Unauthorised expenditure hearing: Stats SA; DSD; DBE; IPID: with Ministers

Public Accounts (SCOPA)

17 October 2023
Chairperson: Mr M Hlengwa (IFP)
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Meeting Summary


The Committee met in Parliament to conduct hearings with Statistics South Africa (Stats SA), Departments of Basic Education (DBE) and Social Development (DSD), and the Independent Police Investigative Directorate (IPID) to their unauthorised expenditure dating back to 2006. This comes after National Treasury presented a schedule of unauthorised expenditure to the Committee on 28 June 2023.

IPID reported unauthorised expenditure of R91 000 in 2005/6 and R800 000 in 2008/9. The former was incurred due to overspending incurred under Goods and Services because of the printing of hard copies of the ICD Strategic Plan from 2006 to 2009 and its Annual Report for the 2004/05 financial year. The R800 000 was incurred because of an unanticipated interface on the department’s PERSAL system, which occurred on 30 March 2009, a day before the end of the financial year.

Stats SA had four years of unauthorised expenditure due to overspending on Compensation of Employees. Tight budget cuts had caused this. Statistician-General Maluleke said that since 2015/16, Stats SA has continued to ensure that its key statistics output was not compromised and to protect key indicators. It has had to attempt to make do with the available resources and protect its outputs despite a moratorium on filling vacancies.

Department of Basic Education incurred unauthorised expenditure of R6.4 million in 2014/15 for its National Teacher Awards. Members were not pleased that approval for virement was not obtained from National Treasury. DBE explained that this amount was flagged as unauthorised expenditure only after completing the audit. DBE assured the Committee that there was no financial mismanagement, as evident in the subsequent audit. However, the Committee resolved that an investigation must be conducted as it believed that obtaining approval from Treasury for virements is a basic administrative task that the Accounting Officer should have done.

The Department of Social Development reported an unauthorised expenditure of R15.134 billion for the payments of social grants during COVID-19. A decision was taken to make early April 2020 payments on 30 and 31 March before hard lockdown. This was a response to a national disaster and were essentially measures to safeguard the country.

All the departments recommended that their unauthorised expenditure be condoned as a direct charge to the National Revenue Fund rather than from the department budget. Once the Committee has concluded its consideration of the unauthorised expenditure, it will submit its report on whether the departments will be charged directly for the expenditure or it should be taken from the National Revenue Fund.

Meeting report

IPID briefing
Minister of Police, Mr Bheki Cele, remarked that after reviewing this, he realised that it had happened long ago and he was not in office then. However, the unauthorised expenditure has been presented to the Minister’s Office. The failure to present this unauthorised expenditure to Parliament to condone it meant that IPID was seized with resolving this with National Treasury.

Ms Dikeledi Ntlatseng, IPID Executive Director, said IPID has been fighting with its auditor for a long time to remove this irregular expenditure from its books but to no avail.

Mr Patrick Setshedi, IPID Chief Financial Officer, provided the background and internal controls that had been implemented to address the unauthorised expenditure. IPID reported unauthorised expenditure of R91 000 in 2005/6 and R800 000 in 2008/9 The former was incurred due to overspending under Goods and Services due to printing of hard copies of the ICD Strategic Plan 2006-2009 and its 2004/05 Annual Report. The invoices exceeded the allocated budget. No funds could be shifted to the programme to offset the excess expenditure as the 8% virement limit in terms of section 43(2) of the Public Finance Management Act (PFMA) would have been exceeded.

The R800 000 was incurred because of an unanticipated and unavoidable interface on the department’s PERSAL system for Employee Salaries and Allowances, which occurred on 30 March 2009, a day before the end of the financial year. The amount was more than the available budget for Compensation of Employees which resulted in overspending at the Vote level.

IPID hearing
Ms S Somyo (ANC) said these were incurred a very long time ago. There are improvements in expenditure levels; as such, its audits have improved. A lapse in a plan caused the R91 000, and the R800 000 was not a result of maladministration. However, the question is whether the entity would be prepared to absorb the R891 000 into its own budget going forward. The positive audit results indicate a positive trajectory for the entity.

Ms A Beukes (ANC) noted that in assessment of the reasons for the overspending, her opinion was that the overspending was unnecessary. She asked if only one quotation was sourced from a single service provider. Additionally, she raised concern about the effectiveness of monthly budget controls and in-year monitoring interventions. She asked if any extra measures were put in place to prevent unauthorised expenditure.

Ms A Makhamba (EFF) was impressed that IPID has not incurred any unauthorised expenditure since implementing internal controls. On the R91 000 unauthorised expenditure, was this a tender process? Could this have been avoided if more than one supplier was sourced? The second one was termed an ‘unavoidable expense’, but was there no budget allocated for that transaction to avoid this as R800 000 is a huge amount to be declared as unauthorised expenditure (UE)?

The Chairperson said that the Committee wrote to the Minister of Finance on 8 June 2023 requesting a briefing from National Treasury on the unauthorised expenditure. The Minister of Finance responded on 20 June, and the briefing was held in Pretoria. The issue is from where the funds should come if the UE is authorised or supported by the Committee.

The Minister replied that IPID has a limited budget to monitor SAPS that has a huge budget. It has little fence to cut at all, and he would request the Committee consider having the grace to have it condoned with a budget. R800 000 may be a small change to other departments, but not IPID. The Department had attempted to address this matter. He has met the IPID internal audit committee which assists with audit performance and enforcing internal controls.

Ms Ntlatseng explained that IPID has 7am weekly meetings to monitor expenditure. The objective is to maintain its clean audit and resolve any challenges weekly, as and when they arise. The R91 000 was not a tender but a three-quotation process. IPID had no budget to absorb the R91 000, hence the unauthorised expenditure. Secondly, the R800 000 amount stemmed from the PERSAL system.

She acknowledged that this was brought to the Committee late but IPID has been seized with this matter yearly, but this unauthorised expenditure remained on the books.

Mr Setshedi added that the quotation for R91 000 included printing reports for two financial years. The R800 000 transaction occurred on 30 March, and the amount was far more than what was available in the budget. If there had been sufficient funds, it would have been paid off.

The Chairperson thanked IPID and said that the request from IPID is that the money must come from the National Revenue Fund, but National Treasury wants it to come from IPID’s budget. The Committee would deliberate on how it will approach this and present it to the House.

Statistics South Africa briefing
Mr Kenneth Morolong, Deputy Minister in the Presidency, said that the work of Stats SA is critical for organs of state and agencies decision-making and planning. Stats SA has been experiencing severe financial difficulties since 2015/16. It incurred unauthorised expenditure from 2015/16 to 2019/20. The unauthorised expenditure stemmed from the Compensation of Employees (CoE) due to budget reductions imposed by Treasury, not financial mismanagement by Stats SA. This resulted in warm bodies not being funded and over-expenditure incurred on CoE. Stats SA had to stop filling vacancies for a period of five years, which harmed its deliverables. These financial challenges have repeatedly been reported to the Ministry, the Presidency, the Portfolio Committee, National Treasury, and the Stats Council.

The other UE related to the Living Conditions Survey and the KwaZulu-Natal customer satisfaction survey. The delivery of these surveys added value to the stakeholders concerned. Since 2018, Stats SA has held monthly meetings with Treasury and monthly in-year monitoring reports were submitted, and these discussions were ongoing. He welcomed the proposal to condone the UE. However, due to recent cost containment measures, Stats SA finds itself again in the same situation as 2015/16, where the CoE exceeds the budget cuts implemented.

Mr Bruce Jooste, Acting DDG Corporate Services explained the overspending: 2015/16 – R6.803 million; 2017/18 – R57.270 million; 2018/19 – R54.395 million; and 2019/20 – R50.940 million. Expenditure not in accordance with the purpose of a vote was incurred in 2018/19 – R2.745.

Unauthorised Expenditure 2017/18 – 2019/20
National Treasury reduced the Department’s CoE budget to the extent that the cost of currently filled positions at the time exceeded the reduced budget allocation. This CoE budget reduction resulted in unauthorised expenditure amounting to R163.877 million: R57.270 million in 2017/18, R48.865 million in 2018/19, and R50.939 million in 2019/20.

Unauthorised Expenditure 2017/18
Stats SA undertook the KwaZulu-Natal Citizen Satisfaction Survey (CSS KZN) in terms of an agreement entered between Stats SA and the KZN Office of the Premier with a budget of R6,754 million over two years. Actual expenditure was R9,499m, resulting in a shortfall of R2,745m. The shortfall of R2,745 million was therefore included as expenditure in Stats SA’s financial records for 2018/19 and disclosed as unauthorised expenditure as required for any expenditure not in accordance with the purpose of the vote.

Stats SA requests that these unauthorised expenditures be condoned as a direct charge to the National Revenue Fund. The UE was incurred due to excessive budget reductions applied by the National Treasury, resulting in insufficient budget allocation to cover existing warm bodies.

In mitigating against unauthorised expenditure, the Department placed a moratorium on filling vacant posts for four years, reduced staff establishment by 206 posts and delayed some of the work programme targets.

Stats SA hearing
The Chairperson asked why the executive officials were acting and the period of their acting stints.

Mr Risenga Maluleke, Acting Statistician-General, confirmed that the DDG of Corporate Services has been acting for six years. The Acting CFO has been acting for two and a half years. The entity has been experiencing critical and difficult challenges in recruitment and prioritising critical posts. Although additional funding has been received, which has led to recent recruitments, a number of those recruitments could not be concluded as Stats SA is now finalising the collection of the census process. Beyond the Census, recruitment processes were to commence in earnest but there has been a new directive to halt recruitment. Stats SA has been engaging Treasury and submitting those critical positions to continue recruitment.

The Chairperson lambasted Stats SA for these acting positions – the Committee does not entertain this. Six years in an acting position is over a term; the other is halfway through a term. This does not inspire confidence. He asked how long the SG was acting in his position.

Mr Maluleke confirmed that he was no longer acting but had acted for five years and was recently appointed.

The Chairperson asked if this came out of the moratorium.

Mr Maluleke confirmed that the moratorium had affected the recruitment process. Although his appointment came recently, the recruitment processes had been at standstill since 2015/16 due to budget cuts. Recruitment had to be stopped to fit within the allocated budget.

The Chairperson asked if the moratorium had been lifted for the SG appointment and if he can appoint.

Mr Maluleke replied that the moratorium had not been lifted and asked the Acting DDG: Corporate Services to give details.

Mr Bruce Jooste, Acting DDG Corporate Services, said that from 2015/16 up to August 2020, Stats SA was not recruiting because the budget cuts implemented by Treasury exceeded the CoE. Stats SA had experienced many resignations during that period, which reduced the CoE budget and almost balanced with the Treasury budget at the time. The CoE budget was already not sufficient.

Stats SA approved its new five-year structure in March 2020, when COVID-19 hit the country so recruitment was delayed. Treasury funding was received in 2021 and recruitment commenced. The Committee must note that at this time, Stats SA had not recruited for five years. Internal candidates were given preferred options to apply for positions, but SMS positions were advertised externally. This was when the Census project had commenced and all resources were redirected to the Census recruitment, which is over 100 000 temporary staff workers. Consequently, this slowed down the recruitment of permanent posts.

Now, over 400 people have been recruited with 114 internal promotions. There has been progress in recruitment, but Stats SA is now back to square one and must submit the list of critical vacancies to NT and DPSA for approval for the 2023/24 financial year. The moratorium was still in place.

The Chairperson was unconvinced and felt that there were a lot of gaps. CoE is central to Stats SA unauthorised expenditure. He asked if the Acting DDG was being compensated at a DDG level.

Mr Jooste confirmed.

Mr Somyo noted that the CFO was an acting position and asked how Stats SA was performing financially as this leads to deficiencies in financial management. The acting cycle becomes a domino effect. The CFO position is critical and requires stability for the sustainability of any organisation.

Stats SA reported that it had to venture into an unfunded Living Conditions Survey and continued with it, although it is an unfunded mandate. All organisations exist due to the management of processes and any management lapse results in deficiencies. In this case, such deficiencies resulted in UE for four financial years, whether they stemmed from an imposed mandate or not. He asked how the entity would avoid these unauthorised expenditures.

Ms Makhamba said Stats SA is experiencing difficulties in its budget and one is unsure if it was due to incompetency or the nature of its work. The UE continues while Treasury continues to cut its budget. Why does Treasury continue cutting the Stats SA budget when Treasury knows the financial difficulties? Does Stats SA plan the projects it will embark on at the beginning of the financial year and assess if sufficient budget will be available? Stats SA needs to assess how it plans to address the UE incurred continually which reflects a level of incompetency or lack of planning by Stats SA.

Mr A Lees (DA) said nothing had been done about this. If Stats SA were a business, it would be bankrupt. Budget cuts are not the issue here; there is a lack of will to take action to meet the budget available. There is money to pay for acting allowances, but there is no money for appointments, and it feels messy. Stats SA needs close monitoring. Who was the accounting officer who authorised the KZN Survey, knowing that Stats SA did not have the funds for it?

He criticised Stats SA for its outcry about limited budget and funding constraints, but the delegation came in numbers to attend this meeting and was sleeping at hotels.

Ms Beukes suggested that Stats SA appear before SCOPA again to present its organisational structure.

The Chairperson asked if the money surrendered to Treasury would be considered underspending. Secondly, he asked Treasury about budget cuts which hds a material impact on the books. If Treasury continues underfunding Stats SA, it will continue on the same path. Why did Treasury not grant the funds when Stats SA first complained – only to fund it down the line? He lambasted Treasury for how it handles budgeting for entities. Thirdly, why is the KZN Office of the Premier not paying the shortfall of R2.7 million?

Mr Jooste replied that Stats SA is a national department, not a business. Thus, in terms of process, Stats SA falls under DPSA as an employer for all public servants. Stats SA cannot retrench without a bargaining process through DPSA and DPSA, as employer, would have to lead that process.

CoE is a baseline allocation that cannot be exceeded. One cannot transfer funds from the goods and services budget to reduce CoE over-expenditure. If Stats SA incurred over expenditure on CoE, it could not be reduced by reductions in goods and services. The entity has also been fighting for increases in the goods and services budget to increase the types of statistical releases it delivers on its mandate. When Stats SA was restructured, the Census employees had to be reskilled as Stats SA moved from a paper-based model to a digital system. The 3 500 employees approved in the new structure has now been reduced to 2 670 employees. This reflects the efforts to reduce the unauthorised expenditure incurred in the CoE baseline.

Stats SA has pleaded with Treasury over the years and requested additional funding unsuccessfully. Up to the current financial year, Stats SA could not allocate money from the goods and services budget to its CoE, but Treasury has now issued a directive as a cost containment measure to cut costs on the goods and services budget and redirect some of the funds to address the CoE budget shortfall. There has been no budget mismanagement as all is clear in the MTEF process. It has repeatedly said to Treasury how the over-expenditure affects Stats SA.

Mr Nakedi Phasha, Stats SA Acting CFO, commented on the concern about the budgeting process at Stats SA. The underspend was unintentional and halting the recruitments could not close the gap. The budget cuts were over the MTEF period; it was not annual, but carried over time. Treasury, in its recommendations, would have supported the full amount. The only reason it is not is because of Practice Note 4 which states that it cannot be on economic classification only. They have adjusted what Stats SA initially projected to restate as an accounting treatment, but not necessarily that all the amounts should be condoned for CoE. The audits can confirm that the financial statements were prepared properly and there are no issues about Stats SA as a ‘going concern’. Treasury has acknowledged that it cut the budget beyond what should have been cut.

The Chairperson interjected and said this budget process seemed ‘ad hoc' styled because there is an annual performance plan and budget, which is presented to Parliament. There is also a BRRR process currently before Parliament. It seems there must be a special dispensation for Stats SA. The unauthorised expenditure is recurring and underspending on certain line items almost to the tune of what Stats SA is overspending on other line items. Where is Stats SA underspending in the APP, and he wondered in what direction Stats SA is going.

Mr Pasha explained that spending reviews were implemented to contain costs.

Ms Celia de Klerk, Stats SA Chief Director: Strategy, responded about the Living Conditions Survey. The statistical programme consists of periodic surveys and an agricultural census undertaken every ten years, including the Census. The Living Conditions or income/expenditure surveys are undertaken every five years and Stats SA must receive ringfenced funding for these surveys. For the 2015 Living Condition survey, Stats SA did not receive any funding from Treasury. This survey is critical for determining the CPI basket of goods and services and measuring poverty and inequality in South Africa. This was the last time this survey was conducted. There was a consideration to either forgo this survey or redirect funds internally to ensure it was done. There was no overall over-expenditure on the Stats SA budget.

Statistician-General Maluleke said that since the 2015/16 financial year, Stats SA has continued to tweak internally to ensure that its key statistics output was not compromised. This was the stance with all the budget cuts, and Stats SA endeavoured to protect key indicators. Some people have acted in multiple positions due to their skills and expertise, which has affected employee health. The entity had to attempt to make do with the available resources and protect its outputs although it is undesirable to have a vacancy rate of 19%. There are ongoing engagements to rectify the situation.

National Treasury response
A National Treasury official said that he was not the budget analyst for Stats SA and said the Treasury team present was not aware of the R2.8 million. There has not been a specific discussion with Treasury to the extent that the R2.8 million is over and beyond the recommendation of Treasury.

The Treasury team's recommendation stems from a mix of section 34(1) and (2) on Unauthorised Expenditure in the PFMA. Given the financial pressures, some of the funding for the UE was recommended to be deducted from the Department over the next three years. The entity did underspend on certain programmes. It had some potential to virement those funds to address potential underspending if it was done timely. Hence, the advice was that Stats SA should deal with future budget and spending through Section 34(2). We are likely to see more of this problem emerging due to the unfunded wage agreement as well as budget cuts. The Minister is coming to Parliament for the MTBPS, and there are significant problems in the national revenue, posing pressures for many departments over the years.

The fact that Stats SA downsized its personnel by over 400 people shows it went through a difficult period to keep within budget. Treasury does not appropriate budgets but Parliament does. The unfunded wage agreement and declining national revenue will pose significant challenges to many departments.

The discussion between Treasury and Stats SA did not cover the 2015/16 period, which was part of the presentation. There may have been a previous recommendation to an earlier SCOPA for that period, but it is not part of the recommendations from Treasury.

The Chairperson said that the Committee will include in its legacy report that SCOPA must have quarterly updates on unauthorised expenditure by Treasury to circumvent these issues. The financial year 2015/16 is not in the recommendations, which is strange because the Committee met with Treasury on this matter.

Deputy Minister Morolong found it unfathomable that Treasury did not pick up the R2.745 million owed to Stats SA by the KZN provincial government when monthly meetings are held with Treasury. Stats SA produces 250 various reports annually prepared by 'warm bodies'. They are not automated surveys; thus the budget reduction has huge implications for these important surveys. Stats SA reviewed its organisational structure, and it has yielded fruit given its budget limitations. A decision had now been taken to do user surveys only once the amount was paid in full to avoid the KZN matter.

The Deputy Minister disagreed with the Member who said the officials were here and slept in hotels despite budget limitations. The officials were invited and came here because they respect the legislature and the need to account. What must they do? They did not choose to be physically present for this meeting. He implored that this notion must not be repeated.

The Chairperson noted the responses and said that correspondence will be sent to the KZN provincial government about the R2.745 million and why it has not been paid. Treasury must provide guidance on who is liable for this amount. This amount should have also been presented to Treasury if presented to the Committee. Treasury must provide a written response as to why those funds were not granted.

The Committee will consider the matter, and where further information is required, the Committee will write to Stats SA.

Department of Basic Education briefing
Minister of Basic Education, Ms Angie Motshekga, apologised for her absence from the previous Committee meeting and it was not out of disrespect as she was in New York to serve on the UN Secretary General's high level panel. The meeting was planned for a year. While she was away, she was requested by the Presidency to spend an day extra to represent the Minister of Women, Youth and Persons Living with Disabilities.

DBE requests the Committee to condone the 2014/15 unauthorised expenditure of R6.4 million for the National Teacher Awards (NTA) as the programme's sponsorships were insufficient to cover the entire event. The Department had tried to be innovative and integrate some of its programmes as cost containment measures. The Department cut the budget below what it usually budgets for the event.

The expenditure was approved by the Accounting Officer to ensure that the NTA objectives were met. The Department sent a letter to the National Treasury DG on 29 October 2015 requesting his recommendation to SCOPA for the condonation of the unauthorised expenditure.

In its motivation, DBE noted that the objectives in hosting the NTA were met; value for money was realised; jobs (albeit part-time) were created; the overall budget vote was not exceeded; only a fraction of the permissible virement of 8% was utilised; and the NTA event happened too late in the financial year for an adequate virement to be made.

DBE hearing
The Chairperson asked how the Department was unaware it had to obtain approval from Treasury for utilising virements.

Mr Somyo asked who the Accounting Officer was that authorised the expenditure at the time or failed to obtain approval from Treasury for the virement.

Mr Paddy Padayachee, DBE DDG: HR and Institutional Development, confirmed he was the Accounting Officer in 2014/15 and this acting postion ended on 15 August 2015. He approved a R19 million budget, which was the amount that was exceeded. During his acting stint, he was not aware of any overspending. Only after the audit was completed was such a finding made.

Mr Mathanzima Mweli, DBE Director-General, confirmed this was picked up after the financial year ended. The event happened on 7 March 2015, close to the end of the financial year. The process to reconcile 2014/15 expenditure went over the financial year. Something different could have been done. The Department did not experience any further unauthorised expenditure because officials learnt from it.

The Chairperson asked if the virements were done. Treasury says the Department realised only after 31 March 2015, that it required Treasury’s approval to shift funds from where underspending had occurred. Did the Department solicit Treasury’s approval, and was the official aware that he must solicit Treasury’s approval when the virement was done?

Mr Somyo said this was an administrative process. Project managers of the event would have to be accountable for virements that had to be done as they would have planned for the event and its costs. Knowing after the fact what should have been done is problematic in administration. He welcomed that money was not stolen, but officials responsible for the project should have ensured the proper process was followed.

Mr Padayachee replied that there had been indications that this could be managed. There was no investigation, and officials did not think there would be an audit finding. When the audit ended, the findings came up, and he had stopped acting by then. He did not recall signing any documents for the virement.

The Acting DBE CFO said the virement did not require Treasury’s approval, but the Department was only informed after the end of the financial year about the virement that was effected about the audit finding. It was done in areas where funds could be shifted according to the PFMA.

National Treasury response
A National Treasury official said the virements were not done timeously, but there is a sense that no one has benefited from this error. Treasury suggests that this UE should be funded directly from the Department’s budget.

The Chairperson recommended that before this matter gets finalised, DBE must investigate and report back to the Committee. Treasury argues that prescripts were not followed, but the CFO claims that the virement did not require approval. He asked the Committee Secretariat to request the Budget Office to assess these claims.

Mr Somyo said the DG must obtain a report from Treasury on what transpired.

The Acting DBE CFO said the Department is not disputing Treasury and its recommendations. Virements were made to cover the shortfall in the programme but it could only cover part of the amount. To cover the R6.4 million, DBE needed approval from Treasury but it did not solicit it as it was too late.

The Chairperson said the approval was sought after the fact. This is a basic administrative process that should have been done. The Committee will grant the Department 14 working days to investigate this matter.

Mr Mweli committed that he would conduct the investigation within seven days but sought clarity on the scope of the investigation if, indeed, the matter was brought to Treasury after the fact.

The Chairperson said the investigation must clarify how this administrative lapse happened because it is substantive to incurring R6.4 million unauthorised expenditure. The DDG said no investigation was conducted; now the Committee requires an investigation. The investigation will clarify how this happened and who is responsible for the purposes of consequence management.

He resolved that instead of seven working days, the Committee will grant the Department ten days until 27 October 2023.

Ms Makhamba said it was impossible to conduct such an investigation within seven working days unless the Department had already conducted the investigation but had not presented it.

Mr B Hadebe (ANC) cautioned that it must not be done as a formality or tick box exercise. It must be demonstrated that the Department has sufficiently dealt with the issue to avoid future occurrences and has employed mitigating measures. When it receives the report, the Committee must be satisfied that the Department has applied its mind.

The Chairperson acknowledged that Treasury has said that no one personally gained from the transaction, and that is noted.

Department of Social Development (DSD) briefing
Minister Lindiwe Zulu noted that DSD last appeared before SCOPA about unauthorised expenditure in 2014/15. She consistently speaks to DSD officials about respect and strengthening the institutions of government and the role of Parliament in holding the DSD accountable. The building and strengthening of institutions are critical to protect state resources and ensure that people are held accountable.

DSD has been invited to present its on the R15.134 billion unauthorised expenditure in 2019/20. The necessary documentation and presentations were sent to the Committee. The Sixth Administration began in 2019 and the portfolio had the mammoth task of addressing poverty alleviation through social protection. The challenges of COVID-19 will also be covered in the presentation and the difficulties presented by the lockdowns.

In March 2020, the 21-day lockdown commenced, and it became a significant challenge because DSD had 18 million grant beneficiaries. Before the lockdown commenced, DSD easily paid social grants to its beneficiaries. However, when Covid-19 hit, there was no movement, which made it difficult for it to deliver on this programme. SASSA was thus responsible for alternative ways to make the social grant payments. The grants constitute about 95% of the Department budget prior to the Social Relief of Distress (SRD) grant. On average, the Department paid R15 billion to more than 18 million beneficiaries prior to the SRD R350 grant which became popular. Therefore, it was impossible to cover the R350 grant expenditure within the 2019/20 financial year to avoid over-expenditure in the 2019/20 financial statements.

Mr Linton Mchunu, DSD Director-General, said before COVID-19 hit, all categories of grants were paid by the first of every month. Having people gathering to collect grant payments would be counter-effective for COVID-19 restrictions, and these gatherings would have been a super spreader. At the time, people collected their grants from the Post Offices, some were paid at mobile set-ups for people who lived in rural or remote areas. About 12 million people, At the ATMs and other retailers, 12 million people received their grants.

At the NATJOINTS meeting, DSD was advised to consider a different way of paying social grants to avoid super spreaders. Hence, the payments were staggered over several days, given the limitations of the number of people allowed to gather in one place at the same time. The first day was payments to the elderly, about 4.1 million people, and the other categories followed. The grant payment for April 2020 was brought forward to the 30 and 31 March 2020.

It is important to note that the early payment for April 2020 social grants was made in conjunction with Treasury and NATJOINTS based on the risk assessment done to prevent the spread of the pandemic through “super spreaders”. This was also done early before the hard lockdown was implemented. For that financial year, DSD received a clean audit from the AG.

Mr Fanie Esterhuizen, DSD CFO, said due to the early payment on 30 and 31 March 2020, DSD overspent its budget by R15.1 billion and it could not be funded as the financial year was concluded.

Mr Mchunu said the DSD has since institutionalised the payment process of social grants to reduce too much cash in the system. Secondly, there was no poor planning, mismanagement of funds or negligence from the Department’s side. There was no investigation required to be done, and there was no consequence management that had to be implemented.

There is now experience in managing lockdowns and he believed DSD could manage disasters better going forward. At the time the Presidency made an announcement about the early payment of social grants but there was no concurrence from Treasury. These matters have been presented to the Portfolio Committee and SCOPA. The grant payments were properly accounted for and there was no loss to the Department. Therefore, it requests that this unauthorised expenditure be treated as a direct charge to the National Revenue Fund.

Ms Busisiwe Memela-Khambula, SASSA Chief Executive Officer, added that this had been a difficult time to decide what could be done to continue with grant payments, especially for the elderly. The advice from NATJOINTS was for alternative payments, and consultations were done with stakeholders on the mitigating factors. About 4% of the people at that time received payments from the Post Office. SASSA also ended up using the Post Office for other categories instead of the National Payment System.

The Chairperson asked if the DG was acting and why he was acting.

Minister Zulu confirmed that the DG was acting. DSD had gone through the recruitment process, which was completed. The remainder of the process was now before the DPSA. DSD is waiting for the DPSA to conclude that process, and Cabinet will announce the appointed incumbent.

DSD hearing
Ms Makhamba said it was impressive that DSD did not incur this from mismanagement but in response to a national disaster. What were the other interventions the Department embarked? How was the R15.1 billion recouped?

Mr Somyo recalled that the previous AG, Mr Kimi Makwetu, during the process of real-time audit, this unauthorised expenditure was one of the identified issues. He explained and acknowledged the result of such unauthorised expenditure in the Department, based on mitigating measures in the fight against the COVID-19 scourge.

Mr Hadebe said this appeared as a clear and simple matter so why is it termed ‘unauthorised expenditure’ if Treasury was made aware of the reasons. Are there measures that were supposed to be taken to avoid terming this transaction ‘unauthorised expenditure’? There was an instruction note on how exceptional circumstances would be dealt with during that period.

The Chairperson noted that the Disaster Management Act was utilised for the first time in that way during Covid-19. He would appreciate an assessment of its implications on some of the delivery objectives of the government. We need to assess the implications of disasters on the Public Financial Management Act and Municipal Financial Management Act.

Minister Zulu agreed with the Chairperson and said that while COVID-19 was a challenge, it was a good lesson to learn how to deal with disasters as we implement government priorities and deliverables. Disaster management is a critical issue for the DSD. The impact of disasters on people’s lives often triggers the DSD’s response to provide social security and assistance.

Mr Esterhuizen replied that the 2020/21 financial year was unusual, and the intention was that the over-expenditure of R15.134 billion for 2019/20 was supposed to be suspended and taken from the 2020/21 financial year. National Treasury had a supplementary budget prior to the mid-year budget adjustments. The R15 billion was supposed to be suspended and taken from the 2021 financial year due to the announcement of the payment of the R350 grant, and DSD was responsible for this. The allocated amount was about R40 billion to pay the SRD grants in the 2021 financial year. The R15 billion over expenditure for 2019/20 was balanced off against the R40 billion. Thus, instead of the R40 billion allocation for SRD grant payments, DSD was allocated R25 billion.

Mr Mchunu said the auditors identified no material findings on this unauthorised expenditure. One of the issues identified during the real-time audit was data integration challenges among government departments. To properly verify beneficiaries, the Department had to verify that the beneficiary was not receiving money from any other source or department to be eligible for the grant. This process assisted in obtaining real-time data required to make payments to beneficiaries. When a person applied, they could have been unemployed, but their circumstances may have changed during the verification process. The consistent consultation on the payment value chain assisted the Department greatly, and there is evidence of such correspondence with Treasury and AGSA.

Nothing was done incorrectly, after having received guidance from the authorities. According to the PMFA, ‘unauthorised expenditure’ is defined as once a department overspends on the allocated budget, the excess is considered ‘unauthorised’. The timing of what happened was at the tail end of the financial year, and no appropriations could be made at the time. Within those five days or so, Parliament could not appropriate the budget.

Mr Lees asked if this was about timing, why does it have to come out of the National Revenue Fund (NRF) and not the Department’s future budget?

National Treasury response
A National Treasury official said that DSD acted appropriately given the country's disaster. The appropriation in terms of Section 34(1) requires a finance bill, not cash, to flow because the cash has already flown. If it was approved in terms of Section 34(2) of the PFMA and if the funds were to be taken from DSD, the R15.134 billion would have to be removed from its budget over the years, which would be detrimental to the payment of grants.

Director General Mchunu requested that the R15.134 billion be a direct charge to the NRF.

The Minister echoed the request made by the DG. She thanked the Committee for their engagement. It is important to consider disaster management as it impacts government’s deliverables. She criticised the media's sensationalisation of government performance. Continued negativity is not necessary for a democracy in the making. In building a nation, we cannot do so by twisting information to suit certain narratives.

The Chairperson said the Committee would recommend tightening up Parliament’s processing of UE. The Committee is cleaning up the unauthorised expenditure schedule dating back to 2006. It is also sorting out the Special Investigating Unit (SIU) reporting model to the Presidency, which has unprocessed reports since 2001.

Meeting adjourned.

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