Material Irregularity (MI) audit insights: AGSA briefing

Meeting report

Briefing by Auditor-General of South Africa (AGSA)

Ms Jolene Pillay, Senior Manager, and Mr Tendani Mafunyiswa, Senior Manager of Regulatory Audit, gave the presentation.

The enforcement process undertaken when the AGSA raises material findings is very important. The recommendations and appropriate consequence management are vital for ensuring parties are held accountable.

The AGSA identified three material irregularities for the Department of Water and Sanitation. Overall, the AGSA is satisfied that the accounting officer is dealing with them appropriately.

The following material irregularities have been identified:
A payment made to a consulting firm without evidence of work performed. The financial loss to the entity amounted to R17.9 million. This was identified in 2019. As of February 2023, there were some officials identified as being responsible. One of the officials has since been transferred to another government department and said the Department had been tasked with the disciplinary process which is reported as ongoing. The disciplinary process is still in progress. A criminal case was opened on 17 July 2018 with South African Police Services and is still in progress. The Accounting Officer filed a combined summons with the High Court on 22 November 2018 to declare the contract invalid and recover the amount paid. The court case was still in progress at the date of the audit report. As a result, the following material irregularity has not been resolved.

Payment not made within 30 days resulting in additional interest. The financial loss to the entity amounted to R2.2 million. This is a material irregularity from 2019. The Accounting Officer, on 4 July 2022, instructed the state attorney to issue a summons for the recovery of R2 264 737 from the former officials. The entity received a response from the state attorney on 26 July 2022, indicating that the state attorney is appointing an Advocate to assist in the matter. On 19 October 2022, the state attorney responded to the entity after having assessed submissions by the requesting SSA to issue the summons. The state attorney indicated that the matter had been prescribed in line with section (11)(d) of the prescription act of ordinary debt which prescribes within three years period. However, the State Attorney indicated that they could argue that the pandemic and declaration of national disaster interrupted the running of the prescription. The matter is undergoing legal processes with the state attorney. The Accounting Officer is to keep following up on the matter with the State Attorney.

Site re-establishment and standing time fees. The financial loss to the entity amounted to R39 million. The Accounting Officer committed to implementing disciplinary action against the implicated officials by 30 April 2023. The dedicated financial manager on the project was appointed and monitored spending on the project.
The Committee is requested to monitor the progress and actions taken by the entities. As a result, the AGSA recommends that the Portfolio Committee does the following:
To request regular and detailed feedback on the progress, so that the PC can monitor whether entities are on track in achieving desired outcomes / recover potential/actual financial losses to address the identified material irregularities.
To request the entities to provide timely, specific, and regular progress reports on implementing effective consequence management processes.
Ensure that the entities are also reporting to the Committee on the rectification/ improvement of internal controls that resulted in the weaknesses which informed the material irregularities.
Request the Accounting Officer to assure the implementation of comprehensive risk management and mitigation processes and preventative controls.
(More details can be found in the presentation).

Discussion  

Ms S Mokgotho (EFF) asked about the material irregularity of payment made to a consulting firm without evidence of work performed. How is this possible under the watch of the Department of Water and Sanitation? Was the Department asked about how this came about? Did the AGSA recommend binding remedial action to take place towards the Department, as it occurred under its watch? The Department has a duty to ensure timeous and regular oversight, to ensure occurrences of such a nature do not take place.

What has the AGSA recommended for the Accounting Officer of the Water Trading Board that is responsible for delaying effective consequence management? A disciplinary process has not been finalised since 2018 and involves a material irregularity of about R17.9 million. Has an inquiry been made to the Department regarding the delay in finalisation? Is this a normal occurrence?

It seems such instances occur. AGSA issues recommendations of the same nature yearly, and the Department promises to heed the recommendations of AGSA and improve actions. Yet the same issues persist. What binding remedial action is AGSA taking towards the Accounting Officer? It is concerning that someone can go and work in another Department whilst they have an ongoing disciplinary hearing.

Mr M Tseki (ANC) said the AGSA report is based on the 2021/22 financial year. The presentation states that the findings will not affect or impact the audit conclusion for the year in review (2022-23). The Committee is not yet reviewing the 2022-23 financial year. What is the source of AGSA's statement? How are the legacy audit findings mentioned by AGSA related in terms of the status of audit findings? What are the AGSA recommendations on the legacy audit findings? While AGSA identifies issues, there is no mention of how the matter should be resolved.

Ms G Tseke (ANC) raised concerns about the continuous reports of irregular expenditure. While blame can be placed on the Department for failure to finalise effective consequence management, there are occurrences outside the Department. The example of an official who changed employers amid a disciplinary process was used to highlight the fact.

Ms M Mohlala (EFF) asked about the official who committed acts of irregular expenditure and has since moved to another Department. The practice of an official moving is viewed as a practice that breaches accountability and undermines the credibility of the government system. Are there any regulations and guidelines to prevent such occurrences?

What is the AGSA’s collaboration with the Department of Monitoring and Evaluation in guiding problem areas picked up during audits? How can the Department of Monitoring and Evaluation strengthen its oversight on drafting annual performance plans? How effective has the AGSA found the Department in implementing the AGSA’s recommendations in financial regularities?

Ms N Sihlwayi (ANC) asked that when an official has an act of non-compliance which hinders service delivery, can the Department use the AGSA’s recommendations as a corrective measure? Is the Department responding positively to such recommendations? On internal controls, does the AGSA believe the findings to be a result of weak internal controls? Moreover, does the Department respond positively when the AGSA identifies an occurrence that hinders consequence management and issues recommendations?

Mr G Hendricks (Al Jama-ah) raised challenges faced by the Special Investigations Unit (SIU), wherein the Departments only pay after a report is concluded. This hinders the SIU's ability to carry out tasks effectively and efficiently. As it stands, they are in arrears of R2 billion to run their unit.

Whilst the Portfolio Committee has made great achievements in the past four years, during the term of office, there has been a failure to do proper oversights and the corruption has not been combatted. There are over 3,000 employees who have pending disciplinary processes. How can AGSA put measures in place that will enforce their recommendations and ensure the work of the Portfolio Committee is not merely seen as lame ducks?

The Chairperson highlighted that while legacy issues may have occurred before the Committee's tenure, officials must be held accountable for their actions irrespective of the time that has lapsed. The processes are indeed taking a long time to resolve, however, it is important to hold others to account.

He further highlighted the importance of ensuring those officials with adverse findings are blacklisted to ensure they are not employed to exercise duty in another entity whilst there is a pending disciplinary action.

AGSA Response
Mr Andries Sekgetho, Business Executive, spoke on the success of recommendations made by the AGSA. While there is work that requires improvement in the internal controls of the Department, there has been improvement since the appointment of the Director-General and the Chief Financial Officer.

The issue of disciplinary hearings taking a long time to resolve is two-fold. Firstly, the disciplinary process is higher compared to other government Departments due to instances of irregular expenditure. Secondly, there is an action bestowed on the Accounting Officer by the Public Finance Management Act. It says that if a Department or portfolio is not successful in preventing wasteful expenditure, the Accounting Officer is to institute a proper investigation to determine the root cause, how the matter can be improved and assess the internal controls.

The material irregularities that have been identified need to follow the prescribed process. This involves engaging other stakeholders and the AGSA has to ensure it follows appropriate action as it is a legal process that requires the maintenance of a just and fair process. All of these require time and contribute to material irregularities taking a long time to resolve, hence the spillovers of legacy issues of material irregularities.

On the status of internal controls, and entities applying the recommendations of the AGSA, there is positive progress on internal controls in the Department, TCTA, and Water Trading Entity. There is however more room for improvement.

The Office of AGSA does have a platform where it meets with the Department of Monitoring and Evaluation to review the planning and monitoring processes of the departments and its institutions. These processes of proactive reviews were a result of these engagements and suggestions.
 
He further reminded the Committee of the importance of the quarterly progress reports made by Departments to Portfolio Committees. These are essential in assisting the Committees and Departments to ensure the targets will be achieved.

On the discomfort expressed over the time it takes to resolve disciplinary actions, the AGSA shares the same sentiments. As a result, there are regular follow-up meetings with the Special Investigations Unit.

Unfortunately, labour relations hold that the policies of an organisation only apply to an employee when an employee is a member of the institution. That is why some officials get away with switching to different government Departments when they face disciplinary action. These are some of the legal challenges. There is some scope to consider a central database for delinquent service providers and those who fail to commit to their obligations. The Department of Public Service Administration could resolve the blacklisting of employees.

Ms Pillay further explained that three actions had been undertaken on the payment to a consulting firm for work not performed. The matter has been reported to the South African Police Service. The court action towards the service provider is based on the intention of recovering funds paid for services not rendered.

At the time, the notification was given to the Accounting Officer, and evaluations were made to assess the internal controls and actions of the Accounting Officer to prevent such occurrences. The court and police proceedings are outside the control of the AGSA. The AGSA will continue monitoring the outcomes and report accordingly.

Mr Mafunyiswa said that undertaking disciplinary action for officials implicated in ongoing projects may potentially stall or impact the completion of the project. This is why disciplinary action for officials relating to ongoing projects is only done after the project. This often results in disciplinary action taking place after long periods.

Follow-up questions from the Committee

Ms Mokgotho asked what the AGSA can recommend to ensure that the Department of Water and Sanitation does not delay employing continuous and timeous oversight.

AGSA Response

Ms Sekgetho recommended that officials in the Department go to the sites where work and infrastructure are said to be undertaken, verify that this is so, and strengthen internal controls. Physical certification also needs to be done for projects.  

The Chairperson thanked the AGSA for the briefing.

The Committee considered and adopted its minutes of 24 and 28 February and 7 March 2023.

The meeting was adjourned.