Hearings on unauthorised expenditure: DMRE, DoT, DBE, DWYPD & DCS

Meeting report

The Chairperson welcomed everyone present and announced that he had just received a letter from the Parliamentary Liaison Officer of the Minister of Basic Education indicating the unavailability of the Minister. He notified the Minister in good time, but the letter only arrived now.

The Deputy Minister was also absent due to a family bereavement. Unfortunately, the Committee would not proceed with DBE in the absence of an executive authority. Without the Ministry, the Committee will not dealing with its unauthorised expenditure.

A DBE official explained that when the invite was received,  the Ministry indicated that the Minister would not be able to attend and had asked for a postponement. They were told that they could send a delegation.

The Chairperson said he had received the letter today; it is dated today and signed by the Minister’s PLO. Unauthorised expenditure is a significant audit outcome and a material finding. The Committee is looking at consequence management for these expenditures. The Committee will not proceed with Basic Education today.

The Chairperson said that the Committee recognised that some of the transactions were historical. However, others were repeats in areas where a department was asked to intervene and did not. Some departments have had sight of National Treasury’s recommendations, but these are merely recommendations and not binding on the Committee. This Committee will decide after deliberations and send its report to the Standing Committee on Finance and then to the House. It may be a direct charge to the department budget or the National Revenue Fund (NRF). The Committee will decide when Parliament returns from recess.

Minister of Mineral Resources and Energy overview
Minister Gwede Mantashe stated that the R14.86 million in unauthorised expenditure was an old transaction; however, he accepts that leadership is continuous; thus, responsibility for such is within the Department. The transaction was incurred in 2010/11. At that time, the Department was split into two between mineral resources and energy, and they have since been amalgamated. The Department takes responsibility for such a transaction and will propose how to address it.

DMRE briefing on unauthorised expenditure
Ms Yvonne Chetty, DMRE Chief Financial Officer, spoke to how the unauthorised expenditure and was incurred, details of the transaction, implications, investigation and outcomes.

The Department of Energy presented the request for condonation of R14.86 million on 16 September 2014 to SCOPA. The Department was granted condonation of the unauthorized expenditure by Treasury. However, the approval did not specify if the condonation was granted with funding or without funding. Since the investigation has been concluded, DMRE engaged Treasury further for the Department to deregister this transaction from its financial records.

DMRE’s request today is for the condonation to be approved with funding.

Minister Mantashe reiterated that the Department was requesting a condonation and that it must be granted now with funding and he proposed that the funding be charged to the NRF.

SCOPA questions
Mr A Lees (DA) was pleased to see the Minister and the Deputy Minister present. He was perplexed because the presentation appeared to blame National Treasury, and that concerns him. Perhaps, in due course, Treasury could respond. He asked if the Accounting Officer was aware of the unauthorised expenditure at the point the rollover should have been made.

Did the internal audit not find it to be noncompliance with DORA? When the Department appeared before SCOPA before, what was the outcome of that meeting because it would be wasteful to come back again so late?

Mr B Hadebe (ANC) said Members are required to follow legislation in executing their work and mandate. He was also perplexed that no one was found responsible in the following financial year for the payment without following the legal prescripts for rollovers and budgets. The Department already admitted that this was not in line with DORA.

National Treasury ought to explain if from March until May, the Department used the same bank account and if the reasons for the rejection of the bank account were the same. Who is responsible for verifying?

Mr S Somyo (ANC) wanted to understand why the transfer was made in March towards the end of the financial year. This spike in expenditure seems like fiscal dumping. It is fortunate that the bank rejected the money and returned it. He deduced that there was negligence. The investigation should have led to some action taken. It is a huge risk by those responsible for finances. He questioned if it was a deliberate act. If it is a mistake, why was it committed twice?

The Chairperson said that there was a slight complication in the narrative. In 2014, National Treasury told SCOPA that "at the time the payment was made to a municipality for the INEP there was incorrect banking details as the name of the municipality had changed". At that time, he rebutted the statement and said Mthonjaneni had always been it name; it had never been any other name. He asked the National Treasury to provide clarity. The 2014 narrative does not say the banking details were incorrect, but that the municipality’s name had changed, which adds to the confusion. The veiled assumption is that the verification lapses were on the part of Treasury.

A National Treasury official explained the Safetyweb Banking System used by government verifies the name of the beneficiary against the bank account details. Mthonjaneni Municipality would have received payments throughout the year from other budget votes. This payment was first rejected on the Safetyweb because of some discrepancy in the system on 24 March. The payment was rejected again in April. The records showed that there was a spelling error in the municipality name versus the banking details on the system.

By the time the Department made the payment again, the rollover process had passed. It was a new financial year. This payment was then made outside the proposed budget within the DORA and Appropriations Act. When it went through for the third time in May, National Treasury ensured everything was in order and aligned to avoid paying the money to an incorrect beneficiary.

The Chairperson asked who was responsible for verifying the banking details.

The Treasury official replied that it remains with the transferring national officer which means the accounting officer of the national department that transfers the funds.

Mr Hadebe asked what the discrepancy in the system was because Members need to know to whom to apportion the blame. There is no certainty if it was a spelling error or incorrect banking details. The Committee understands that the banking details were not verified.

The Treasury official requested that the Office of the Accountant General draw the history of the transactions and provide it to the Committee. There are records for the transactions and they will be submitted to the Committee.

Ms A Beukes (ANC) was confused because after so many years, the Committee discovers today that the unauthorised expenditure was already condoned in 2014 without finances. She asked why the conclusion was attributed to exceptional circumstances of the Department, yet initially, it was attributed to incorrect banking details of the municipality. The root cause is that it was not included in the rollover request. However, who was responsible for this at that time and why was it not included in the rollover?

Ms N Makhamba (EFF) asked why this process took so long as in 13 years and what the department was doing about this matter over the years.

The Chairperson replied that the matter has been with Parliament and National Treasury. National Treasury presented a schedule of unprocessed unauthorised expenditures in June to the Committee. Hence it is meeting the departments responsible now.

He was not convinced about the incorrect banking details story. This is a schoolboy mistake with far-reaching consequences. The transaction was rejected twice and in the meantime National Treasury had concluded its rollover process. He was doubtful that it should be termed an error.

DMRE response
Minister Mantashe said that his department was not blaming National Treasury but stating the facts to the best of its ability. The Department does not blame Treasury. Condonation was received much earlier without funding. This expenditure continues to be on its books because condonation was granted without funding.

The Department explained that this transaction was finally verified in May 2010 and the details were confirmed to be correct. However, why it was rejected twice remains unknown, but the CFO can explain. It was verified on 21 May 2010 by National Treasury and the funds were successfully transferred. It is a material fact that the Department was split at that time. In his limited experience, he shared that pulling two departments together was a difficult function that impacted the overall performance of the whole portfolio. The current DMRE delegation is a legal successor to the previous accounting officers and is responsible for correcting this.

Ms Chetty indicated that she was not the CFO at the time, but she had studied all the relevant documents and investigation reports on the matter. Amalgamating two departments is a difficult task that creates a difficult environment. As much as it seems like an academic and administrative task, this amalgamation led to this matter falling through the cracks. She should have also noted that in the investigation report, that there were people that were identified that did not take responsibility for the rollover. At the split, the rollover request should have come from DME, but the DME no longer existed because the department was split into two. Those in DME needed to do that and the INEP executive should have applied for the rollover, but did not. That person was no longer employed in the Department. There were a number of employees singled out for certain actions, and they were no longer in the Department or their whereabouts were unknown.

There is a paper trail for the duration of this matter. There is evidence of constant follow-ups with Treasury in attempts to fund the unauthorised expenditure and derecognise it in the financial statements. This documentation can be provided to the Committee.

Though she was not in the Department at the time of the split, she knew that the split of human and financial resources was 70/30 for Minerals and Energy, respectively. This split left some unhappiness with the staff and a lot of change. The unsettling nature of this split left a lot of functions dismal.

The Department has made many transfers to this municipality; the same bank details were used. The municipality confirmed that it had been using the banking details before 2008. This information is all part of the investigation.

She admitted that there was an element of negligence. Somebody did not apply for the rollover, which should have been done. The money was surrendered in 2009/10 because it did not go through. The Department is now asking to have the funding that it had surrendered.

She saw from the correspondence that the accounting officer was aware of the transaction, but she was no longer with the Department. She was the Director General, Ms Nelisiwe Magubane, in the Department of Energy for a few years.

Ms Makhamba said that her question was not responded to.

The Chairperson explained why this process was happening now. It had been set to take place in 2020, but COVID-19 interrupted the programme. When Treasury met with the Committee in June, it submitted the unauthorised expenditure schedule and indicated that the Committee needed to process these unauthorised expenditures. This item must be a standing item every year and this will be included in the legacy report of the Committee that SCOPA must deal with this annually.

Mr Lees agreed with the Chairperson and hoped this report would be handled promptly. If the condonation was granted by SCOPA, why is this back with SCOPA? He was not convinced that the accounting officer at the time was disadvantaged in processing the rollover.

The Chairperson replied by quoting from slide 14 of the presentation “the unauthorized expenditure was reported to Treasury and condonation was requested in July 2012 and granted in November 2012. Whilst Treasury condoned the transaction, the funding to reverse the unauthorized expenditure could not be granted until the matter is re-considered by SCOPA.”

Mr Somyo felt that the DMRE responses were economical and suggested that DMRE ask Treasury for further information to DMRE. This information must also be submitted to the Committee.

Mr Hadebe said the Committee is trying to ascertain if internal controls have improved and if consequence management is implemented for officials. The latter was not included in the report although he was pleased that investigations had been conducted and that a recurrence did not happen. In future, DMRE must demonstrate to the Committee that these concerns are dealt with.

The Chairperson asked for the additional information to be submitted by 25 September. The Committee will certainly heed what has been presented.

Deputy Minister of Correctional Services overview
Inkosi Sango Patekile Holomisa, Deputy Minister of Correctional Services, said DCS appeared before the Committee to account for its R121 000 unauthorised expenditure. This unauthorised expenditure was incurred in 2015/16 by overspending the budget vote.

DCS seeks condonation for this unauthorised expenditure by Parliament for reasons outlined in the presentation. The Ministry has been at pains to express its disquiet to the DCS administration on fiscal prudence and discipline matters. He believed the interventions of the Ministry were beginning to bear fruit as reflected in the DCS audit outcomes which have improved over the past two financial years with unqualified audit opinions.

The main preoccupation of DCS since democracy has been the transformation of its service offering from a hard and rigid prison system of previous years to an open and transparent system, in line with the Constitution. This new service offering has impacted how the Department does business and the resources required to fulfil its mandate.

DCS will account for this unauthorised expenditure and it remains committed to clean governance and working with oversight structures to ensure there is effective utilisation of resources. He hoped that the Committee would grant condonation of this R121 000 unauthorised expenditure.

Mr Makgothi Samuel Thobakgale, National Commissioner of Correctional Services, indicated that the Acting CFO would make the presentation to the Committee.

The Chairperson asked why the incumbent was in an acting capacity.

Mr Thobakgale replied that the Chief Financial Officer was on suspension and undergoing a disciplinary process. The process has been ongoing since 2021 but the disciplinary hearing has been concluded. DCS is now waiting for the chairperson’s pronouncement of the outcome.

DCS briefing on unauthorised expenditure
The Acting CFO provided the findings of the investigation: A lawful directive from the DPSA on the adjustment of housing allowance for qualifying officials was followed; a lawful instruction was followed, and though this resulted in budget challenges, there was no loss to the state; the Department has internal control systems in place to prevent and/or detect unauthorised expenditure; the unauthorised expenditure was reported in line with requirements of the Public Finance Management Act 01 of 1999, as amended and there was no official liable as the unauthorised expenditure was a result of inter-governmental systems and arrangements.

DCS recommended to the Committee, through Treasury, that the R121 000 be approved without funding. Parliament should consider approving the R121 000 as a direct charge against the DCS Vote 22 baseline.

SCOPA questions
Mr Lees said that Treasury notes that this unauthorised expenditure could have been avoided with proper financial management, but what does this mean? How was this adjustment supposed to be processed?

Mr Somyo said that the matter was related to the costs of employees. By the end of the year, an increment resulted from a wage negotiation settlement, which was probably above inflationary mark. What caused the increment above the mark?

Mr Hadebe asked why this was not prevented if DCS had appropriate and effective internal control measures. Secondly, he asked how this matter could have been handled to avoid the unauthorised expenditure. To willy-nilly adjust the housing allowance was reckless although the amount was not exorbitant, the principle was not followed.

Ms Makhamba asked how the transaction was approved and if any motivation was provided for it because it was not initially part of the budget.

DCS response
Mr Thobakgale replied that DCS did not include employees who did not qualify for the adjustment as per the DPSA directive. Only employees who qualified were beneficiaries.

Ms Nandi Mareka, DCS Acting CFO, replied that DPSA takes the lead in CoE adjustments. While Treasury would set the MTEF guidelines for the budget and inflationary budget for adjustments. The discrepancy would be at the implementation level. The departments take the MTEF guidelines for implementation and submit budgets to Treasury. Nowadays, DPSA negotiates and agrees with Treasury on adjustments, and any different percentages would be considered.

On average, CoE in the 2015 financial year was supposed to grow by 5.6%, but the DPSA circular issued in December 2015 for housing allowance adjustment was almost 9%. The question is how the Department could cover that 4% difference. This is usually difficult for labour-intensive departments. When DPSA issues the circular, DPSA does not consult with the Accounting Officers of departments to assess if they can afford the increments or not. At times, it directly implements the adjustments on the PERSAL payroll.

This circular came only on 15 December 2015, so from April 2015 there was no way DCS could have projected that it would overspend as this was implemented only in the last quarter of the year. Treasury was alerted before the audit was finalised that DCS would overspend, but it would confirm after the audit was concluded.

DCS has internal controls in place. However, if another department has the authority to pronounce on adjustments that affect all government departments and there is no interaction on the affordability of those adjustments, it becomes difficult to set up a control that can mitigate that.

DCS did not have any deviation but implemented what the DPSA had set. The HR function reviews its CoE model with its projections and performance and accounts for DPSA circulars. In that same financial year, the DCS budget was cut by R30 million during the ENE process in October 2015. DPSA issued the circular in December 2015 with effect from 1 July.

SCOPA questions & comments
The Chairperson said that the Committee must note DPSA’s management of these processes. The latest adjustments may land the state in this position again. It may be beneficial that these issues are timed and give space to the departments to factor in the adjustments. This is a consequence of a decision taken elsewhere, although this was not to absolve the Department. We need to include in the Committee’s report how DPSA deals with these issues.

Mr Hadebe asked when such a decision is taken if DPSA is not given time to factor in the adjustments and if allowances are made to assist departments in cushioning for the adjustments. What is the procedure that comes with such directives?

Mr Thobakgale replied that the department must take responsibility when Treasury and DPSA make such determinations and it must administer such adjustments and make the necessary provision. However, in this case, DCS did not have space to make that provision, hence it incurred the unauthorised expenditure of R121 000. Towards the end of the financial year, the Department administers the financial processes and ensures that it stays within the allocation. Hence, in June, Treasury is informed that the audit was not yet finalised and indicated that the internal audit process picked up the R121 000 unauthorised expenditure.

There is also a directive from DPSA on the same matter. It is now in the public domain that Treasury also issued a directive on austerity measures. DCS has written to both Treasury and DPSA to inform them that there is no space in the budget. DCS has been experiencing budget cuts throughout the years and has not been able to increase the number of security officials to manage its main function.

The Chairperson asked if the CFO on suspension was the same one who was CFO at the Municipal Demarcation Board.

Mr Thobakgale confirmed that this was the case.

The Chairperson said he signed off correspondence a while ago to draw his attention to this matter because he left the MDB with a pending disciplinary matter. The non-coordination of state machinery for background checks may cause this problem. However, the process underway will afford an opportunity to conclude this.

The Deputy Minister said that the system is designed in a way where decisions are taken elsewhere for the Department to implement. It often finds itself required to carry out mandates that are not funded. Other unauthorised amounts can include increases in municipal services costs that DCS cannot do anything about or renegotiate. In contrast, others amounts relate to court decisions where DCS is required to pay what the judgment ordered.

Government Communications and Information System (GCIS)
The Chairperson noted that the Committee could not proceed with GCIS yesterday due to the absence of an executive authority.

Mr Kenny Morolong, Deputy Minister in the Presidency, conveyed the apologies of the Minister and the Deputy Minister which were also submitted in writing. Due to unforeseen circumstances, none of the executive could make it yesterday.  

GCIS is here to present two cases of unauthorised expenditure which have been on its books for the past ten years. The first one in 2013/14, amounting to R4.4 million, was implementing the communication strategy for the official state funeral of the late President Nelson Mandela.

His passing sent shock waves across the world and solicited an outpouring of sympathy domestically and abroad, and this was a major international event. Hence, it needed to be executed in such a manner that it ensured the dignity of the occasion was realised and it promoted the country’s reputation globally.

GCIS and Treasury had discussed and concurred that this event was unforeseen. It occurred late in the financial year, in December 2013 after the mid-year financial adjustments were made.

The second unauthorised expenditure occurred in 2014/15 and stemmed from successfully concluding national and provincial elections in May 2014. The President proclaimed new ministries, such as the Department of Communications and Digital Technologies (DCDT) on 15 July 2014. The cost associated with the new proclamation was not anticipated in the Department baseline.

The current executive authority has satisfied itself that the officials took reasonable measures to adapt to the newly required changes without compromising GCIS mandate. The team made a submission to Treasury to indicate the deficit in funding needed to establish the new ministry, but this was not accepted fully. Assessments indicate that all reasonable measures have been taken to ensure compliance with the PFMA and in consultation with Treasury, and were done with limited disruption to service delivery.

The Acting DG added that the state funeral Manual guides GCIS in its responsibility for such funerals. The late President Mandela passed away on 5 December 2013. GCIS submitted the estimated cost of R16 million for the funeral to Treasury the following day. On 13 January 2014, GCIS submitted the actual funeral expenditure of R13.7 million. No allocation came from Treasury, and GCIS had to reprioritise its budget and was able to absorb about R10.6 million leaving an amount of R3.7 million unfunded and unauthorised for the following financial year.

On the establishment of DCDT, once the proclamation was made, there was written communication to Treasury on the operations of the new ministry. The budget submitted to Treasury was R45.5 million. On 19 September, GCIS was allocated R12 million of the requested R45.5 million to ensure that the ministry was operational. During the period, the expenditure was monitored for operations. However, on 23 March 2015, it was decided make budget shifts between programmes, but Section 43 of the PFMA limits shifts between the programmes to 8%. Thus, this resulted in the unauthorised expenditure of R710 195 as the ceiling of 8% was already reached.

GCIS briefing on its unauthorised expenditure
Ms Gcobisa Soci, GCIS Chief Financial Officer, said the root cause of the unauthorised expenditure was the state funeral after the death of the first democratic elected President of South Africa, Mr Nelson Mandela. GCIS participated in the Funeral Planning Committee, which was the national structure set up to effect implementation of the state funeral. Treasury did not allocate additional funds to GCIS to cover the state funeral. As a result, GCIS had to scale down all running costs and some communication activities to apply reprioritisation to fund the cost. Considering that Treasury did not allocate funds for the unforeseen and unavoidable expenditure of the state funeral, GCIS exceeded its voted funds by R3.7 million. The presentation also outlined current challenges, interventions and recommendations.

GCIS recommended that the Committee note the reason for the unauthorised expenditure; GCIS measures put in place to curtail unauthorised expenditure; financial constraints, negative budget growth, and its consequences and approves the unauthorised expenditure to be financed as a direct charge against the National Revenue Fund in terms of section 24(1)(a) of the PFMA.

SCOPA questions
Mr Somyo said that the information presented was sufficient, but if GCIS had delayed staff appointments, this would have been avoided. Hopefully, GCIS will ensure that this will be avoided going forward.

The Chairperson said that Treasury must reflect on the State Funeral manual because the SIU was still dealing with corruption at state funerals. There must be a better way to handle this by having contingency planning in the budget allocation of the departments responsible for state funeral budgets. The question arises if the State Funeral manual is in line with the PFMA or not.

When Madiba passed away on 5 December, GCIS submitted its proposals to Treasury the following day, which demonstrates that GCIS had planned properly. A proactive step is to centralise budget allocation for such operations for the departments concerned like GCIS and others. To avoid what the SIU is now dealing with, there must be limits placed on state funerals. We cannot strive for emotions; it must be structured to avoid an open-ended process. Prevention is always better than cure. Thus, the State Funeral manual must be reviewed in parallel with compliance with the PFMA.

We cannot keep returning to the Madiba funeral, because that becomes insensitive. It is not fair to families that this continues to be a subject of public discourse; therefore, there must be a better way to deal with state funerals. The Presidency must work with Treasury and other departments to reconstruct the outlook to avoid these challenges in future. Funeral costs can be estimated.

Ms Beukes asked what the impact would have been if GCIS had delayed filling vacancies because now it is sitting with low staff morale, operational compromises, stagnant innovation, and diminished competitive edge. The efficient functioning of GCIS must not be compromised.

The Deputy Minister said GCIS was caught between a rock and a hard place. However, all comments by Members will be considered. It will continue to engage Treasury on the State Funeral manual and wait for the Committee to decide on the next course of action.

Deputy Minister of Women, Youth and Persons Living with Disabilities overview
Deputy Minister Sisisi Tolashe said that her department had R34 million unauthorised expenditure. DWYPD is underfunded to deliver its mandate, but it is problematic to be underfunded and still incur this unauthorised expenditure.

The Department has moved from its previous point and is now in a far better state. It boasts a clean audit outcome. A turnaround strategy was devised and implemented, which led to improvements and DWYPD pleaded for condonation of the unauthorised expenditure.

Adv Mikateko Joyce Maluleke, DWYPD Director General, added that a service provider was appointed to perform an investigation on allegations that contributed to the unauthorised expenditure. A report was issued, and the recommendations were implemented as there was not an adequate support function in place. Treasury assisted DWYPD with a turnaround strategy to ensure that there were no repeats of unauthorised expenditure in subsequent years. This turnaround strategy was effective as there were no unauthorised expenditure from 2013/14 onwards, which is evident by the unqualified audit opinions. However, there have been findings in some instances.

In 2015/16, the Department incurred unauthorised expenditure but only on main divisions, not total overall overspending of the vote. AGSA raised this in its Management Report and followed up on it in the next financial year.

The circumstances of unauthorised expenditure in 2011/12 are not the same as in the 2015/16 and 2019/20. In 2011/12, it was due to over-expenditure on goods and services, while in 2015/16, it was due to the arbitration findings that compelled the Department to pay. Of the audits performed by the AGSA from 2016/17 until 2018/19 financial years, there has been no unauthorised expenditure because the Department ensured that it implemented financial controls to avoid the findings of the previous years. However, in 2019/20, the Department incurred unauthorised expenditure on main divisions. The Department stopped filling critical funded posts after Treasury declined the application for additional funds for the function of the Office of Deputy Minister. This resulted in the overspending.

From 2014 until 2019, the Department did not have a deputy minister, but since the changes were made, the Department had to allocate funding for its functions. Treasury did not allocate funding for the Deputy Minister’s Office functions over the MTEF, and the Department had to stop filling the critical funded posts to fund the Office of the Deputy Minister.

DWYPD on its unauthorised expenditure
The Acting CFO outlined the Department’s unauthorised expenditure incurred for 2011/12 as R25,1 million; R2.2 million for 2015/16 and R3.2 million for 2019/20.

The presentation outlined the root causes of the unauthorised expenditure. In 2011/12, the unauthorised expenditure was mainly Compensation of Employees (CoE) of R11.4 million and Goods & Services (G&S) of R12.4 million. In 2015/16, it was Compensation of Employees for R1.9 million and Goods & Services for R256 000. DWYPD appointed a service provider to investigate the allegations linked to the 2011/12 unauthorised expenditure. The investigation report recommended that eight officials be disciplined due to gross negligence in performing their duties. The Department dismissed some officials from the eight that were implicated after the disciplinary proceedings, as recommended by the service provider.

As for 2019/20, DWYPD reported overspending of R3.2 million to the loss of office gratuity for the outgoing Minister. However, the bulk of the overspending was incurred in the Office of the Deputy Minister, amounting to R1.2 million linked to functions and duties that were performed. The remaining R820 000 was linked to the Minister’s Office spending pressures based on the needs and setup of the support staff of the new Minister, which started on 1 April 2019.

Discussion
The Chairperson referred to the presentation and said that DWYPD was allocated a new deputy minister with effect from 1 April 2019. Elections were held in May 2019 and the new Executive was announced in June.

Adv Maluleke replied that 1 April accounted for the financial year beginning for reporting purposes.

The Chairperson said that the Committee would revert to DWYPD once it concludes this process. The Committee was still inundated with unauthorised expenditure processing.

Deputy Minister of Transport overview
Before the Chairperson handed over, he said that this amounted to R768 million in 2013/14, R392 million in 2014/15, and R177 million in 2016/17. This stemmed from a complication around the Road Traffic Management Corporation (RTMC) and the NRF.

Mr Lisa Mangcu, Deputy Minister of Transport, said the genesis of this issue is not related to money or transaction fees. RTMC is a DoT entity which became responsible for managing the National Traffic Information System (e-NaTIS). While performing its duties, it was found that it should apply a transaction fee that will be used to maintain the system.

In 2006/7 the Minister of Transport sought the concurrence of the Minister of Finance, which was granted. RTMC later sought another adjustment for an increase in transaction fees, at which point, the Minister of Transport gazetted this without the concurrence of the Minister of Finance. That increase in transaction fee triggered this unauthorised expenditure. The question is whether the money should be transferred to the fiscus through the Department or RTMC keep the money it raises through the transaction fees.

RTMC felt it should keep the money because the Minister had issued the regulations. Treasury disagreed, arguing that the regulations should not have been issued without concurrence by the Minister of Finance as done previously.

The Department proposed that the unauthorised expenditure be set off against the transaction fees. If all this money had to be taken from the Department’s vote, this would force RTMC to close when comparing the Department transfer RTMC receives with these fees.

Discussion
Mr Lees said that he was battling to understand the status of the relationship now. Who is paying the service provider, or is the contract cancelled?

The Chairperson referred to slide 7 and said it appears that nothing happened in 2015/16, but then it resumed.

The CFO replied that slide number answers the question of the contract with Tasima. The work was completed between 2010 and 2011. The purpose of the contract was to build, operate and transfer the system to e-NaTIS. The provinces financed the development of the system as they also benefitted from using it. The transaction fees would be utilised for funding operations and maintenance. The contractor finished around 2011/12. The contract was extended to train the staff to be able to use the system. The gap identified by the Chairperson in 2015/16 is because of that extension and staff training.

The Chairperson said RTMC collected this money, but if that money is taken from RTMC, it will go bankrupt. Who must pay for this to be taken off the books? This money should go to the Department, so why is RTMC not paying it to the Department?

The DG replied that the conundrum is that at the point where the regulations are published, and the money is collected. The Department’s opinion is that it is correct for the money to be collected by the RTMC and disbursed for its purposes. When the contrary view was taken, was when RTMC began to pay part of that money. He thought the money for those three years should not be paid back because it is putative if it was collected irregularly. The money is not in excess; if the Department collected it, it would have to be collected as a Vote from RTMC. The Department transfer to RTMC annually is about R200 million but the amount owing is R1.3 billion. Over what period can this be collected now?

However, the Department believes that the key issue is returning to the foundation of the collection. The Department’s position on this remains, but the Committee can guide on what to do; if it must be collected from RTMC, the Department will implement that.

Mr Lees said RTMC collected money, but what did RTMC do with that money?

The Chairperson noted that Treasury recommended to the Committee not to approve or condone the outstanding unauthorised expenditure of R1.3 billion incurred by the DoT as a direct charge against the National Revenue Fund. Where does the money go when collected by RTMC?

Deputy Minister Mangcu referred to slide 6 and said RTMC paid the transaction fees collected to the Department since the contract with the service provider was still under the Department. There was a time when RTMC collected the money and paid it to the Department. These funds were appropriated as self-funding through the adjusted budget process, where RTMC deposited funds into the National Revenue Fund via the Department.

During the 2012/13 financial year, RTMC stopped paying the revenue collected from transaction fees over to the Department and viewed this as its own revenue raised in terms of its Act. Therefore, RTMC would utilise whatever is left over for its own operations. Whenever a regulated transaction fee is made through eNATIS, the money continues to be collected, but it is used within RTMC. If R1.4 billion were to be paid to the Department, that would negatively impact RTMC’s sustainability. The RTMC does not have its own Vote, the Vote is with the Department; hence, the unauthorised expenditure sits with the Department. Thus, it is responsible for accounting for that money, but how long can it be paid back? The Department believes this money should be taken over time to clear the books.

Mr Lees said the money was collected in 2012/13, and stopped paying but they did not pay the contract fee because that continued to be paid by the Department, and RTMC used the money for unintended purposes.

The Deputy Minister said RTMC would first pay for the eNATIS contractor and operations to ensure that it is fully functional. The excess would ordinarily be paid to the Department, but RTMC can use it for general operations.

The Chairperson asked for clarity on why RTMC viewed this money as revenue and if so, does the Department share that view?

The Deputy Minister confirmed this.

The DG said that given all that had transpired and the facts at the time, he could not say that RTMC was wrong, considering what RTMC had done before and its position in that financial year. There was a legal basis for this understanding and why the Department took this position.

Mr Lees asked how the unauthorised expenditure occurred in the Department’s books if RTMC had already paid the contractor and how these amounts arose.

The Deputy Minister replied that this arose because according to Treasury, anything extra to what was paid for the upkeep of eNATIS must come back to the National Revenue Fund through the Department. As long as the Department has not accounted for this money not paid back, it is classified as unauthorised.

The RTMC General Manager for Legal Services said that in 2007, the transition fee was approved to fund the eNATIS contractor. In 2008, Treasury issued a practice note that instructed that all monies collected must be paid to the Department. The Department would pay it to the National Revenue Fund. The service provider was paid because the contractual relationship was between the contractor and the Department.

In 2012, RTMC approached the FFC to ascertain if the practice was allowed as per the PFMA. The FFC said that this was not allowed and instructed that the Practice Note 10 of 2008 needs to be withdrawn. Hence, from December 2012 the transaction fees were not paid to the Department anymore but considered as a revenue stream as per RTMC Act.

This became an issue in 2013/14/15 and 16 where the relationship with the service provider still existed and under the extension and court orders still issued invoices that needed to be paid. At that time, RTMC was still funding itself through the transaction fees and the Department made the payments as per the invoices and orders. In 2017, things changed when the Constitutional Court declared the agreement unconstitutional, and it was determined that the system was to be transferred to RTMC so that it can continue with rendering the service. From 2017 onwards, the revenue generated through the transaction fees was utilised for the maintenance of the eNATIS system and it also constituted the main funding stream of RTMC.

On the increase of the transaction fees in 2017, in 2007 the Minister of Finance obtained concurrence for the introduction of a sliding scale over five years. This was amended in 2009 by the Department, which it provided for the Minister to effect the increase of the transaction fees subject to the resolution of the shareholder committee. In 2016, it was again increased. The net effect of that was the empowerment of the Minister to increase the transaction fees. This was not a unilateral decision, but it was subject to a majority resolution by the shareholder's committee that constitutes all the MECs for Transport in the provinces.

In 2018, the increase was made from R30 to R72; this was the point of contention between RTMC, the Department and Treasury. The issue was the increase, not the transaction fee. The difference in opinion was if concurrence at that time was needed or not. This was subsequently addressed in the RTMC Regulations of 2022 to ensure that going forward, there was no legal uncertainty if concurrence is required or not.

Mr Somyo said that it seems that the issue was authorising irregularity, but the premise of the matter seems to be between the Department and RTMC.

Deputy Minister MangcU said that the genesis of the matter according to Treasury is about money that must be paid over to the Department. The reason is that Treasury did not give concurrence in one of the transactional increases. Thus that money constitutes unauthorised expenditure, according to Treasury. The money did not disappear; it has been used but DoT should have accounted for it. However, it did not and that attracted the unauthorised expenditure. The Department would need guidance or direction on how Treasury will get its money back. The Vote is unable to account for this money, and this is where the focus of the Department is.

The Chairperson clarified that the issue is about if the money was housed correctly. He believed that this unauthorised expenditure would escalate, considering the history of unauthorised expenditure.

A Treasury official said there were two separate issues. The Deputy Minister highlighted a separate issue, which was about the increase in the eNATIS transaction fees in 2017/18. Treasury is talking about the period before the contract was ceded to RTMC by the Constitutional Court. This was during the time when the contractual obligation for the operation, maintenance, and management of eNATIS was in the DoT. However, the revenue stream that the Minister of Finance agreed to was being collected by RTMC. Thus, there was a mismatch between who had the obligation to make the payment for the maintenance of the system versus who was collecting the money for the system. The unauthorised expenditure resulted when RTMC stopped paying this money back to the National Revenue Fund for Treasury to appropriate to DoT for the payment for the contractual obligation of the system. Following the Constitutional Court judgment, the obligations around the management of the system was moved to RTMC. Now RTMC collects the revenue and has the obligation for the management of the system.

There was a misalignment in how the contract was intended to move versus how it actually moved that resulted in this. The Minister of Finance concurrence in 2007 was clear that the eNATIS transaction fee was for the operations and maintenance of eNATIS and any excess money was to be paid to the Revenue Fund. The overspending by DoT was that the money collected for the operations and maintenance of eNATIS was not spent on the operations of eNATIs in the financial years in question. The money was spent on other things.

Treasury’s position is that these funds were collected. These funds are considered user charge as defined and the determination of that user charge was based on the modelling that was done and the cost for the maintenance of the system.

There was a time when the DoT was struggling to get the money from RTMC, and DoT asked Treasury to issue a new instruction note of how the funds should flow. This could not be done because the Minister of Transport's regulation instructed that the money would go via RTMC and Treasury could not circumvent that. The arrangements were still in place until the contract was ceded.

The Chairperson requested Parliamentary Legal Services to confer with the Budget Office and it hand over all the legalities to it to get guidance on how to process this matter. There is legal jostling in this matter. The Committee will obtain its own legal opinion on this matter. RTMC does not have an audit outcome of unauthorised expenditure; this sits with the Department, but the money is with RTMC. This unauthorised expenditure is increasing in the Department’s books.

Mr Lees supported the Chairperson’s view. He asked who the CEO during the time when this matter occurred.

The General Manager replied that in 2012 when the FFC opinion was sought, the Acting Executive Officer was Mr Collins Letsoalo. From 2014 going forward, Adv Msibi was the CEO, and he submitted an apology for his absence today as he is in Swaziland.

The Chairperson noted that the Committee will consider how it will proceed with the matter considering all the legal jostling. He requested RTMC, Treasury and the DoT to cooperate with Parliamentary Legal Services.

The Deputy Minister assured Members that the DoT will provide all the support needed to resolve this issue because the unauthorised expenditure is within the Department of Transport.

The meeting was adjourned.