract when contractors default on agreements, and when these contractors terminate the contract, their names are submitted to the relevant councils for consequence managements. Steps should be taken to address the deficiencies in the current infrastructure delivery.

Mr Eddie Rakabe, Research Specialist: National Government Analysis, FFC, tabled the second part of the presentation, which looked at expenditure patterns in respect of non-infrastructure conditional grants and equity in education.

Non-infrastructure Conditional Grants

It was submitted that the grant is doing well. The Learners with Profound Intellectual Disabilities Grant received more funding of the non-infrastructure conditional grants as compared to 2019/20. This indicates a significant improvement in spending on these learners. The Mathematics, Science and Technology Grant saw significant underspending, resulting in 80% of schools not having access to laboratory facilities (2019/20 statistics were used). There was dampened spending recorded for 2020/21 in the context of COVID-19 and the impact on the education sector.

Equity in Education

A quintile-based funding approach has been implemented by the National Norms and Standards for School Funding. The FFC found that provinces such as KwaZulu-Natal and Mpumalanga did not meet the threshold allocation per learner in all quintiles. The Northern Cape did not mee the national threshold allocation for quintiles one to three. They are struggling to fund learners.


Ms D Van Der Walt (DA) said she was worried about the detailed presentation, because of the impact of COVID-19 on budgets. It must be acknowledged that cuts in education must be a priority for the portfolio because the economic circumstances are worse. Schools are struggling. She indicated that the minimum norms and standards for school infrastructure are not being used for what it is intended. She said that circumstances have changed since last year. She asked the FFC if there are any ways on how to determine quintiles.

She asked the AGSA how consequence management has been done where there is not appropriate value for money. She wanted to know if AGSA has made any progress in building new schools and hostels. She suggested that, when it comes to municipalities building inspectors, payments should only be made when inspections are done as part of the progress. The DBE should establish an accurate figure of child-headed households, and collect information on children that attend school and those who do not. Accurate statistics are not always available. She expressed concern for the future budget of the Department.

Mr B Nodada (DA) asked what the consequences are for entities not disclosing irregular expenditure to the AGSA and what the AGSA thought the reasons were that it was not disclosed. He said it becomes challenging because it is not a true reflection of what was presented. There is a lack of consequence management on officials who have incurred irregular expenditure. He wanted to know what the amount of irregular expenditure was, and what positions these officials hold. He urged the Committee that there should be a full report by the DBE on what has happened to these officials and what is being done about consequence management. It takes years to make sure that money goes to the right places like schools. It is not right that entities and the public sector do things of such a nature and there are no consequences in place.

The findings indicated that there is generally a regression in consequence management when it comes to the DBE. Reasons should be provided, and a complete report should be submitted. Investigations still take place three to four years later. He cannot understand why it takes so long when the system is supposed to take care of it. No response has been received to the consequence management that was instituted four years ago.

As stated, not all irregular expenditures are disclosed; the amount can be beyond the R12 million stated. He urged the AGSA to provide a breakdown of who, when and what steps have been taken, if any.

There is a deviation of 302 sanitation facilities of the ASIDI programme that has not been completed. He wanted to know if a report has been made to AGSA of what has already been done and if the implementing agents have been blacklisted. He asked if they had noted any inflated costs of the projects that have been implemented by the ASIDI programme, by other implementing agents, if any. He noted that there was an indication of R17 million for fruitless and wasteful expenditure, which R1 million was from this year. He asked if this was a true reflection and if any money was recovered for this financial year.

He asked the FFC, if they have analysed whether the projects managed by implementing agents of the ASIDI programme have inflated. He asked if schools that were supposed to be build, sanitation and water facilities and electricity could have been brought for cheaper with better turnaround time. If so, what should the FFC do to better manage these projects to be cost-effective?

The Minister indicated that there are no schools with water problems. He asked how the data was collected and if a breakdown of the schools and provinces could be provided.

There have been misstatements in the audit outcome. Mr Nodada asked what the Department is doing about these audit outcomes. It has an impact on service delivery and what they have achieved as an entity. He wanted to know if any plans have been established to deal with these audit outcomes.

There is a massive problem with implementing agents, such as ASIDI programme, in dealing with the issue of sanitation, despite having so many deaths and pit toilets, and an ASIDI programme that is not performing. Not enough is being done. There is slow implementation of these programmes, money has been lost and lack of service delivery. There needs to be a thorough investigation, a full review around ASIDI programme, what has been delivered and what has happened to implementing agents that have not delivered but received money.

Dr S Thembekwayo (EFF) said that the slides for the presentation of both the AGSA and FFC were very poor, and that the presenters spoke about things that were not on the slides. It was difficult for the members to follow what was being said.

She said that there was a lack of sufficient appropriate evidence that disciplinary steps were taken against the officials who have incurred an irregular expenditure. She urged AGSA to communicate with the Portfolio Committee on what the recommendations would be on the issue of consequence management. There is inadequate review by management. There needs to be recommendations for the incomplete records that AGSA receives.

AGSA mentions that the Department has not implemented a programme that is similar to Kha Ri Gude. However, there are funds that are used on a yearly basis. The investigations are carried out by SAPS. The Committee should be kept informed of the outcome of the investigation and what disciplinary measures will be taken.

She noted that FFC talked about the ASIDI programme as if it is the best service ever. There are a lot of problems with ASIDI, especially the occurrence of irregular expenditure that was not mentioned. She demanded that reasons be given for this. The progress of meeting targets is very slow, and ASIDI has not achieved their goals. It must be made clear why this is not mentioned, and the reasons be provided. ASIDI should advise the DBE on what to do about the fact that DBE accounting treatment runs contrary to what must happen in the Department itself.

Mr W Letsie (ANC) welcomes the presentation. He congratulated the DBE on the qualified to unqualified findings and their improved financial statements and compliance with legislation. Umalusi is also congratulated on their clean findings. It is noted that R17 million is a lot of money for fruitless and it is wasteful expenditure. He hoped that the entities will improve on this.

As far as consequence management is concerned, Umalusi and SACE are done with their investigations. These entities need to inform the Portfolio Committee on consequence management. Investigations cannot take too long; March 2022 is too far. Investigations should be finalised and there should be a report that indicates what investigations have been finalised.

Mr E Siwela (ANC) said the hard work by the DBE is dented by things that can be avoided such as not submitting certain information on the first instance. He was concerned about the general lack of consequence management. Failure of the DBE to disclose has a direct effect on irregular expenditure, and no action is taken against DBE officials. He asked: under what circumstances should the Department be able to make advance payments to an implementing agent? He wanted to know what the consequences would be if the payment was made, and the implementing agents failed to meet its obligations. The AGSA has made several recommendations. He asked what happens when there is reluctance from the Department and its entities to fulfil these recommendations. Is it then possible for the AGSA to force the Department to follow the recommendations made?

Ms Adoons (ANC) also congratulated the Department and its entities. She agreed with the other members about consequence management. The Committee should take time to address issues raised mainly by AGSA (such as the consequence management). She said that the HIV/AIDS grant needs to be taken off by provinces in the budget and it must be looked at. The initiative of unemployment that was done to hire over 3 000 people should be looked into. She suggests that part of the grant can be offered to the Department to have young and unemployed people active in the economy of the country and to alleviate unemployment.

The issue of norms and standards and policies of education is not adequate enough to address challenges that are faced by the DBE. The Committee should compile more information on how they can help the Department. She noted that the Department is doing its best to provide teaching and learning, seeing that there are over 80% matriculant results already. She asked the Portfolio Committee to work together to ensure that children receive quality education in our country.

The Chairperson congratulated the Department and its entities for an improved audit outcome. She urged the AGSA to comply with the recommendation made by the Committee on employing an accounting team that can properly prepare financial statements. She said that the reduction in irregular expenditure has improved, but it needs to be reduced more. The DBE failed to address the issue of consequence management, seeing its failure to deal with the officials who do wrong. This is evident by AGSA’s presentation that declarations are not submitted by officials that were doing business with the State.

The amount of R78 million was recognised by the Department as a prepayment to which the Department did not receive an equivalent value of materials. This was in contravention of the national treasury. Currently, only R16 million was recovered. This investigation began in 2017 and is scheduled to end in March 2022. The Chairperson asked why this amount was made for a prepayment for something that actually never happened and why was the company still doing business with the Department.

On the issue of mediation, the Chairperson noted that a mediator was appointed. She asked why a mediator was appointed, who is paying the mediator, and why the legal services of the Department were not used. This created extra costs for the Department. Funds that were not disclosed by the Department show that the DBE does not have adequate controls in place. She suggested that the Department follows the recommendation by the AGSA to improve the monitoring of financial statements.

DBE Responses

Mr Patrick Khunou, Chief Financial Officer (CFO), DBE, realised that more work needs to be done but, at the same time, he appreciated the recommendations that were made by the AGSA. He emphasised that it was not the AGSA that suggested the DBE appoint an audit firm to assist with annual financial statements (AFS) but the Audit Committee. The DBE said that there is no need to appoint an audit firm, as they received their first qualification in 2019 and recently received their second qualification. The main issue is the accounting for infrastructure spending that has been improving since 2018. Problems existed because the DBE had to run around to receive information from implementing agents. Further, the DBE submits the financial statements to AGSA, which then submits to implementing agents they receive new information. If the financial statements were bad, then AGSA would not audit them. It is noted that this has improved. If financials are changed every year, it creates the assumption that people do not know what they are doing.

The Public Finance Management Act (PFMA) allows prepayments to be made. He said that prepayments are made to all implementing agents except for one. Prepayments are made to all government entities because the risks are lower. Certain expenditures are big and if prepayments are not made schools might not be built. Prepayments are prepayments that are made into an account. The implementing agents have to claim and provide invoices, and only then is the money moved to the expenditure account. In this case of the R78 million: it was not a government entity, but the PFMA allows such prepayments to be paid outside the law if a letter is provided. The service was for R78 million, but when the implementing agent claimed, they could only account for R62 million. The R16 million could not be accounted for, and AGSA therefore raised it as fruitless and wasteful expenditure. The implementing agent was contacted, and they acknowledged and agreed to the R62 million and to refund the R16 million. Both DBE and AGSA have doubts about the R62 million, and it is being investigated. Hence, it was not reported as an issue.

In the case of mediation, the mediation process was used for a different entity that had to build schools. The legal services of the Department were very much involved in the mediation process and attended meetings. The DBE is confident that there are improvements, and it appreciates the recommendations made.

On the issue of misstatements, the audit reports are monitored on a monthly basis and the processes of SACE and Umalusi and includes financial and non-financial. The reports are analysed and advise them. The AGSA did not show the 2020/21 figures on irregular expenditure, and the DBE has not seen this and could not respond to Mr Nodada on irregular expenditure not being disclosed.

The bulk of irregular expenditure amounts to R5.8 billion (included the extra amount of the last financial year) relates to implementing agents. The DBE has informed the implementing agents to indicate what consequence management has happened, but the process has been slow.

Mr David van der Westhuijzen, Head of Infrastructure, DBE, commented on the performance of ASIDI. He said that the real target of inappropriate schools was 510 is due to migration and dynamics of population. Many schools have closed in the Eastern Cape, and the 510 has been reduced to 341, where 275 have already been placed. The water supply in schools increased to 1 272, where 1 116 his already completed. Sanitation facilities in schools increased to 1 028, of which 915 have been completed. Most of the implementing agents have completed their projects. An amount of 373 schools did not have electricity, and now all have electricity. APP targets for this year is 21 inappropriate structure, where seven have been completed. Water supply target is 100, where 45 have been completed. The DBE was proud to say that they have made good progress. and these facilities will be completed within the financial year.

The sanitation target is 1 000 and only 377 have been completed. The reason why the same cannot be said in the area of sanitation was that COVID-19 and the lockdown severely affected small contractors, while those contractors appointed for school buildings were higher-grade contractors that could survive cash flow challenges. Small contractors struggled, especially since they had to retrench people.

The capacity of the Departments is more geared towards the management of programme than to the actual design and construction of projects. Initiatives like Doctor School (DS), which is an NGO, came up with a proposal that was innovative, where they were working with school governing bodies to get service providers from the community to help build schools for cheaper. The Department entered into a fixed price contract, where the price to build three schools was estimated at R72 million. DS built these three schools for R65 million. This was R7 million cheaper. From a commercial and empowerment point of view, this was successful. However, a lot of lessons were learned. Firstly, DS did not have capacity for a professional service provider and the Department had to convene a few times. Secondly, rework had to be done a number of times, which costs more money. Lastly, there was remedial work of R2.5 million. This case ended up in mediation, and that was the end of DS.

The Department are looking at similar modules to implement to find other opportunities to build schools.

On the issue of prepayment of bulk materials, there was an initiative at the end of 2016/17 financial year to investigate on how to speed up delivery for water and sanitation projects. It was suggested purchase the materials because it is always a restraining factor. It was agreed to buy water tanks and alternative building technology for sanitation and the value of that package was R78 million. He explained the process of how prepayment works, as was already explained by Mr Khunou. Last year, AGSA asked the Department to investigate the amount. Mvula Trust, the implementing agent, provided a report, which showed that only R62 million was used. The DBE issued a letter of demand for the R16 million, which was fully recovered on a monthly basis. AGSA still had doubt about the R62 million and delegated teams from both AGSA and DBE visited the sites where the schools were built and found discrepancies. These include Mvula Trust stating four water tanks when there were only two or three.

The Department then decided that the DBE will only order final accounts when it is shown that this is done per school and per project, and must then be signed by the professional service providers. If there are misstatements, there will be serious recourse by reporting them to the relevant councils and depending on the extent of misconduct to the National Treasury. In the past, several observations were made on irregular expenditures, where AGSA noticed that certain figures did not look right and had doubt about disclosures. Delegating teams had to go through procurement systems and processes and worked closely with National Treasury and found non-compliance over several years by implementing agents.

What the DBE had found was that they had an implementing agent like the Mvula Trust was not a state entity and followed its own procurement policies and regulations. Some of these policies were not aligned with Treasury Regulations. Mvula Trust had to follow state procurement policies if it was government money. If Mvula Trust did not do this it was consider non-compliant and declared all of that expenditure as irregular. It was not as if money was lost, the process was proved to be irregular. The documents did not provide the requirements for local content, and until that was resolved, it was declared irregular. The tender has to run for 21 days and at certain times it ended up not being 21 days, and it was then declared irregular.

There was also a recommendation from the Auditor-Committee on the tender for the process of procuring specialists on state procurement and accounting to assist it. It was focused on removing the irregularities.

Ms Emily Mmola, DBE, responded on the issue of irregular expenditure, where the question had been whether there was any consequence management for DBE officials in terms of investigations that the DBE had conducted. In terms of Kha Ri Gude, the AGSA reflected on the report, where the investigation began in 2016/17. In 2017/18 there was an internal investigation that AGSA did from internal audit in terms of investigating the issue of learners who were registered by volunteers. AGSA has raised last year on the distribution of materials that were distributed to those learners. The investigation was completed, and there was some recovery. She confirmed that the South African Police Services (SAPS) opened the case, but the investigator relocated, and a new investigator was appointed and had to go through all the files. Discrepancies were identified around Mpumalanga. Some of the materials were recovered but the investigation is still in progress and will be finalised March 2022. The DBE was making recoveries against the losses they had incurred. Some cases were still being investigated, such as the interest on the late payment of invoices. A report was drafted on this matter.

In the case of DS, as mentioned by Mr van der Westhuijzen, consequence management was done; a report containing the amounts, the officials involved and the progressive disciplinary processes that the Department had followed was written. At the time, reports were already referred to Labour Relations, who was still busy with progressive disciplinary. The bulk of irregular expenditure is being investigated. Also, in respect of the implementing agent, the Director-General would write to the chief executive officers (CEOs) of implementing agents to request that they provide reports on the consequence management.

AGSA Responses

Ms Komape responded to the issues raised about value for money. She said that the AGSA deals with the value of money from three aspects. Firstly, AGSA unpacks the supply chain management process thoroughly because competitiveness exists. This means that one particular service provider inflates the prices for the sake of competition. Secondly, the Office unpack contracts to determine if the amounts they are paying are justified given the environment in which the service provider is operating. Thirdly, the particular audit of the EEE, the performance audit which is not done on a yearly basis. Four to five years ago AGSA did the performance audit for the DBE where they were looking at the amounts paid to see if the amounts were sufficient, and if the process was effective. This is part of section 22 of the Public Audit Act.

Under normal circumstances, the AGSA integrate the fruitless and wasteful expenditure, the original of irregular expenditure and supply chain management, to try and deal with the risk of inflated prices. There needs to be reasons for irregular expenditure not being complete. The AGSA has, over the years, qualified DBE on irregular expenditure. Some are not included because it is not based on reliable data. In the preliminary response, the AGSA had to engage thoroughly. They were able to engage in different directives, and the implementing agent worked to try and show that it is not complete in the financial records. Through this process, DBE brought close to R3.2 billion. R2.7 billion is primarily the amount for non-compliance that occurred in the previous year, that has not been disclosed. In the current year, there is not necessarily that incomplete irregular expenditure from previous years. The Departments should have their own processes because the quantum values are huge in that period. A detailed breakdown of R412 million with the name of the affected individuals was provided. There is a lack of evidence on the DBE side to show that action has been taken against these officials who incur irregular expenditures.

In the current year, with respect to ASIDI in particular, there is no project that the AGSA can say that the prices were inflated. No additional fruitless and wasteful expenditure were picked up to show that it was incomplete. AGSA recommends that the entire PFMA is implemented, not just a section or part of it. DBE need to report on the monitoring on whether consequence management is taking place.

With respect to SACE, their financial division should make sure that all elements of the accounting frameworks are applied because dependency of the audit process to pick up irregularities is not sustainable. AGSA recommend daily and monthly reconciliations to make sure that the systems in place work. If any investigations are done, reports will be shared. The Treasury Regulation talks about prepayments and advances. It states that the Department will avoid such payments unless there is a contractual obligation. The contract by the contractor should specifically demand prepayments and advances. The DBE should make sure they get value for money.

The AGSA requested that the Committee assist them in making sure that the entities follow their recommendations. They note the comments made by Ms Adoons.

FFC Responses

Ms Peters addressed the issue of norms and standards. She said that spending below the threshold that is gazetted by the Minister is a long-standing issue in some of the provinces. The funding is used for textbooks, stationery, electricity costs, water, security services, rates, and taxes. These spending items are essential to ensure that learners have access to at least the minimum quality of basic education. The DBE has been speaking to provincial departments to see where funding can be made available. This should remain on the Committee’s radar. She acknowledged that there is much room for improvement in terms of growth and the adequacy of funding. No analysis was done on the implementing agents and cannot respond to inflated prices.

The issue of data on both financials and non-financials of ASIDI is based on the National Infrastructural Education Management Systems, which are available online. The FFC was willing to provide the three years of data they had available to the Committee. The delivery model underpinning school infrastructure, SIBG, is an indirect grant and creates a much longer and more complex supply chain management process, and this increases the risk of things going wrong. The FFC refers to accounting treatment that is done contrary to what happens in practice; it refers to those implementing agents who are not adequately held accountable for poor performance. It usually falls on the sector. She suggested that there should be options for AGSA and provincial legislatures that build public works, as well as other implementing agents, to be jointly responsible for spending on infrastructure projects.

She responded to Ms Adoons’ question about initiatives for the youth and unemployment. FFC responded that funding was made available for the presidential employment initiative, which focuses on youth employment. Funds are made available to various departments, including basic education. These funds can be used for short-term employment opportunities for the youth.

Ms Peters had technical difficulties, and Mr Fowler briefly took over.

Mr Fowler suggested that norms and standards should be addressed in much more debt by the DBE. The Committee should set some time apart and look at this. The FFC was willing to provide all the information requested by the Committee. The Department must hold the implementing agents accountable; the FFC cannot do anything about it. The AGSA can see the areas where the implementing agents are not held accountable. The Committee should follow up on these matters.

The Chairperson asked if there were any other follow-up questions, which there were none. She asked for a spreadsheet that lists the names of the schools that benefitted from ASIDI. The spreadsheet should include provinces, districts, addresses, and amounts. She acknowledged that this, however, would be difficult to provide.

She thanked everybody for attending the meeting, DBE, AGSA and FFC.

The meeting was adjourned.

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