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

Meeting report

Opening Remarks

The Chairperson greeted Members of the Committee and representatives of the Financial and Fiscal Commission (FFC) and the Auditor-General of South Africa (AGSA). She welcomed those returning from recess and the delegation that went to Finland.

Mr R Moroatshehla (ANC) moved to adopt the agenda as is.

Mr T Letsie (ANC) said he hoped the Deputy Minister was present to represent the Department, as the Minister had issued an apology. He seconded the motion to adopt the agenda.

The Chairperson said the Deputy Minister was not in the meeting. She asked who was leading the DBE.

Ms Simone Geyer, Chief Director: Planning and Delivery Oversight, DBE, said she would have to leave the meeting temporarily to open another conference.

The Chairperson said they would allow the FFC to give their presentation, for the purposes of time.   

FFC on the expenditure patterns and equity in education

Dr Patience Mvaba, Chairperson of the FFC, introduced the Commission's delegation, and introduced the presentation.

Expenditure patterns in respect of infrastructure

Ms Sasha Peters. Programme Manager: National Appropriations, FFC, said that in November 2013, the Minister of Basic Education had published legally binding regulations on minimum norms and standards for school infrastructure which had specified the basic level of infrastructure that every school must meet to function properly, and the timeframes within which school infrastructure backlogs must be met.

There had been progress regarding access to basic infrastructure, such as water, sanitation and electricity. According to the National Education Infrastructure Management System (NEIMS) report, as at 2023, all schools had some form of electricity, water and sanitation. The quality of basic infrastructure required continued attention – 3.2% of schools in SA had pit latrines as their only source of ablution facility as of 2023, though this had declined from 16% in 2019.

Since inception, R24 billion has been allocated in respect of the School Infrastructure Backlog Grant (SIBG) which was used to fund the Accelerated Schools Infrastructure Delivery Initiative (ASIDI) programme. On average over the period 2011/12 to 2022/23, 76% of the allocated amount had been spent.

The Education Infrastructure Grant (EIG) was introduced to accelerate the construction, maintenance, upgrading and rehabilitation of new and existing infrastructure in education, enhance the capacity to deliver infrastructure in education, address damaged education infrastructure, and assist in ensuring that targets set out in the minimum norms and standards for school infrastructure were met.

EIG was a schedule 4A conditional grant to provinces. It was therefore meant to supplement provincial allocations, and provinces were also required to make contributions from total provincial revenue. Challenges around the inability of provinces to contribute to this grant remain, with the result that provinces tend to rely entirely on the EIG to fund infrastructure.

Infrastructure concerns raised in DBE annual report

Effective steps had not been taken to prevent fruitless and wasteful expenditure amounting to R15 660 000, as disclosed in note 24 to the annual financial statements, as required by section 38(1) (c) (ii) of the Public Finance Management Act (PFMA) and Treasury regulation 9.1.1.

Most fruitless and wasteful expenditure was caused by school infrastructure projects that were cancelled due to duplicate allocations to the implementing agents.

Non-infrastructure conditional grants

Mr Fabrice Gatwabuyege, Researcher, FFC, said the largest grant was the National School Nutrition Programme (NSNP) grant, with R8.5 billion allocated in 2022/23. The smallest grant was the HIV/AIDS (Lifeskills Education) grant, which was allocated R242.3 million in 2022/23. Generally, non-infrastructure grants were characterised by declines in 2022/23.

Generally, spending of non-infrastructure conditional grants as at 2022/23 was aligned to the allocated budgets, but high-level trends masked provincial disparities in spending performance:

• Maths, Science and Technology (MST) grant:  Free State (FS) 64%, Limpopo (LP) 83%, Eastern Cape (EC) 135%, Western Cape (WC) 124%.
• HIV and AIDS (Lifeskills Education) grant:  LP 81%.
• Learners with profound intellectual disabilities: FS 79% , North West (NW) 89%.
• Early Childhood Development: NW 79%, Northern Cape (NC) 82%, FS 85%.

Spending performance was important, but must be looked at in relation to delivery performance. For example, 96% of the NSNP budget in KZN was spent in 2022/23, yet there were challenges around learners not receiving meals.

National norms and standards for school funding

An FFC researcher said the South African Schools Act (SASA) requires government to fund schools adequately and equitably by establishing no-fee schools. National Norms and Standards for School Funding (NNSSF) were intended to reduce resource disparities between affluent and less affluent schools.

The NNSSF takes a quintile-based funding approach. A five-tiered system was used, with Quintile 1 including the neediest schools, whilst Quintile 5 was the most affluent. Learners in quintiles 1, 2 and 3 do not pay school fees. This approach aimed to achieve redress and equity by directing greater funding to needier learners. Each year, the national DBE sets the target per learner amount for each quintile, which provincial Departments of Education should adhere to. Some provinces were unable to augment NNSSF funding to support the under-resourced schools.

Equal spending at the school level remained a problem. There were disparities in meeting the targeted NSSFF learner allocations, across provinces and within districts and schools. Disparities were exacerbated by the faster growth in spending on the compensation of employees, the phenomenon of learner mobility and fiscal mismanagement.

The FFC questioned the adequacy of the set target learner allocations, asking whether funding was sufficient to meet requirements around, for example, one textbook per leaner per subject, and/or maintenance.

Relevant FFC research from the annual submission for the 2024/25 division of revenue was that learner-teacher support materials (LTSM) and learner transport were key considerations when thinking about equity. They were considered essential elements related to the right to a basic education in South Africa (S29(1) of the Constitution). Unfortunately, the poor provision of LTSM and learner transport has been the subject of court cases.

Dr Mvaba concluded that if the performance challenges and uneven access to school infrastructure and other educational inputs were not addressed, the wide disparities in educational outcomes between rural and urban provinces, and between less affluent and more affluent schools, would persist.

(Please see attached document for full details).

AGSA: Budgetary review and recommendations report (BRRR)

Audit outcomes

Ms Kgabo Komape, Business Executive, Auditor-General of South Africa, AGSA, said that in their previous audit cycle, they had urged the auditees to institutionalise their preventative and detection controls to improve sound financial management and audit outcomes within the portfolio. They indicated that sustainable improvements in audit outcomes would be achieved only when all role players in the accountability ecosystem consistently discharge their roles and responsibilities. The lived experience of the people meant to be serviced had not significantly changed, as most of the commitments made were still in progress.

Mr Joshua Baganzi, Senior Audit Manager: AGSA, said the DBE had implemented most of AGSA's recommendations in dealing with noncompliance with supply chain management (SCM) prescripts which had caused an increase in irregular expenditure over the years. Most of the implementing agents that used to contribute the most to the increase had demonstrated a commitment to ensuring that the Department was no longer incurring irregular expenditure through noncompliance with SCM laws and regulations. However, they noted noncompliance with SCM legislation by one implementing agent, the National Education Collaboration Trust (NECT), which was new. They further encouraged the Department to strengthen the onboarding of new implementing agents to ensure consistent application of laws and regulations.

In response to their recommendations, the Department investigated almost all the cases of irregular expenditure. Implementing consequence management took a long time, and this needed to be attended to urgently.

The leadership in the Department needed to swiftly institute consequence management against officials responsible for noncompliance with key legislation to help it to recover the losses on time from those officials who had incurred, or caused, irregular expenditure/losses to be incurred and to deter other officials from contravening legislation.

Regarding compliance with the Public Finance Management Act (PFMA) and the reporting framework, the

AGSA refined its audit approach to uphold transparency by continuing to audit the irregular, fruitless and wasteful expenditure (IFWE) disclosure in the annual report. There was a clear message in the audit report on reliability of the IFWE disclosure in the annual report. The objective was to ensure that the AGSA could still be in a position to report to users of the annual financial statements (AFS) in cases where these historic IFWE balances were not complete and accurate. This had no impact on the audit opinion.

Providing insights into root cause and the impact of targets not achieved, Mr Baganzi said the underachievement of planned service delivery and reported achievements would compromise the achievement of government’s priorities and erode future budgets meant for service delivery. The impact of the exclusion of medium term strategic framework (MTSF) indicators was that the MTSF targets might not be met and could potentially have a direct impact on the delivery of quality education to the citizens.

He referred to seven instances of material irregularities (MIs) that had been picked up in the auditing process. These were:

• Three cases of payments for goods or services not received – Eastern Cape;
• Two cases of auditees making payment of interest and other penalties – Kwa-Zulu Natal and Limpopo;
• One case of salaries made to persons no longer employed by the Department -- Kwa-Zulu Natal;
• One case of noncompliance with SCM prescripts – Gauteng.

Turning to projects in the information communication technology (ICT) environment, he commented on the lack of cyber security governance and controls. There was a weak ICT security environment as a result of missing patches, unsupported applications, and weak configurations.

The DBE had taken over managing the Electronic Facilities Management System (EFMS) system in 2021 to roll out to all provincial education departments (PEDs). However, the system had been fully rolled out in only three provinces -- the Eastern Cape, North West and the Northern Cape, and had not been fully utilised.

R100 million had been budgeted to implement the entire South African School Administration and Management System (SA-SAMS) modernisation project, but it had been reduced to R68 million. Only R12million remained in the budget to implement releases 4 and 5, which would hinder the successful implementation of the project. The system quality management plan and testing were not performed for all the completed releases.

Mr Baganzi addressed the root causes and recommendations arising from the audit reports of the DBE and its entities. He said the auditees did not implement effective preventative controls over preparation of financial statements and annual performance reports. The AGSA recommended that the Department strengthen the in-year monitoring, and put corrective action in place to enable credible financial and performance reporting, prudent and efficient spending of the budget, and proper cash flow management to improve the status of the Department's financial health and audit outcomes.

Reflection on education sector performance

In AGSA's analysis of the MTSF indicators and targets for the past four financial years, it noted that provinces were not achieving their targets, which directly delayed delivery of the intended quality education, even though the budget was at times exceeded by a number of auditees.

The underachievement of the planned service delivery and reported achievements. and lack of correlation with the budget spent, would compromise the achievement of government’s priorities and erode future budgets meant for service delivery.

Early Childhood Development (ECD)

There was inadequate infrastructure for ECD -- the infrastructure was not adequately maintained, and not free from health risks. For example, at schools visited in NW, the toilets were not well maintained and had broken doors and windows, with large weeds compromising the safety of learners. The electricity cables were also left exposed where learners could easily reach them, with the cables running along the walkway from one block to another. In MP, toilet and hand washing facilities for children over the age of three years were not age-appropriate. In some instances, grade R learners were sharing toilets with children from higher grades and the size of the toilets was not suitable for grade R learners.

Basic Education: National School Nutrition Programme (NSNP)

Schools did not implement effective stock management and appropriate storage facilities for learners to be served fresh and healthy meals. Schools did not use appropriate utensils and equipment for serving and preparing meals. NSNP funds were not used economically and efficiently in terms of procurement of food items, and for the purpose intended. The schools did not follow the prescribed procurement process, resulting in some schools being unable to feed learners.

Basic Education: Learner transport

The number of learners approved to be transported exceeded the capacity provided (overloading). These overloads result in potential harm being caused to learners, as their lives are at risk as each learner is not safely accommodated in the vehicle. Teaching and learning were affected, as the learners missed some important lessons due to drivers not ferrying them, which also impacted their academic performance.

The issue results in noncompliance with the SCM prescripts and the learner transport policy, and attracts irregular expenditure and loss of funds meant to service the learners.

Basic Education: Planning process and effective use of resources

There were about 242 projects delayed, and 271 were cancelled during the year in the basic education sector. Of the cancelled projects, the DBE had cancelled 210, which resulted in fruitless and wasteful expenditure of R15 million. The cancelled and delayed projects were caused mainly by poor project management and monitoring, which resulted in increased costs. Poor workmanship was identified in some instances. Completed infrastructure was not utilised to its full capacity. Schools were found to be in a dilapidated state due to lack of maintenance.

Kwazulu-Natal floods: real time audit

1. Confirmation of lack of progress on site

None of the 76 mobile units were signed off for use, as work was still in progress to rectify the findings raised during the audit and the Department’s snag list. 

2. Brettonwood High School

Brettonwood High School’s flood relief needs differed in view of concerns of a structural nature. This meant that their current needs at the school required an assessment of the safety concerns at the school, instead of the provision of mobile classrooms to an area prone to frequent flooding. Given this risk, two additional mobile classrooms have since been installed at the school and utilised without the Department's sign-off.

3. St Nivard’s Primary School

Four months after the Department issued the snag list to the contractor in May 2022, it was observed that mobile classrooms were still unavailable for use and the contractor was still on site, compacting the ground under the mobile classrooms. The delay in the provision of the mobile classrooms at the school had resulted in the existing classrooms becoming overcrowded, with 110 learners in one classroom.

4.Requisition for furniture/equipment and stationery/books

Furniture, equipment, stationery and books that the rain had damaged had not been provided to the schools affected by the floods.

Overall Recommendations

The Committee should continue monitoring and following up on DBE’s responsibility for monitoring and coordinating implementing sector priorities. Further, it must encourage the leadership in the sector to ensure that the monitoring of adherence to compliance was strengthened and improved, and that consequence management processes were intensified to address the root causes of transgressions.

The Committee should monitor the inclusion of the MTSF indicators in the APP of the departments, monitor the progress made on implementation of the APPs and assess the impact their non-achievement had on service delivery.

It should oversee the implementation of remedial action to address deficiencies identified through an audit of school performance improvement, Early Childhood Development, the National School Nutrition Programme, school infrastructure, learner transport and Presidential youth employment initiatives. 

Discussion

Mr Moroatshehla said the FFC presentation had indicated the targets for the minimum norms and standards of infrastructure had not been obtained, and asked why they were not achieved. The growing population of South Africa represented a moving target for the Department. This growth rate was far above the National Development Plan (NDP) projections. This had had a drastic impact on infrastructure development. From the FFC point of view, how would this population increase impact the provision of infrastructure in the sector? What implications did it have for the minimum norms and standards targets? What did the FFC propose as a mechanism to finance the infrastructure deadlock?

He asked what measures were in place to address the shortage of libraries, laboratories and computer centres. Over 90% of shortages in basic facilities, specifically in Limpopo, could not be considered normal. He noted that the AGSA had presented recommendations on all of their findings in the presentations -- what the Department was going to do with those recommendations, was more important. On infrastructure, he said the ECD had migrated to mainstream education by 1 April 2022. Given the challenges of the backlog of infrastructure in the sector, what was the extent of the backlog in the ECD sector, and what interventions would be helpful for the Department?

Ms A van Zyl (DA) said the FFC presentation indicated that Kwazulu-Natal had been funding all quintiles below the national threshold since 2014, and in Mpumalanga since 2016. In 2023, all Mpumalanga’s quintile five schools had been funded above the minimum threshold. She said the quintile system was flawed. The Committee had done oversight in Kwazulu-Natal, and there was a quintile one school just across the road from a quintile 4 school. These children did not get the value added from grants. They were disadvantaged from the start due to skewed results. She said a national audit of quintile ranking might need to be done. What were the causes for the disparities in national norms and standards for school funding and learner allocations?

Referring to LTSM and learner transport, she said much could be said of the underperformance of this area in most provinces. Some learners had to walk over 20km to get to school in KZN. The policy on learner transport also differed in KZN from the rest of the country. What engagement did the FFC and DBE have had on LTSM differentiation and learner transport provision? There needed to be urgency on the part of the Department once recommendations were given after an outcome. Consequence management had to be prioritised. Little to no consequence management was conducted by provincial departments on annual reports. What was the Department’s plan to ensure compliance with the PFMA? She said there was a crisis of 49% of educators retiring in the next ten years. This has led to skeleton staff and overcrowded classrooms. What was the Department doing to mitigate this crisis?

Mr B Nodada (DA) said the FFC’s research was much more comprehensive than they had received in 2022. In terms of infrastructure research on the financial management of the Department, he asked if the FFC had done any research on maintenance management and budgets. In the 164 schools they had visited in the last year, he noticed no financial maintenance strategy or budget for sanitation. If there was no financial maintenance strategy, pit toilets would not be eradicated in schools. He asked if the FFC did any research on the Department’s strategic framework for connecting schools to a network and Wi-Fi. If so, what did those percentages look like? Online blended learning and digitised education was a massive tool for overcoming literacy and numeracy challenges. Had the FFC done a financial implications study on the Department’s framework to indicate how far they were in pursuing online blended learning?

Mr Nodada commended the AGSA on their presentation, and asked in what way the National Education Collaboration Trust did not comply with supply chain management legislation. He asked what their recommendation was for improving the collection of crude Department revenue. What was the reason for changing the historical reporting of the IFWE? He said while some departments were spending the entire budget, they were not achieving all of their targets. What were the recommendations to match budget expenditure and targets achieved? Consequence management continued to be a problem -- had the Department improved in this regard, and what could be done to strengthen it? He asked how many of the projects that were cancelled were due to poor project management. How long had the following issues been noted at the DBE, based on the AGSA’s engagement: ineffective implementation of annual management processes; the mismanagement of school funds; ineffective educator leave management; learner grade promotion and achievement; and compromised learners’ and educators’ safety due to dilapidated infrastructure?

Mr Letsie referred to the decline of non-infrastructure conditional grants, and asked the FFC what impact this would have on service delivery. Had they identified any drivers of the decline of the marginal growth of these grants? Turning to the AGSA, he said the DBE had received an unqualified audit with findings. The Department did not meet the standard of payment of service providers within 30 days in 30% of cases. R15.66 million of DBE expenditure was fruitless and wasteful due to duplicate allocation of projects to the implementing agents, thereby incurring more costs. He said the exclusion of MTSF indicators could mean MTSF targets might not be reached, impacting the quality of education. What were the implications on the Department of not being allocated enough funds to meet its MTSF targets? He asked what other factors might cause the Department not to meet its MTSF targets.

Ms M Moroane (ANC) said a real concern was the lack of prioritising schools – the majority of schools did not have libraries, laboratories, computer centres or sports facilities. This was a problem in many rural schools. The Department had multiple grants allocated significantly, and asked what would be an equitable distribution of the grants to respond to environmental factors that impacted schooling, such as infrastructure, nutritious meals and transport, as well as learning materials, laboratories, and libraries. The AGSA presentation indicated noncompliance with SCM legislation remained high, resulting in an increase in irregular expenditure amounting to R5.12 billion. What measures did the AGSA prescribe to strengthen contract management in government?

Ms N Adoons (ANC) said the performance of direct conditional grants had been far better than the indirect grants. She asked what reflection this had on the capability of departments and implementing agents to use indirect grants. She did not see in the presentation other factors for non-implementation or achievement of targets. What was the FFC’s view on the impact of Covid-19 on this? When the FFC engaged with other Departments, such as Water and Sanitation or Roads and Infrastructure, did they engage with them on how they impacted other departments? For instance, challenges in the Department of Water and Sanitation could directly affect schools. Referring to the AG’s report, she said the Department had paid an implementing agent R78 million in 2017, and R22 million had been recovered. There were 19 active cases of material irregularities at auditees, and eight resolved cases in the Free State. What was the extent of compliance and responsiveness on material irregularities?

Mr B Yabo (ANC) said he had noted a decline in the number of pit latrines in the presentation by the FFC, from 16% in 2019, to 3.2%. He asked if pit latrines were a moving target due to the growing population. Would there be new demands for pit latrines due to migration patterns emerging? He asked if the DBE had received funding from the infrastructure fund in the year under review. In the AGSA’s presentation, he noted that 242 infrastructure projects had been delayed and 271 were cancelled.

Regarding irregular expenditure and noncompliance with legislation, he asked what the mechanisms were for consequence management. He said the rapid population growth would impact planning for infrastructure development. He asked the AG how population growth would impact the provision of infrastructure in the sector, and how it would affect the minimum norms and standards targets. Did legally supported models to raise funds to close the backlog of infrastructure projects exist within the Department, and also to ensure that old infrastructure was maintained?     

The Chairperson asked the FFC if they could show the Members the improvement rate of each province regarding the development of libraries and laboratories. Could the FFC could assure them that classes were allocated with water, sanitation and electricity? Had the eradication of pit latrines improved? She also asked what steps could be taken to improve the financial performance in the sector.

She commended the DBE for managing to submit financial statements, and said the Members would discuss with the Department the fact that they did not achieve a clean audit. She asked if provincial education departments were assisted in aligning their APPs with MTSF targets. On material irregularities, she asked how to best address the issue of a lack of meals in schools. How would the AG recommend steps for compliance with key legislation? What were the root causes of noncompliance? She said the ECD was a major focus area for the Committee. ECD practitioners did not have National Qualifications Framework (NQF) qualifications, despite years of experience. The AGSA presentation expressed concern over the implementation of ICT projects. How were the implementing agents of ICT projects verified and procured in terms of SCM processes? What lessons could be learned from provinces implementing ICT projects?

FFC's response

Dr Mbava thanked Members for their insightful analysis of the presentation. Regarding learner transport, she said they needed better coordination between departments. They also needed better data collection on infrastructure delivery. This would result in better plans and would enable the Department to meet the needs of learners. She invited her commissioner, as well as the researchers, to give more insights into the technical aspects of the presentation.

Ms Elzabe Rockman, Commissioner, FFC, said the backlog of laboratories, libraries and computer centres, could be linked back to the science and technology grant. Learners were not getting the baseline to be able to move out of school and into the Fourth Industrial Revolution (4IR) environment. The issues regarding learner transport needed to be further unpacked.

Ms Peters thanked the Chairperson and Members for engaging so substantively. She said the targets for the minimum norms and standards for infrastructure had not been attained to a large degree. This varied among the provinces, with some provinces facing greater levels of need. The rapid population growth would impact the demand for basic education and therefore the need for educational infrastructure. This was particularly true of learners falling within quintiles 1, 2 and 3. This was where the need for the state to cross-subsidise basic education was greatest. On how to finance the infrastructure backlog, she said the first step was to understand the extent of the backlog. The second step would be determining what it would cost to address that backlog. Greater coordination, implementation and oversight of that implementation was required.

Ms Peters said that the minimum norms and standards for school funding had provided an equitable approach to school funding. However, there were challenges with the quintile system that required examination. The disparities in funding were a result of constrained budgets. In provincial departments, budgets were concentrated on personnel spending. There was a need to look at the adequacy of budgets. She said they had not done a specific analysis, but maintenance funding was done through the Education Infrastructure Grant (EIG). The EIG was meant to supplement the funding coming from provinces. Given the budget constraints of provincial departments, they were unable to supplement this grant. On online blended learning, she said they had not analysed the Department’s strategic framework on digitised education. They had looked at the LTSM findings and noted that there was no approved LTSM policy. The existing draft policy was absent of any e-LTSM.

Ms Peters said they had mostly seen a regression in infrastructure for facilities such as libraries, laboratories and computer centres. The FFC could not speak to the delivery or quality of water, sanitation and electricity, as it did not form part of their analysis. She said the eradication of pit latrines had improved somewhat.

Mr Gatwabuyege responded on the growth rate of the allocation of non-infrastructure grants, and said there had been a negative growth rate in the last two years. The reason for this could be the austerity measures and the need for fiscal consolidation. In the 2021/2022 period, there had been growth in the number of grants for science and technology, HIV/Aids, and national nutrition.

Mr N Mlungane (sp), Researcher, FFC, referred to learner mobility, and commented that most departments say there was an absence of a school application system, because at the start of the school term there were learners that were not documented. This affected their allocations, as they also had to use the cross-sectional method of funding.

AGSA's response

Ms Komape responded on the migration of ECD, and said the reason they went to visit the ECD centres was to give feedback to the DBE on the areas that needed to be looked at. The key recommendation was to reflect on what the Department needed to do to deliver the envisioned ECD and the resources they had. This should allow the Department to prioritise and draw a roadmap on how they would be able to tackle the needs of the ECD. There would be a couple of options to explore, in just making sure that they were still able to afford the learners that needed to participate in this programme. Reflection on what they were capable of would provide an opportunity to recognise the shortages and therefore start to prioritise.

On the extent of the backlog of ECD, she said the AGSA had not visited all of them. The Department would be best at responding to the nature of the backlog. From the FFC's perspective, they should at least close on all nine provinces so that they had a complete picture of what they were struggling with at a national Department level.

On MTSF targets not built into APPs, she said the sector had previously relied on standardised indicators which worked a bit better. The standardised indicators asked all nine provinces and the DBE to move at the same pace and direction. There had to be a proper conversation with the Department of Planning, Monitoring and Evaluation (DPME), because there had to be clear direction on instances where the Department did not have enough resources to meet MTSF targets. This would close the expectation gap and coordinate their efforts.

Ms Komape said the PFMA was quite clear on how to deal with consequence management, especially on irregular expenditure. The accounting officer was expected to investigate the circumstances. Firstly, that investigation was supposed to enable the accounting officer to comprehend the internal control mechanism that had failed the entity, so they could know how to move forward. Secondly, in instances where an official could have done better in their responsibilities, the PFMA would recommend that action be taken. The PFMA would also encourage departments to recover losses caused by the behaviour of officials. That was what the AGSA was urging departments to do.

On the AGSA recommendation on supply chain processes, she said that as government, they ought to be able to plan their spending at the beginning of the financial year. That spoke to the preventative control mechanism that the AGSA recommends. There needed to be a pre-emptive conversation with the accounting officer responsible for supply chain management. Better planning increased the chances of success and the likelihood of exposure of officials.

Regarding ethics, Ms Komape said each of the officials who participated in the supply chain process needed to have the interests of the Department at heart, otherwise they would always work hard to overthrow the system in place. The internal control and governance processes would make this difficult by ensuring that the system of internal control, especially in expenditure management, was interconnected. She said it would only benefit any entity to use the same internal audit process. This spoke to putting recommendations in action proactively.

On the qualifications for ECD practitioners, she said they were asking for qualifications in addition to experience. They were doing so because experience on its own would not equip learners. Most qualifications in the sector came with a continuous development programme, therefore enabling the ECD to be more forward-looking.

Mr Baganzi said the reason for noncompliance with supply chain prescripts by the NECT was mainly due to awards not being made to the highest bidder. Also, they did not follow local content prescripts for awards. It was a new implementing agent, and the AGSA had advised the Department to improve on their own bodies for legislative requirements. This would aid the Department to understand what the legislation was when it came to awards.

The challenge of crude Department revenue was caused by overpayment and the time it took to finalise accounts once a project’s construction was completed. The Department has since appointed professional service providers (PSPs) to fast-track the finalisation of these accounts. After that, they should be able to collect all the money they had due.

There had been an improvement in consequence management, despite occurrences of noncompliance. Most of the irregular expenditure had been investigated. What was left for the Department was to finalise the recommendations that emanated from the investigations. Regarding project management, they were not currently aware of how many projects had been cancelled but they could get that information to the Committee. The 90% target achievement had been due to the cancellation of construction of one of the schools. There were also two schools where the contractor had defaulted on contractual obligations which had resulted in the delaying of the project. ICT implementation was done internally by the DBE, and was fully supported by the State Information Technology Agency (SITA).

Ms Komape said that in the sector overall, there was good traction in the way the accounting officers handled the material irregularities. In cases where they did not do so, they resorted to recommendations and remedial action. The AGSA had been encouraged by how they were being received in all nine provinces. The accounting officers in the sector had been responsive.

On the change of reporting of irregular expenditure, she said the reporting process was informed by how the National Treasury would like the information to be reported. It had changed the reporting requirements so that the information was in the annual performance report. Since the information was in the annual report, the AGSA could not deliver an opinion on it as they were mandated by law to express opinions only on financial statements. However, they still sent out their entities to ensure the information was reliable. It was important for it to be transparently dealt with, because the PFMA had zero tolerance for this.

The Chairperson thanked Dr Mbava, Ms Komape, and their teams for their responses. She said they should continue their work that assisted the government to move in the right direction.

Presentation: DBE Audit Committee

Prof Daniel van der Nest, Chairperson: Audit Committee, DBE, gave a brief overview of the activities of the committee.

Internal audit was the key assurance provider to the Audit Committee. It had:

• Conducted 13 audits as per the approved risk-based audit coverage plan, and 13 management requests on consulting engagements;
• ASIDI audits at two implementing agents -- NECT and TMT Limpopo -- on the review of SCM compliance process, contractor payments and project management.
• Performance information quarterly reviews were conducted, and findings were also shared during the branch reviews.
• Reviews of the annual report and annual financial statement and areas of improvement were communicated prior submission to the AGSA audit.
• A follow-up on the AGSA's previous findings review was conducted for the DBE and implementing agents, and 77% of previous findings were resolved.
• Presented the quarterly progress reports against the approved plan at the audit members' meetings.
• Coordinated the audit steering members' meeting with management to discuss all audit reports and audit action plans prior to the audit members' meetings.

He commented on the control environment, saying that stability in leadership (Accounting Officer) had provided excellent support to the audit committee. Most branches had leadership stability and monitoring that had been enhanced. There was stability in the governance structures -- the audit members and risk committees. Through monitoring of the risk management activities, branches reported progress quarterly on mitigation action on identified risks and emerging risks. The quality of financial statements showed some improvement, although material misstatements were still an area that required strengthening and regular monitoring.

Turning to irregular, fruitless and wasteful expenditure, he said:

• Internal audit assisted the Accounting Officer with the investigation of IFWE.
• Departmental investigation members had been established as an investigation unit under internal audit.
•  Previous cases of irregular expenditure had been investigated. In 2021/22, all investigations into R3.2 billion of irregular expenditure were completed, and 95% of investigations into R1.035 billion of irregular expenditure in 2022/23 were completed by year-end. A few cases were finalised after the year-end.
• Management needed to implement consequence management. Progress on some cases had been monitored and the control measures had improved. The audit members had a special meeting to monitor improvement in consequence management.
• Management was in the process of requesting condonation for concluded irregular expenditure investigations where consequence management had been implemented.
• National Treasury had approved condonation of the Development Bank of South Africa's (DBSA's) ASIDI projects amounting to R800 million in 2021/22.
• National Treasury granted condonation of R172.4 billion through 2022/23, and condonation approved by the Accounting Officer was R1.496 billion.
• Recovery process letters were written to implementing agents or departments through Legal Services.

Prof Van der Nest listed the following challenges:

• Strengthening of quality assurance by some branches still needed to improve.
• Capacity in ASIDI, and supply chain management.
• Prior audit findings were not addressed fully, and management was still working on addressing them.
• Synergy was needed between Finance and ASIDI.
• ASIDI and Finance needed to strengthen the quality assurance and accountability of work done by implementing agents.
• Supply chain management was an area that required more strengthening.

He said that the ASIDI programme needed to continue to improve the monitoring of implementing agents, project support units (PSUs) and ASIDI staff to improve the process. A full set of half-year financial statements would enhance the accurate records, and submission of information for preparation of the annual financial statements (AFS) must be timely. Regular monthly reconciliations had to be prepared to prevent misstatements in the financial statements. Possible disciplinary action should be taken against persons who have caused irregular, fruitless and wasteful expenditure.

He said material irregularities (MIs) were a matter of great importance to the audit committee. It was a separate agenda item, and they monitored the progress of investigations into MIs. Four MIs had been identified, and follow-ups and progress reports were monitored quarterly. Progress on consequence management implementation had been tracked for all MIs in the year under review.

Review of the annual report

The annual report had been reviewed prior to submission to the AGSA. Management had worked with internal audit to correct other gaps identified during the review meeting prior to the submission date. In the last review there were a number of annual indicators with report consolidation at the year end, which had been signed after 31 March 2022. Some branches needed to improve the quality of evidence and ensure a timely submission.

Audit members had recommended the following improvements:

• Management to strengthen quality assurance of reported information timeously.
• More detailed work by internal audit on the quarterly performance information reports and financial statement reviews.
• Management to improve or address the capacity challenges in strategic planning.
• Further strengthen accountability and the monitoring of implementing agents, especially the penalty clauses in the memorandums of agreement (MOAs).

Prof Van der Nest concluded the presentation by stating that the audit members would continue to address all matters within their mandate and responsibility. They would pay specific attention to the high-risk and high-impact issues, and monitor the implementation of consequence management to assist in moving towards a clean audit.

See attached for full presentation

Discussion

Mr Nodada referred to the fruitless expenditure of R15 million due to a duplication of allocations to implementing agents. He asked what measures the internal audit members had put in place to rectify this. Why were the four cases of irregular expenditure indicated by the AGSA not investigated by the Department? How much had been irregularly spent? He asked why the Department and implementing agents took so long to institute consequence management in these cases. Part of the reason for the recurring culture of irregular expenditure was the lack of consequence management by the Department and the implementing agents. What processes had subsequently been initiated to prevent and mitigate irregular expenditure? How often did the internal audit committee monitor this?

He asked why it had taken two years for the Department to collect their crude revenue, and what processes had been put in place to rectify this. The AG had noted that the Department had failed on its targets concerning special schools’ access to electronic devices, and the number of new schools built. What was the reason for the failure of these two targets? The Southern Association of Independent Schools (SAIS) had also failed to finalise investigations into new cases, rollover cases, and disciplinary hearings. What were the backlogs for each of these? What were the reasons for this backlog? Was there any internal intervention to make sure the SAIS dealt with this? Why had the electronic facility management system (EFMS) been implemented in only three provinces -- even those three provinces did not fully utilise the system? What was the cost of the system and what did departments currently use instead of this available system?

Mr Nodada referred to the failures of the ICT system, the non-utilisation of the EFMS, and the significant underfunding of the SA-SAMS. He asked what the Department was doing to address these failures and how much of the budget would be spent on this. Had the internal auditors picked this up as an issue, and what recommendations had been given to mitigate that problem? There was also a failure of reporting of financial statements. Had there been an intervention from the Department to address this, and what was that intervention? He asked internal audit what recommendations they had for strengthening supply chain management. How many Grade R teachers’ qualifications have been assessed so far? Why had the competencies of district directors not been assessed prior to their appointment?

Regarding the delays in infrastructure projects, he asked if the Department had engaged with the Western Cape Department of Education on their rapid school construction programme. Had it investigated alternative rapid school construction methods? On investigating the special remuneration for teachers in rural areas and those qualified to teach specialised subjects, he asked what the financial implications would be.

What consequence management was in place to meet the deadlines for the targets of libraries, laboratories, and sports facilities? How was the Department planning on addressing this failure, especially considering the National Treasury was implementing budget cuts across the board? How would these budget cuts affect Sanitation Appropriate for Education (SAFE) and ASIDI? What consequence management was being implemented to address the failure to pay service providers within 30 days?

Ms Moroane asked what reasons had been provided by the National Education Collaboration Trust for the 60% partial implementation of recommendations, and the 20% not implemented. She also wanted to know if the risk management report had identified the challenges detailed in the AG’s report.

Mr Letsie asked what the implications were for a lack of quarterly reports. This restricted the internal audit quarterly. What did the audit members recommend in this regard? What did they recommend to strengthen financial management beyond the recommendations in this particular report?

Ms Adoons said most of the challenges facing the education sector were at the provincial level. She asked what the areas of focus for strengthening provincial departments were. What were the support mechanisms of the national Department for the provincial departments? What were the main risks facing the DBE? What was the progress on the recovery process from implementing agents and departments, and what was the budget for legal services used to recover misused funds?

Mr Moroatshehla said the audit members had acknowledged receiving an unqualified audit report. He said only 50% of the recommendations had been implemented. Recommendations should be taken seriously and all those responsible for implementing them should do so without failure. In relation to the AG’s findings, what was the internal audit's impact? Did the audit members receive any reports of the challenges relating to infrastructure compliance with procurement processes? He said one could not divorce the work done in the provinces from the work done nationally. He asked how the audit members worked with the provincial audit committees.

The Chairperson said the presentation had addressed the second quarter report regarding supply chain management, but she asked about the other three quarters. Had the audit members reviewed only one quarter? She said the ratings were at an average of 3.7 -- what were the planned targets to improve this rating? She asked what the difference was between the audit members and the risk committee, and if they were working together to address the issues raised by the AG. What was being done to mitigate the challenges of late submissions and quality assurance? The presentation mentioned that project managers were not performing -- what were the root causes for this? The vision of the Department was quality education, yet the lack of quality assurance was challenging this. How would the internal audit address this challenge?

Audit Members' response

Prof Van der Nest responded on the issue of fruitless and wasteful expenditure, and said the members looked at the findings of every case and monitored the recovery of funds. Unfortunately, in the cases of the implementing agents, the legal processes took quite some time. They had had a meeting recently where they went through every case to see where they were in terms of the recovery of funds and consequence management.

They received quarterly reports from ASIDI regarding the duplication of allocations. The cases that were not investigated by the end of the financial year have since been investigated.

Implementing consequence management took so long because there was often a lot of back and forth with implementing agents. In some cases, the labour processes took too long. They took particularly long when state attorneys were involved.

Mitigating irregular expenditure was part of the action plans submitted to the audit members, and was monitored every quarter. It was also monitored when they received reports from internal audit. Internal audit did not have the capacity to audit everything in the Department, and therefore relied on risk-based auditing. There were also follow-up reports on their progression.

Regarding crude Department revenue, this was linked to processing reports from ASIDI and the DDG, which took a very long time.

Dr van der Nest said he was not able to provide an answer on the backlog of laboratories and libraries, as it was not something they monitored in detail. They would provide a written response, if agreeable to the Committee. However, IT audits were monitored by the Committee, which received action plans on how departments could improve their systems.

Regarding recommendations to improve supply chain management, the Department did not know about suppliers until the implementing agents allocated them. This ended up as irregular expenditure in the audit. Even in the NECT, they had not implemented these recommendations. The audit committee recommended that penalties be built into the contracts. Agreements should include penalties when there is noncompliance with the PFMA.

On the issue of district directors, Prof Van der Nest said it was not within the scope of the audit committee.,

The Members had not received information on whether the DBE had liaised with the Western Cape Department of Education.

Special remuneration for teachers in rural areas was not something that had been discussed within the audit committee.

The payment of service providers has improved over time. Some cases were contested because of certain conditions.

The reason for the partial implementation of recommendations had been noncompliance. An audit was done on NECT, and they had been instructed to correct this. 60% was not implemented fully -- it was something that was being monitored very closely.

He said they had a strategic risk register that looked at the key aspects that prevent the DBE from achieving its objectives. The items identified by the AG were elevated onto the register, and were discussed at the risk committee. The quarterly reporting on performance information took place every quarter. Some targets were not quarterly targets, but were annual targets. The recommendations of the audit members had always been that targets were not achieved unless evidence was provided.

Recommendations to improve financial management was a broad question. They looked at all areas and their assessment was based on a structured improvement plan, approved by the committee. This plan must be discussed with the AG. The internal or external audit identified all the financial management issues. Further refinement was requested to get to the root causes of financial mismanagement.

Dr Van der Nest referred to the provincial departments and the strengthening of the DBE, and said the audit members did not work with provincial departments. However, internal audit would look at conditional grants from this year, and would now also be involved in some of the forums between the provincial and national departments on ECD.

He said they did not work with provincial audit committees. Some provinces had a shared audit committee with Departments, and some had their own committees. The audit members work only with the Department. On supply chain management, he said monitoring was ongoing. Whenever an audit is done, the report goes to them. An action plan was also reported to the members every quarter.

Regarding the difference between the audit members and the risk committee, he said risk was a management responsibility. The operational workings of risk management were dealt with at the risk committee. Internal audit was able to intervene if there was insufficient progress with risk management.

The challenge of project managers not performing was constantly monitored. Quality assurance could be done only through reports. They were not operational as a committee -- they relied on assurance providers and external audits.

Mr Moroatshehla said he would repeat his question, as it had not been responded to. In relation to the findings of the AG, what was the impact of the internal audit’s work on the Department? Did the audit members receive any reports highlighting challenges concerning the infrastructure procurement processes?

Prof Van der Nest apologised for neglecting the question, and replied that in relation to the findings of the AG, the internal audit also had findings reported to management relating to infrastructure. They had improved concerning reporting on infrastructure. Internal audit had had an impact on this because it was an early warning. They had requested more coverage by internal audit in terms of implementing agents and infrastructure.

In closing, the Chairperson said there would be further briefings on the Annual Reports the next day. The meeting would last all day. All participants were thanked.

The DBE DG joined briefly to express appreciation to the internal audit committee, led by Prof Van der Nest.

The meeting was adjourned.