ASIDI & Conditional Grants; Education Audit Outcomes: FFC & AGSA inputs

Meeting report

The Chairperson wished the Matric candidates well in their exam preparation. Gauteng had already deployed Education MEC Panyaza Lesufi as Gauteng Premier and the Portfolio Committee wished the new Premier well and the new Education MEC success as they execute their duties. She noted that Ms Adoons would chair the second part of the meeting.

Auditor-General of South Africa (AGSA)
Ms Kgabo Komape, AGSA Business Executive, introduced the audit outcomes of the 2021/22 financial year for DBE and its entities.

Mr John Baganzi, AGSA Senior Audit Manager, noted the continued clean audit for Umalusi while the DBE had attained an unqualified audit with findings. DBE still had findings on non-compliance with laws and regulations mainly in the supply chain management (SCM) which resulted in irregular expenditure. This was a significant concern that required intervention. SACE obtained an unqualified audit with findings due to inadequate performance reporting.

The financial health of DBE had been assessed as concerning mainly due to delays in paying accruals which took more than 30 days to be settled. The accrued sum attracted interest which resulted in DBE spending more unnecessarily. DBE took more than 30 days to collect accrued revenue due to an overpayment. DBE took too long to implement the investigation recommendations for irregular and fruitless and wasteful expenditure which was a challenge.

DBE incurred irregular expenditure of R1.5 billion in 2021/22, of which R0.6 billion was for prior years where contracts had been already disclosed as irregular. Although the amount had declined in the current year, it was still struggling to implement compliance with SCM prescripts. It did not award a bid to the highest scoring bidder as required by the Preferential Procurement Policy Framework Act (PPPFA). Bids were awarded to bidders who did not submit a declaration on local production and content in accordance with National Treasury instructions.

Consequence management was indicative of how DBE dealt with its R6 billion prior year irregular expenditure as only 15% had been condoned so far. The top contributors of the irregular expenditure were its implementing agents, the main being Mvula Trust. DBE was yet to implement some of the irregular expenditure investigation outcomes.

South African Council for Educators (SACE) was unable to reliably report on the achievement of its performance targets as the evidence provided differed from the reported achievement. The negative audit outcome for SACE impacted service delivery due to inadequate support and devolvement of educators that would have on the critical education areas. DBE achieved 82% of its targets, SACE 64 % while Umalusi achieved 100% of its targets.

AGSA had noted four material irregularities in previous audits. It had followed up on the actions taken by the Accounting Officer to address these to ensure they are resolved:
1. Material irregularity due to learner materials distributed to learners who did not qualify to be on the Khari Gude programme due to ineffective controls at the time. As a result, DBE incurred financial loss. An investigation was done and disciplinary action was instituted against the officials responsible for recovering part of the loss. The matter was referred to SAPS in 2017/18 for further investigation and recovery of the remaining financial loss. The investigation was still ongoing and was currently with the Hawks.
2. Prepayment for goods not delivered: Accounting Officer had followed up on this satisfactorily.
3. Interest paid on payments not made within 30 days. The Accounting Officer was in the process of addressing the irregularity and had indicated that he would finalise this by 31 October 2022.
4. Payment not made within 30 days resulting in the withdrawal of the contractor from the site and cancellation of the contract. An investigation committee concluded that an official had contravened Treasury Regulations and recommended consequence management be instituted. The accounting officer undertook to ensure that the investigation committee recommendations be implemented by 31 October 2022. The disciplinary process of the DBE officials had commenced.

AGSA recommended that all role players continue to work together to strengthen capacity and processes of DBE entities. It was urged to strengthen and improve monitoring and controls for compliance with legislation. DBE needed to closely monitor the supply chain processes. These recommendations had been shared with DBE and these would be incorporated in the audit action plan and DBE would continue holding implementing agents and department officials accountable in ensuring quality school infrastructure delivery.

The majority of the education sector received an unqualified audit outcome with findings. AGSA was unable to determine the audit outcome for the North West which did not submit its internal audit report. The main qualification area for the six provinces that had qualified audit outcomes was the infrastructure assets and accounts for immovable assets. The information in the financial statements was not fully supported by evidence. The financial health of Free State and KZN required intervention while that of Eastern Cape, Mpumalanga and Gauteng was of concern. This was because departments had exhausted money budgeted for expenditure therefore they were unable to meet most of their obligations in 2021/22.

Irregular expenditure was 100% as a result of non-compliance with SCM laws and regulations with the biggest contributors being Limpopo and Gauteng. The highest contributors to fruitless and wasteful expenditure were Free State, Eastern Cape and Mpumalanga.

Ten material irregularities were reported for the whole education sector, of which only one was resolved. The majority of these were related to non-compliance that resulted in financial loss.

In KZN, the floods caused damage to 356 schools whose repairs had not yet started. DBE reported 76 mobile units planned as interim relief, with 53 completed. AGSA selected 15 mobile classrooms costing R249 440 each and one mobile kitchen costing R187 130 (total R3,9 million) at five schools for auditing. AGSA observed a number of issues including a lack of coordination in DBE resulting in an inadequate needs assessment. AGSA recommended that infrastructure stability be addressed immediately, that all 76 planned units be inspected for compliance and quality, and that all remedial work be fast-tracked before payments are made.

The National School Nutrition Programme (NSNP), a value-added initiative, is funded by a conditional grant of R800 billion which had been spent. There was a failure by DBE to manage the NSNP in all provinces except Gauteng. The delivery and management of the NSNP were not done effectively. In other cases, AGSA found that the funds were repurposed for other things such as in the North West. The NSNP was supposed to benefit learners from poor socio-economic backgrounds but some learners are being served meals in an environment prone to contamination and food poisoning. The leading cause for the schools failure to discharge its responsibilities well was that DBE failed to offer proper guidance on programme management.

The Basic Education Employment Initiative (BEEI) was aimed at appointing 287 000 assistants for R6 billion over five months. The audit revealed that the recruitment and appointment process was not done correctly. They were instances of double dipping, particularly with the SRD grant across all provinces where people over the prescribed age got the jobs. There was also inadequate management and monitoring of assistants because daily attendance was not adequately recorded. Full use of the opportunity to improve the future employment of these youths was not made. The short-term nature and limited capacity of the Provincial Education Departments (PEDs) resulted in the initiative being implemented under constraints and competing priorities.

AGSA recommended that dedicated staff should be made available by PEDs and schools to efficiently and effectively implement short-term projects such as BEEI, including recruitment, appointment, management as well as monitoring and reporting. Intergovernmental processes should also be improved to ensure double dipping does not take place.

Ms Bilkish Khan, AGSA Senior Manager, reported on the Education Infrastructure Grant. The audit scope was 27 projects with three projects per province. Many provinces had audit findings on project implementation as well as project management. Only Western Cape had no issues in implementing the projects. DBE was struggling to provide quality education facilities in a successful and timely manner. The deficiencies included inadequate project planning, ineffective project implementation and management and lack of intergovernmental relationships.

Overall, the leadership of these auditees needed to ensure that monitoring of compliance adherence is improved and consequence management is intensified to address the root causes of transgressions. Leadership should strengthen in-year monitoring and corrective action to enable efficient spending of the budget and proper cash flow management to improve the financial health of most of the sector auditees.

Ms Kgabo said that there needed to be a change in infrastructure management. Irregular expenditure arose where DBE had to use implementing agents. The process used by implementing agents may not be the prescribed method. Preventative controls had to be tightened to ensure that as a PED they are not exposed to some officials not following the process required by Treasury Regulations and the Public Finance Management Act (PMFA).

AGSA had issued a guide to assist the auditees in the sector with what to look out for as they run the infrastructure projects. In future, it hoped to see DBE make it hard to lose fiscus money. The reliance on the audit process to pick up errors across the sector will still be there. She encouraged the finance units to really tighten the daily and monthly processes. The sector should make positive movements in the right direction. The School Nutrition Programme to AGSA is still a very valuable programme. DBE really needs to ensure that PEDs unblock some of the challenges so they can work the way it is intended to.

In the BEEI, it was sad that the targeted group was unable to benefit from the initiative. The sector needed to be more intentional in driving the BEEI objectives.

Discussion
Mr T Letsie (ANC) was concerned that there were provinces that still had high irregular expenditure. He recalled the amendment legislation that empowered AGSA to act because previously when it made audit findings against departments or entities, nothing changed. The legislation was supposed to strengthen Auditor-General SA so when it finds repeat offenders it is able to do something about this. If nothing changes, AGSA will continue to make recommendations that are not treated with the seriousness they deserve. He asked if AGSA experienced any issues during the audit with DBE or if its entities were uncooperative and if AGSA encounters challenges in trying to acquire information from DBE.

Mr B Nodada (DA) said that the presentation had confirmed much of what he had been raising for the last two years, particularly about implementing agents. The reality was that it had come strongly through the presentation how these agents impacted the service delivery component in education. It was worrying that there was irregular expenditure emanating from DBE placed at the doorstep of the implementing agents and AGSA continued to further raise findings such as the usefulness of some targets; and audit recommendations not being implemented. Mr Letsie was correct that 99% of the questions must be placed at the doorstep of DBE. The Committee's recommendations based on the audit findings become critical because it is an oversight body to ensure whatever the executive implements have significant impact on the lives of the people.

Of the school infrastructure projects, AGSA had done audits on, how many had exceeded the budget? Which targets in the service delivery mechanism were questionable? Where did the money come from which was spent by the implementing agents?

Ms N Adoons (ANC) agreed that most questions arising from the audit should be posed to DBE. She asked what challenges the PEDs were facing and what caused North West not to submit its internal audit report and its implications. What would be the AGSA recommendations about the BEEI before the new intake of teacher assistants in 2023?

On Covid-19, Ms Adoons asked what AGSA observed that needed to be done differently about infrastructure challenges. What remedial action would AGSA advise DBE to take on this?

What systems could be developed to ensure timeous responses to disasters – should an alternative procurement process and project management be considered? How did AGSA ascertain quality of expenditure?

Mr P Moroatshehla (ANC) asked which performance information did not comply. He asked the FFC how it ascertained the quality of expenditure. Which specific programmes did the FFC identify as equitably supported? Noting budget allocations and grants were on the decline, he asked how DBE could attract financial support outside the fiscus to support its policy objectives in the face of budget cuts.

The Chairperson asked what the acronym AOPO meant. The audit outcome of SACE was worrying. Is SACE taking prior audit recommendations seriously and implementing them? She asked if there were any expenditure issues in KZN, Limpopo and Western Cape.

On the KZN floods, the Chairperson asked if the 356 schools were damaged by the flood or through another cause. She asked why the mobile unit costing differed from that presented to the flood disaster committee. On the R15 billion irregular expenditure, she asked for the name of the company awarded the contract.

Ms M Sukers (ACDP) asked if anyone looked at grade inflation within DBE and the attendant increased costs. Were they assessing the output performance of DBE, particularly the impact of the investments made in the education sector? How much had been spent on infrastructure that is now not fully utilised or standing empty? She asked if the R249 million reported as irregularly spent in the ASIDI programme in 2019 had been recovered.

AGSA response
Ms Kgabo replied that the audit team received support from DBE while conducting the audit. The conversation between AGSA and DBE had progressed compared to where they came from. For the past three years, DBE and AGSA have agreed to disagree on the audit.

The issuance of material irregularities was a reality because of the Public Audit Amendment Act that commenced in 2019. It can never be enough for AGSA to do it alone. The audit outcomes are an after effect. It is stated clearly who is responsible as independent overseers. AOPO stands for Audit of Performance Outcomes. AGSA audits the framework of performance reporting and the responsibility is to ensure that everything reported is transparent and is supported by evidence. If one looks at how the entities define their targets and the indicators, they put it in the same manner. AGSA looks at what DBE is reporting and checks if DBE is verifying if it is supported. Before the Annual Performance Plan (APP) is presented, it would be important for the Committee to ask if what DBE plans to do is what they would like to see on the ground. What the audit did was to adduce the value added which was an additional activity AGSA did to ensure that it closes the loop on the impact.

Slide 35 of the presentation highlighted the provinces that had exceeded the budget for their project. AGSA would be happy to put in writing what those particular projects were per province.

Two provinces, KZN and Western Cape, had indicators where usefulness was not well defined. For the School Nutrition Programme, KZN's method of calculation to achieve its indicators was not well defined. The calculation of achievement in the APP slightly differed from the approved techniques. This was the same for the Western Cape in its calculation of percentage of the learners in grades 7 to 9, where the source information for measuring was not well defined.

On SACE and its performance reporting, SACE had not implemented its previous audit action plan. SACE needed to be conducting in-year monitoring in terms of performance.

On implementing agents and consequence management, Ms Khan replied that DBE relied heavily on the implementing agent for management therefore one would find that consequence management is not being implemented.

When the audit team visit sites, it consists of built environment specialists including civil engineers and quality surveyors who confirm what has been constructed on site. Most of the ASIDI schools had been utilised, there were however one or two schools that had not been utilised but that was mostly an issue of transfer between the national and provincial departments.

Mr Baganzi replied that what AGSA noted was not being done by implementing agents as the main cause of noncompliance is awarding tenders to bidders who did not score the highest points and their non-disclosure of local content as required by National Treasury.

On KZN costing differences, there was no difference between the cost analysis presented to the Committee and the flood disaster committee. Some of the schools could be damaged as a result of the flood while other schools may have been damaged prior to the floods or as a result of other causes. AGSA did not look at the entire scope of the categories of repair requests. The analysis of the maintenance was done on an ABC basis: A being minor repairs, B medium and C significant repairs which needed to be done over a period of time. Its report only looked at schools requiring minor repairs; it would look at other repairs as spending continues.

Ms Kgabo replied that AGSA recommendations for BEEI included DBE interlinking with other departments so that it can tap into data to avoid double dipping. They had engagements with DBE about the training. She had asked the sector to reflect and determine if BEEI aspirations still incorporate targeting the youth. DBE needed to look at how they were going to reach the youth in the second BEEI phase compared to what was done in the first phase. She asked DBE to look at what had necessitated the deviation from the targeted youth to the elderly.

AGSA had not reverted to how it conducted audits before the pandemic, but they were acknowledging that their teams were stretched thin. The work done in KZN flood damage was a special audit like what was done during the Covid-19 period. Special audits were done in areas that were not anticipated at the beginning of the year so as to see how best to support government.

DBE would have to recover R16 million in terms of the material irregularities identified but AGSA was not taking away from the fact that DBE was still doing investigations and reconciliation with some of these service providers.

She was more than happy to provide in writing the Committee the names of the service providers who caused the irregular expenditure.

DBE response
Mr Hubert Mweli, DBE Director-General, replied that DBE agreed with the AGSA findings. He requested that the AGSA presentation be looked at in the light of how far the education sector had come. Ms Kgabo was right that DBE interactions with AGSA started on a difficult note but that they had found a better way to engage over time. The Auditor General helped him as the accounting officer realise his obligations in section 38 of the PMFA. Value could only be added by working together with AGSA. DBE also had a very strong audit committee which held DBE vigorously accountable.

The Director-General replied that DBE would provide all information due in its Annual Report to the Committee. However, he asked the Committee to keep in mind how far DBE had come. He commended AGSA for doing an excellent job.

DBE would provide more information on the irregular expenditure, breaking it down to show what actually happened. Part of the consequence management was delayed because investigations had not been completed and they are unable to act until then. DBE will provide all the outstanding information to the Committee when it appears next time.

The Chairperson expressed concern about the SACE audit outcomes and insisted that something more needed to be done about SACE changing its audit outcomes. She asked Ms Adoons to take over as Acting Chairperson.

Finance and Fiscal Commission (FFC)
Dr Nombeko Mbava, FFC Chairperson, said that the FFC constitutional mandate was the provision of financial and fiscal advice across all three spheres of government. FFC provided proactive, expert and independent advice on promoting intergovernmental fiscal relations. All legislation pertaining to financial and fiscal matters can only be enacted after recommendation of the FFC. South Africa had dedicated a large portion of its allocated spending to basic education. However, in the last few years and more specifically since the onset of COVID-19, spending had been impacted by the need to reprioritize and cut spending across government. As a result, key basic education funding had been reduced subject to slower economic growth which was anticipated to continue. The spending efficiency and effectiveness of allocation are important as well as the need to identify the essential educational expenditure that needs to be prioritized.

Mr Sabelo Mtantato, FFC Senior Researcher, said that ASIDI was established in 2011 and the key funding tool was the Schools Infrastructure Backlog Grant (SIBG) allocations in the Division of Revenue Act. Among its goals was eradicating all inadequate, unsafe and poor physical infrastructure by properly using the allocated funds. The project was a temporary measure to address the infrastructure backlog but this backlog has continued to this current year. It was supposed to end in 2017/18. There were many agencies involved in the implementation of the grant. These delivery chains had to a certain degree, affected the performance of the grant.

Since its inception, R21.6 billion has been allocated and 75.2% of that money has been spent. The project performed poorly at the start because DBE was not spending as it was still planning on how to implement the project.

Another grant was the Education Infrastructure Grant introduced to enhance capacity to deliver in education. This was a conditional grant where provinces were expected to contribute to the grant from their Provincial Equity Share (PES). The key challenge was that some provinces lacked enough revenue sources while the grant required a province to allocate some funds from the PES of which a large percentage was spent on education personnel. Some of the grants are questionable as some provinces are unable to fund the grant. Allocation to the grant has since been reduced. The grant had uneven growth over the years on spending. Unlike ASIDI, this grant has a good spending habit of nearly 100% expenditure when allocated.

Ms Sasha Peters, FFC Programme Manager: National Appropriations, said there were four non-infrastructure conditional grants: National School Nutrition Programme; Math, Science and Technology (MST); HIV/AIDS Life Skills Education; Learners with Severe to Profound Intellectual Disability Grants. On aggregate over R9.4 billion was allocated for these grants in 2021/22. The largest one is the nutrition programme while the smallest was learners with profound intellectual disabilities allocated R262 million in 2021/22.

Looking at the growth rates of conditional grants, the fastest growing grant is the MST grant. The slowest growth in allocation was the Learners with Severe to Profound Intellectual Disability grant which grew by 2.6% as at 2021. Spending performance was aligned with the allocation, but the conditional grants for Learners with Severe to Profound Intellectual Disability and the MST grant showed relatively slow performance with only 88% expenditure. The performance of these grants needed to be viewed against the past two years as spending across all conditional grants was low due to the impact of the pandemic. Spending performance in 2020/21 had improved notably which is a welcome development but what was needed was a focus on perennial drivers that still give rise to underspending which, according to the DBE Annual Report, included delays by service providers to deliver on time and delays in supply chain processes. There was a need to continue strengthening and monitoring internal controls to improve spending performance.

The provinces that drive underspending included the Free State which showed no spending in 2021 and 2019 on the MST grant. Eastern Cape and Limpopo also had poor spending performance. DBE should see what technical assistance it can provide to provinces that cannot spend the conditional grants properly.

Ms Shafeeqa Davids, FFC Specialist: Division of Revenue - Local Government, said that the public education sector contributed a significant portion of the provincial fiscal framework which was an important source of funding. The PES formula is heavily data-dependent; any changes would affect the education sector share. The latest FFC 2023/24 Annual Submission looked at the components pertinent to basic education and noted that the allocation was significantly skewed towards employees. Therefore, there was a failure to consider the wage bargaining process in upcoming allocations to provinces. They had observed that to deal with cost pressure of compensation of employees, Goods and Services were compromised, ultimately leading to the quality of education dwindling as learning materials were affected.

Ms Davids said that South Africa had achieved equality through the no-fee school and open school choice policies however equity remains a challenge because education policies and the funding framework do not fully address barriers to education potential. Despite statutory provisions for funding under the South African Schools Act: National Norms and Standards for School Funding, poor schools continue to experience structural systemic challenges with some provinces unable to augment the National Norms and Standards for School Funding. This funding is pivotal to the DBE education plan to bring about a more equitable approach to school funding. National Norms and Standards for School Funding uses a quintile-based approach where Quintile 1 are the neediest schools and Quintile 5 are the most affluent schools. Learners are funded according to those quintiles. Quintile 1 to 3 allocates R1 536 per child while Quintile 4 allocates R770 and Quintile 5 allocates R266. Free State, North West and Limpopo are funding the quintiles in line with the national threshold. Other provinces fund certain quintiles higher than the national threshold while others lower than the national threshold. FFC was therefore recommending all provinces should strive to meet the minimum threshold set nationally.

In the FFC 2023/24 Submission, it recommended that DBE do a costed norms approach so that a costing exercise is done to understand what is needed going forward. 

Government also needed to protect the redistributive nature of the Basic Education funding system.

Discussion
Mr Letsie asked if ASIDI was the implementing agent in the infrastructure initiative in all schools.

Ms Peters clarified that ASIDI was not the implementing agent and that the grant is managed by the DBE.

Director-General Mweli commended the FFC for the report saying that he was thrilled to hear the FFC arguing for more financial resources for the provinces. He disagreed with Mr Mtantato that provinces did not allocate funds for education infrastructure because they are squeezed. Two provinces had tried to raise funds, Gauteng and Western Cape. The other provinces had never attempted to do that. He clarified that the infrastructure allocation from the provincial equitable share was moved to other provincial departments for capital investment. The money did not stay with DBE. Provincial heads decide to reallocate their transport and roads infrastructure fund. He invited them to check the records.

Mr Mweli asked what progress was being made to address poverty using a 3 to 5% poverty index in allocating equitable share to provinces such as the Eastern Cape, Limpopo and KZN as opposed to provinces like Western Cape and Gauteng. He asked if informal settlements were important in confirming the poverty index.

Ms Adoons said that she agreed with the FFC findings as they seemed familiar with the challenges facing schools. She requested that FFC respond to the questions raised by Mr Morostshela earlier about certainty about the quality of expenditure.

She asked if the department allocation to the grant was commensurate with the need of the target group. Was there any gender analysis of the education expenditure? What is the impact of the Maths, Science and Technology grant on job creation and community development?

FFC response
Dr Mbava replied that they had recently gone through the provinces looking at the women’s charter and the analysis on spending in key sectors in the provinces. They noted that there were imbalances in spending. They were willing to provide a detailed report on the issue.

Dr Chen-Wei Tseng, FFC Head of Research, replied that the ASIDI programme started almost a decade ago and was a huge infrastructure drive. ASIDI was an indirect grant which meant that it was in the hands of the national department which acts on behalf of the provinces. Once a project is completed, the infrastructure should be transferred to the provincial department to take over and maintain.

Ms Peters replied that prudent financial management finds it acceptable to have under or overspend within a 5% range. Therefore, DBE's performance, particularly on the non-infrastructure conditional grants, was performing well if one sticks to spending alone. However, what is key is if what is being purchased is in line with the objectives and the quality wanted.

Ms Peters said it would be important to consider what the Auditor-General has raised about performance. There is a need to strengthen internal controls and oversight to keep spending in line with the anticipated outcomes. The programmes that need support are acutely pro-poor learners in nature. FFC's recommendation for more funding is because its research showed that PEDs were being squeezed especially in light of escalating education costs.

Mr Mtantato replied that from the PES research project FFC had undertaken, they realised there were increasing personnel costs. He added that there had been positive economic development due to the infrastructure grants.

Dr Mbava reiterated the FFC recommendation that proper costing of the delivery of education services should be undertaken to process core drivers of education across the provinces to ensure there is adequate allocation. The FFC also believed that government needed to protect the redistributive nature of basic education funding systems in the face of funding cuts and constraints.

The Acting Chairperson thanked the FFC for the presentation.

DBE Audit Committee briefing
Dr Daniel van der Nest, Audit Committee Chairman, outlined the responsibility of the Audit Committee in overseeing the internal and external audit, the implementation of internal and external audit recommendations, risk management; quality of financial statements; and the internal control system for the generation, collation and reporting of performance information. He confirmed that the internal audit team conducted 14 audits as per the approved risk-based audit coverage plan. The audit teams also reviewed the Annual Report and Annual Financial Statement, and areas of improvement were communicated prior to submission to AGSA for audit. They also presented the quarterly progress reports against the approved plan at the Audit Committee meetings.

Dr van der Nest said that the purpose of conducting the internal audit was to monitor the performance information, enhance effective coordination of verification, reviewing and monitoring, reviewing and follow up audits on ASIDI reviewing and monitoring the improvement on non-compliance regarding Supply Chain Management for Implementing Agents.

Regarding irregular, fruitless and wasteful expenditure, a departmental investigation Committee was established to investigate, and the investigation unit was under Internal Audit. Previous cases of irregular expenditure were investigated in 2021/22. 98% of R 3.2 billion investigation was completed by the previous financial year.

Some of the challenges they noted were that ASIDI and Finance needed to strengthen quality assurance and accountability of work done by Implementing Agents. Further, the Supply Chain management also needed to be strengthened.

He reassured the Portfolio Committee that the Audit Committee would continue to address all matters within its mandate and responsibility. He also said that they would pay attention to the high risk and high impact issues and monitor implementation of consequence management to assist in moving towards a clean audit.

Discussion
Mr Moroatshehla asked how independent the internal audit is as far is the DBE is concerned.

The Chairperson asked what the R3.2 billion irregular expenditure was for and who the beneficiaries were. She asked for the DBE internal auditors' view on SACE and the manner in which its finances are managed.

Mr Letsie expressed doubt at the confidence in the audit action plans to correct some of the findings the Auditor General is raising. The Audit Committee Chairperson mentioned a meeting held mid-year in September 2021. He asked if Quarters 3 and 4 of the previous financial year had seen any improvement and if so, what the improvement was. A meeting held mid-financial year communicated that a problem needed to be addressed.

Mr Letsie asked for the staff complement of the DBE internal audit team. How many people are they supposed to have? What is the age cohort of the internal audit and how many possess auditor qualifications and is there staff training? He was asking these questions because leadership failed to lead their units strategically. For him, the problem was clearly leadership based. He asked about adopting internal audit best practice. How did the lessons learned assist DBE in strategising and planning for unique activities and how does the audit team report concerns to DBE? He asked how the annual audit report informed internal methodology and how independent the internal audit team was and to which office the head of internal audit reported.

The Acting Chairperson asked if the Audit Committee dealt with Umalusi and SACE or if they had their own audit committees. She asked if the Audit Committee serves as the risk committee or if there is a separate risk committee. Does the Audit Committee support provinces or do they have their own audit committees?

DBE Audit Committee response
Prof Daniel van der Nest, Chairperson, DBE Audit Committee, explained that the internal audit team has independent standards that it must adhere to but the Audit Committee also monitors the independence of the internal audit team. The internal audit teams report to the Director-General for administrative purposes but for functional auditing, it reports to the Audit Committee which approves the plans for the year, their progress and assessment or control. The Audit Committee ensures the independence of the internal audit team. He was confident that there had been no interference with the work of the internal audit team to date. He has an open-door policy with the Head of the Internal Audit team, with whom he communicates frequently.

Prof van der Nest replied that the details of the R3.2 billion irregular expenditure investigation needed a full report which they were willing to provide to the Committee.

Ms Devoshum Moodley-Veera, Head of the Internal Audit team, agreed that the R3.2 billion expenditure would indeed require a full report that would include all transactions by DBE and its entities as well as the implementing agents. The R3.2 billion was disclosed last year as part of dealing with the qualified audit for irregular expenditure.

Dr Van der Nest noted that the Audit Committee was for DBE alone and it is not shared with the other entities or provincial departments. It had noted the SACE audit report with concern but SACE is not within the jurisdiction of the DBE Audit Committee.

Currently, the Audit Committee receives the management letter from the Auditor General in July and work begins to develop a strategy and audit action plan to clear the audit findings. The September 2021 meeting was aimed at further improving synchronisation within DBE. There was an improvement in the audit outcome from the workshops. He reassured Mr Letsie that these workshops do not take away from daily management activities or risk management and continue to pay attention to activities in the audit action plan. The head of the internal audit team would forward the details of the gender, race, qualification, and composition of the team.

Ms Moodley replied about the staff complement and structure of the internal audit team which consisted of the staff director and director of internal audit. There was one deputy director for internal audit and two assisting directors. Currently, there is a vacancy in level six and seven for which they are still engaging with HR to get those positions filled. There were two interns.

She agreed that the structure of the DBE internal audit might be an issue as they have sub directorate for risk management. The DG and HR are still working on the structure to split the team into areas of focus such as internal audit and risk management. The risk management sub-directorate had two risk management directors and an assistant director. In the investigation unit there was one deputy director. She had requested additional capacity from the DG as there were a number of investigations that needed to be done. In the interim, they had two employees on contract. They had also appointed two additional staff on contract to assist with the ASIDI investigation for fruitless and wasteful expenditure.

Dr van der Nest said that the internal audit monitored by the Audit Committee needed to comply with international standards and monitor compliance with those standards. Every five years, an external quality review was done of the internal audit. There was a risk committee in DBE and for continuity and control, the chair of the risk committee was one of the independent members of the Audit Committee. It is a separate committee which reports to the Audit Committee on its oversight role over risk management.

The Acting Chairperson thanked the Audit Committee for the presentation and the responses.

Committee Report on DBE 2022/23 First Quarter Performance
The Acting Chairperson gave a recap of the report and invited Members to make comments. Thereafter the Committee adopted the Report.

The Committee also adopted the minutes of 27 September 2022,

The Acting Chairperson thanked Members for their attendance.

Meeting adjourned.