Hearings on unauthorised expenditure: DCoG, DPSA, DWS & DCDT; with Ministers and Deputy Ministers

Meeting report

The Chairperson welcomed all the Ministers and Deputy Ministers present in the meeting, together with their supporting delegates. He said the Committee would be considering unauthorised expenditure from the various departments, in the presence of National Treasury (NT).

National Treasury had previously briefed the Committee on 22 June on the scope of the unauthorised expenditure of the various departments, and the Committee was aware of the merit/s of each of the unauthorised expenditures. The NT had also made recommendations on the matter, but the recommendations were not binding. The Committee would make a determination in the following two weeks after it has heard all the reports. The departments have an opportunity to convince the Committee Members of the outcome of the unauthorised expenditure.

The Chairperson commended NT for the hard work done up until now, and added that unauthorised expenditure would never sit in the books for this long ever again.

Department of Public Service and Administration

Minister's opening remarks

Minister Noxolo Kiviet thanked the Committee for the opportunity to convince and plead for the unauthorised expenditure, after a ten-year lapse. This was an old debt incurred through over-expenditure by the Ministry. The Department of Public Service and Administration (DPSA) had appeared before the Standing Committee on Public Accounts (SCOPA) on the matter and some recommendations had been made, but they were never followed through. She was aware of the letter from the NT addressed to SCOPA.

Considering the Department's current financial situation, Minister Kiviet said that the Department would like to appeal to the Committee to approve that the money should be taken from the Revenue Fund. The Department was not in a position to take it from the already restricted budget. She said that even if, at the time, it were to be offset against the budget of the Department, the debt would have been able to be absolved, but currently, that was not possible.

She handed over to the Director-General (DG) to provide further details on the matter.

DPSA report

Ms Yoliswa Makhasi. DG, DPSA, said that correspondence from National Treasury had been distributed to the Committee Members. The last time the Department appeared before the Committee was on 7 September 2016 regarding the same matter. There had been no feedback or any response on the matter and the outcomes thereof. The chief financial officer would provide further details on the matter.

Mr Masilo Makhura, Chief Financial Officer (CFO), DPSA, said that the unauthorised expenditure that took place in 2013 was due to overspending in programme one, which emanated from the Ministry’s budget. The overspending was a result of the appointment of members of the Advisory Board, which had not been budgeted for at the time. The approach was that it would have been funded from the savings or underspending on the compensation of employees. There had been no indication of how many members of the Advisory Board were going to be appointed, as the gazette had indicated five, but the Department ended up with nine appointments. The overspending resulted from the goods and services in terms of travelling under programme one.

During the year the Department had done a few virements as a way of managing the expenditure. However, at the end of the financial year, it could not do any further virements due to the 8% limitation in terms of the Public Finance Management Act (PFMA). The underspending of the entire vote had been R20 628 000, and there were hopes that this amount could cover the overspending in programme one. The Department had written a letter to the National Treasury requesting to exceed the 8%, but the request was not approved, hence the books were closed with a R8.8 million shortfall.

See documents attached

Discussion

The Chairperson asked the CFO to address the issue of consequence management and provide clarity on how this had been addressed. He was aware of the requests and the letters written to National Treasury, but the CFO should speak about what had been done by the Department at the time to ensure consequence management. There needed to be a rational justification for the requests made by the Department.

Mr Makhura indicated that no consequence management had taken place, and no investigations had been undertaken into the unauthorised expenditure.

Mr S Somyo (ANC) said there must be a cause for acting out of the prescribed guidelines. He said that the Government gazette of that particular time which had authorised the appointment, was way out of the prescriptions, and therefore, this indicated that the responsibility of the accounting officer (AO) had somehow lapsed. He asked whether any controls had been set up which sought to prevent such an occurrence in the future, and for the Department to explicitly outline these controls. Understandably, the unauthorised expenditure had occurred before the tenure of the current team, but as the current authority, the Committee would like to be enlightened on the mechanisms put in place going forward.

Mr B Hadebe (ANC) likened the situation faced by the Department to the analogy of the prodigal son. The Committee expected that the DPSA would provide a characterisation of the unauthorised expenditure. NT had indicated that the unauthorised expenditure incurred by the Department had been avoidable, but the Department had failed to mention this in their plea. The DPSA had justified its actions, and the unauthorised expenditure was not characterised as something that should not have happened to begin with, and that advice had been given and was not adhered to. Although the expenditure was incurred before the current team's time, the Department should still take accountability and inform the Committee of the steps being taken moving forward to ensure that there was consequence management and controls to avoid a recurrence in the future.

Mr A Lees (DA) echoed the sentiments of the other Committee Members. He asked the Department for the name of the Director-General at the time of the occurrence, where the former DG was currently, and why there was no action being taken against the former DG. He also questioned why a Minister would require 25 advisors, when the law already allowed 16.

The Chairperson stated that it was problematic that there had been no consequence management and no investigations done. Unlike the prodigal son, whether the DPSA would be welcomed back with open arms was questionable.

DPSA's response

Ms Makhasi said the Department had implemented some interventions, and programme managers had been appointed with the responsibility for the budgets. In the Ministry, there was a programme manager with a responsibility for the Ministry's budget, and the DPSA also tracks its standing. Budget committees meet every quarter, and the different programme managers report back and assist with tracking the budget. The Department had also made provisions for the Advisory Committee in the regulations.

She stressed that it was important to note that the Advisory Committee had been remunerated outside of the rates that were defined by National Treasury and the DPSA for payment in the public service. The Department had also ensured that people appointed to the Advisory Committee were appointed for a shorter period and with specific responsibilities, and that payment should also be within the confines of the consulting fees defined.

The Chairperson reiterated that the DG should respond to the reasons behind these decisions, and what had been done about the payments made outside of the defined rates. The Committee was familiar with the crime, but now it needed the details and if no investigations were done, the DG would not be able to answer the questions.

The DG said that, indeed, she was not able to respond, as no investigations had been done, adding that she was not with the Department at the time. However, documents indicated that the Department had given advice on the decision to appoint, but the Ministry did not take the advice. The DG at the time had been Mr Mashwahle Diphofa, who was now the DG for the Department of Traditional Affairs, and he had previously indicated some of the troubles he had encountered during his tenure.

Mr Hadebe asked the DG to provide clarity on the advice and the response that had been given.

Mr Makhura (CFO) responded that the finance department had indicated at the time of the appointments that there was no budget available for the nine appointments, but the advice was not adhered to.

Mr Lees asked who exactly had made the decisions.

The Chairperson asked how long the CFO had been in his current position, and Mr Makhura replied that he had been the CFO since 2011.

Mr Makhura said the DPSA accepted that it had been wrong to make appointments outside of the confines of the PFMA requirements, but his advice was not adhered to.

The Chairperson said he would like to avoid an ad hoc investigation and continue going around in circles about the matter. It would not be correct to have the DG of the Department of Cooperative Governance (DCoG), who was the former DG of DPSA, respond to the matter in the current meeting. He suggested that the DPSA should be given 30 days to investigate and return with a portfolio of evidence regarding the material circumstances of what took place during the appointments, and where the advice was not taken. This would provide the DPSA enough time to consult with the former DG, because he was still in the state's employ. The DPSA needed to provide this information in writing before the Committee concluded the final report.

Although the DPSA had requested that the money be taken from the Revenue Fund, there had not been a sense of accountability to conclude the matter. Consequences were important. The same issues had been brought up in the 2016 report.

Mr Hadebe asked for clarity on whether the advice had indicated that the appointments were not budgeted for, and therefore the appointments should not be made. If the advice was only that it was not budgeted for, the solution would be to go and look for money, and the Ministry could not be accused of not taking the advice. What had been the nature of the advice?

The CFO responded that the culture in the DPSA was that once it felt that there was no budget, the Accounting Officer was advised that the Department would take steps to find the money elsewhere. However, when the Department said there was no budget, it meant that the process should not continue.

Minister's concluding remarks

Minister Kiviet said that the issue would not recur because the current arrangements stipulate that any deviation from the Executive Authority outside of what had been prescribed must go through the Ministry. Currently, the DPSA indicates to Departments that there should be checks and balances for the requested budgets, and if there are deviations, justifiable reasons should be provided.

She added that no amount of regulations would substitute for the political will to do the right thing. She concluded that it was indeed problematic to have a matter hanging in the books for ten years, and every effort should be made to ensure that it was resolved.

Mr Somyo said that the accounting officer had the power to control any expense. There were times when Ministers would force the accounting officers to make decisions outside the prescribed regulations. The law needed to be observed in these cases.

The deadline given by the Chairperson for the DPSA report was 20 October. The Committee would indicate if there was a need for a meeting after receiving the report.

Department of Communications and Digital Technologies (DCDT)

Deputy Minister's opening remarks

Mr Philly Mapulane, Deputy Minister of Communications and Digital Technologies, conveyed Minister Mondli Gungubele’s apology, as he was currently in New York attending the Broadband Commission meeting, accompanied by the Department's DG, Ms Nonkqubela Jordan-Dyani.

He said the Department would be addressing the unauthorised expenditure that had occurred during the 2013/14 financial year. The total amount involved had been R4.741 million, which had resulted from a fluctuation in the exchange rates. The DCDT belonged to several international bodies, and the expenditure was a result of an overpayment. There was a budget of R10.8 million for a body called the International Telecommunication Union (ITU), and initially, R14.2 million had been paid, which exceeded what had been budgeted for. The Department also had affiliations with the Universal Postal Union, for which there was an overpayment of R4.7 million, when the budgeted amount was R3.6 million. There was also an overpayment to the Organisation for Economic Cooperation and Development (OECD) amounting to R416 000, instead of R109 000.

The Department had requested condonation from National Treasury, but it was not approved and it remained an unauthorised expenditure of R4.7 million. No investigations had been initiated and no consequence management actions taken, as it was clear that no individual was responsible -- it was solely based on the exchange rate.

DCDT's report

Mr Frik Nieman, Acting CFO, DCDT, said that during the 2013/14 financial year, the Department had a total budget of R2.3 billion, and the total expenditure at the end of the financial year had been R2.3 billion. There had been an overall saving of R9.3 million, which was the amount rendered to the National Treasury at the end of the financial year. Programme One had had a saving of R1.6 million, while the over-expenditure recorded under Programme Two was R4.7 million. Programme four had a saving of R12.2 million, and around R12 million had been allocated to international organisations and broadcasters. Programme four was the only programme which could assist the other programmes with the overall expenditure.

He said the DCDT had submitted a request to National Treasury to transfer funds from Programme Four to be utilised in Programme Two. The request had been rejected.

(See presentation document for details).

The Deputy Minister asked the Committee to condone the unauthorised expenditure.

Discussion

Mr Somyo said that the call from the DCDT was straightforward. However, he added that if the Department was involved in international space, it should know what would impact the expenditure of the entity. There should be someone responsible for these instruments, because CFOs were employed for such instances and needed to be able to have an outlook regarding international markets. The information provided in the Statistics South Africa reports indicates the economic growth projections of the international markets, and therefore, the Department should be following them. He said that the DCDT had been sleeping on the job.

Deputy Minister Mapulane responded that efforts had been made to find out what was happening in this particular financial year, because there seemed to have been a volatile exchange rate. The figures were significantly outside what had originally been budgeted for, and the DCDT could not find the circumstances that had led to this volatility. It was the only year where the Department had been outside of the budget. Perhaps the Department could go back and check the reasons, but as it stood, he maintained that no one could be blamed for the matter.

He said that he understood the concerns raised by Mr Somyo.

Mr Nieman agreed that, indeed, CFOs played a significant role in budgeting, but plans for budgets were made three years in advance, and that was how allocations occurred. It was difficult to predict if any changes would happen in three years. National Treasury issued guidelines on the percentage allowed in terms of the annual escalation of amounts, and in this particular instance, the escalation was taken into account, but the exchange rate of three years ahead could not have been predicted.

He acknowledged that maybe the payment should not have been made in the first place, unless money was found to cover the possibility of an over-expenditure. A functioning budget advisory committee met every month, and these efforts of looking at early warning systems would ensure that the issue was avoided in the foreseeable future.

Mr Somyo said that it was unacceptable for the DCDT to maintain that no one was responsible for the matter, because the Department should learn to adjust itself to the regulations.

The Chairperson questioned the delegates in acting positions on the time they had occupied office, and indicated that the Committee did not take lightly to individuals occupying acting positions for a very long time.

It was established that Mr Nieman had been Acting CFO since 1 October 2022, while Mr Luyanda Ndlovu
had been Acting Deputy Director General since July this year.

Deputy Minister Mapulane said that the CFO position was the only vacant position. The position of the DG has been filled permanently. In the position of the DDG Administration, there had been a request to second the DDG for six months. The Department was in the process of filling the position of the CFO. The delay was due to the unfinalised departmental structure.

The Chairperson highlighted that the Acting CFO had indicated that the payment should not have been made, and asked Mr Nieman to clarify. He said that the statement had put a spanner in the works.

Mr Nieman reiterated that the payment should not have been made before the amounts in the budget had been checked to ensure it was available, because the request to National Treasury had been sent after the payment was processed.

Deputy Minister Mapulane said he did not understand the statement made by the Acting CFO, because it implied that the Department should not comply with its international obligations. Affiliation fees needed to be paid, and money should be found to make these payments. He did not subscribe to the views of the Acting CFO.

The Chairperson said that the Committee would communicate its decision in due course.

Department of Cooperative Governance and Traditional Affairs

Minister's opening remarks

Ms Thembi Nkadimeng, Minister of Cooperative Governance and Traditional Affairs, welcomed the opportunity to present on the 2006/2007 unauthorised expenditure. The correspondence between the Department and National Treasury has been attached and provided.

Minister Nkadimeng said that the unauthorised expenditure had occurred due to the Nhlapo Commission, which was tasked with dealing with legal and traditional leaders and counsels assisting in the acknowledgement of traditional leaders. At the time, the Department had been the Department of Provincial and Local Government (DPLG), and it was not divided up according to the Department of Cooperative Governance and Traditional Affairs (COGTA) as it was known currently. The Minister indicated she was accompanied by the DG for Traditional Affairs, Mr Mashwahle Diphofa, and the DG for DCoG, Mr Mbulelo Tshangana.

The Department had incurred an unauthorised expenditure of R1.1 million in the 2006/07 financial year. The unauthorised expenditure transactions had two cost elements -- R693 000 that was spent on travel and subsistence costs for research on rankings of kingships under Programme Seven; and R430 000 that was spent on legal fees for sourcing legal opinions on litigation brought against the Department on disputes and claims of kingships under Programme One.

When the commission was doing its work, it discovered additional traditional leadership, which they needed to look into through research procedures such as conducting interviews, visiting and referring them to legal services.

No forensic investigation was undertaken by the Department at the time, but the processes have since been verified.

COGTA presentation

DG Tshangana highlighted that the Minister had provided an executive summary of the entire process. The DG at the time (2006/07) had been Ms Lindi Msengana-Ndlela. DG Vusi Madonsela had also presided over the matter in 2014, and had written to National Treasury for the matter to be condoned. DG Matshidiso had presided over the matter in 2018, and had also written to National Treasury.

Mr Tshangana said that with any matter where there had been misconduct, the starting point was to investigate the matter to get a sense of whether there should be consequence management or not. He said that it was more than likely that the previous DGs had applied their minds, and attempts were made to get the necessary information on what the previous DGs did about the matter. Consequence management would happen once an investigation was done, and in the case of the unauthorised expenditure, no investigations had been done. The nature of the misconduct was related to legal service fees, which were always received late, because the Department of Justice often had to be involved in the process.

Ms Funani Matlatsi, CFO, COGTA, took the Committee through the presentation on the unauthorised expenditure. She indicated that the emphasis of the presentation was on the underestimation of the 2006/07 financial year budget and the costs which had led to the unauthorised expenditure.

She highlighted some of the steps undertaken by the Department. She said that the steps undertaken by the former DGs had led to a recommendation to National Treasury to utilise Section 34(2) of the PFMA. This stipulated that the Department could use any other future allocated funding in the next financial years to curb the unauthorised expenditure. She said it was not being charged against any revenue fund, but from the costs of the Department.

The CFO said there had been no consequence management based solely on the fact that there was no malicious intent, and the services rendered had been for the research and authorisation of the Minister for the Nhlapo Commission. It was not fruitless and wasteful expenditure.

(See attached presentation for details).

Discussion

Mr Hadebe welcomed the detailed report from COGTA. He commented on the statement that there were no investigations done into the matter, and pointed out that sometimes investigations did not mean that someone needed to be found guilty -- it was just a way of understanding what had happened and what preventative measures could be taken. It also helped to know how the situation could have been better managed, even though there was value for money.

The Chairperson responded that there was an indication that each of the transactions had undergone a process of verification.

He said that the Committee would indicate its decision on the matter at the necessary time. He also asked DG Diphofa for his cooperation on the matter regarding the DPSA to provide a logical parliamentary conclusion.

Department of Water and Sanitation (DWS)

Deputy Minister's opening remarks

Mr David Mahlobo, Deputy Minister of Water and Sanitation, welcomed the opportunity to present the unauthorised expenditure incurred by the DWS in the 2016/17 and 2017/18 financial years. He said that significant progress had been made on the matter. Where possible, consequence management had been followed.

DWS's report

Dr Sean Phillips, DG, DWS, took the Committee through part of the presentation on the unauthorised expenditure.

He said that the Department found itself in a financially poor condition, but it was currently implementing a turnaround and financial recovery plan. These sought to address service delivery improvements, an improvement in the performance and consequence management systems, and institutional stabilisation, among other objectives.

(See presentation for details).

The DWS was previously considered bankrupt due to bank overdrafts, unfounded accruals and commitments, but it was no longer in that position. It owed the Trans-Caledon Tunnel Authority (TCTA) more money than what was available and operated on bank overdrafts.

The turnaround and financial recovery plan implemented by the Department had yielded positive results. It had strengthened the internal controls to reduce the risk of future unauthorised, irregular and fruitless expenditure. Investigations into historic unauthorised, irregular and fruitless expenditure have been carried out.

Dr Phillips said that the Department's unauthorised expenditure covered two financial years -- 2016/17 and 2017/18 -- and encompassed both the overspending of a vote and a main division within a vote. The root cause in both financial years was non-compliance with section 39 (1) of the PFMA, which requires the accounting officer of a department to ensure that its expenditure was by the vote of the Department and the main divisions within the vote; and that effective and appropriate steps were taken to prevent unauthorised expenditure.

Mr Frans Moatshe, CFO, DWS, took the Committee through the financial recovery plan, which covered a few broad strategies that the Department was currently implementing. The strategies include funding and budget management; expenditure control, financial governance and accountability; alignment of strategic intent; and capital budget and asset management. Emphasis had been placed on the importance of confirming a budget before directives were given.

He highlighted some of the interventions made by the Department to strengthen financial controls, such as continuous improvement of the control environment, including implementing preventative controls which limit the possibility of an undesirable outcome within projects.

He concluded that the Department was collaborating with the Special Investigating Unit (SIU) to investigate the historic, unauthorised, irregular expenditure. In some cases, this had resulted in the Department recovering substantial amounts of money -- for example, R413 121 million recovered from the SAP contract. EOH had agreed to pay back R191 883 million, inclusive of interest, over 36 months.

Deputy Minister Mahlobo said that the Department had decided not to continue with the 'War on Leaks' project because it had not been properly planned, and was also the responsibility of the municipalities. There had been initiatives to absolve the young people involved. The bucket eradication programme (BEP) was still in progress, as the people of South Africa could not continue to live in inhuman conditions. The programme was in progress, with the proper controls and accountability.

Discussion

Mr Lees referred to the issue of previous DGs who had refused to provide evidence for a specific case. He asked whether there had been an overlap between the DGs who refused to provide evidence and those who had been dealt with on other matters.

Mr Conrad Greve, Chief Director: Human Resources, DWS, said that there had been an overlap. The Department was about to take disciplinary action against the previous Acting DG, Mr Sifiso Mkhize, who had since resigned from the Department. Mr Mkhize had refused to testify at the disciplinary hearing.

Mr Somyo commented that the report must provide this much detail. He commended the Department on the great impact the 'War on Leaks' programme could have had if it had been properly implemented. There was currently a deeper issue with the water situation, and even if it was handed over for implementation at the municipal level, it was evident that the DWS had found itself in a position that it should not. The issue may be in the executive decision-making process. Although these issues had arisen and the Department had mentioned them, it had not bothered to resolve some of them. The Department should look at better ways of addressing these issues and not postpone straightening out the operations.

He commended the DWS for their consequence management efforts, but also suggested that the disciplinary processes should be strengthened.

Deputy Minister Mahlobo responded that under the leadership of Minister Mchunu, the culture of impunity had been abandoned, and the new leadership had instilled a culture of accountability.

He contended that stopping the programme did not mean that the Department was not playing its part -- the programme had been poorly conceptualised. If it had been properly conceptualised, the work that was done would have played a small part. The bigger work included the failure of infrastructure, where there had not been any investment in original equipment manufacturers (OEMd). The Department would be approaching the executive leadership to speak about creating conditions where water boards could replace, and also have a revenue component. The other issue was that money meant for water in certain municipalities was not being re-invested into water projects.

Dr Phillips added that it was the job of the accounting officer to ensure that there was a budget available before a programme was proceeded with. Even if there was strong political pressure due to the urgency of the situation on the ground, the AO should ensure that the project did not proceed without an available budget. The AO should also ensure proper planning before the project starts. The DWS was providing a lot of support to municipalities in the form of grants related to water programmes, but there were stringent processes that were required. The DWS ensured that these processes were followed.

Mr Lees asked for clarity on whether the Department had looked at whether they could take the R700 million from future budgets, given the dire water infrastructure situation. He asked where the Department would be cutting back to meet these needs.

The DG said that there would not be an easy place to cut back on where there would not be dire consequences. However, if that was what needed to be done to regularise the situation, it would be done.

Mr Lees followed up by asking whether it would not be appropriate to do a special appropriation to get more money from National Revenue Fund, to avoid the consequences.

Ms Ulrike Britton, Chief Director: Public Finance, National Treasury, responded that Parliament could condone the matter in two ways. One way would be to add it as a charge against the vote, or as a charge against the National Revenue Fund. If it was a charge against the National Revenue Fund, the Department would not pay for it. Doing a special appropriation would mean going above what was currently appropriated.

The Chairperson said National Treasury had previously been asked to do the projections of the proposed payment plans for each of the departments, and the consequences they may face if there was a direct charge against the budget. He said that all the factors would be considered.

Government Communication and Information System

The Chairperson said that the Presidency was appearing before the Committee without an Executive Authority, and that he was privy to a letter from the Minister with an apology indicating that she was abroad. He had received a letter, dated 18 September, on the morning of the SCOPA meeting (19 September), indicating that the Minister was abroad.

The Committee members deliberated on the matter, and it was decided that the Government Communication and Information System delegation should return to attend the following morning's meeting with an Executive Officer.

The Chairperson said that other Ministers who were unable to attend the meeting had sent their correspondence two weeks before the meeting. It was not acceptable that the Department had appeared before the Committee without an executive authority that would account for the unauthorised expenditures.

The meeting was adjourned.