Engagement with Provincial Treasury on oversight methodology in preparation of the Annual Report period; SAAPAC matters

Meeting report

The Chairperson welcomed the Western Cape Provincial Treasury, led by Mr Isac Smith, Acting Deputy Director-General (DDG): Governance and Asset Management, Western Cape Provincial Treasury, and asked him to introduce his team.

Mr Smith said he was currently acting as the DDG while also managing the portfolio of Preferential Accountant General. He informed the Committee that the three officials would be supporting him with the presentation were Ms Melissa van Niekerk, Director: Financial Governance, Mr Jason Facoline, Chief Financial Analyst, and Ms Ielhaam Jurams, Accounting Practitioner. Mr Facoline and Ms Jurams would lead the presentation.

In his introduction, Mr Smith said that Treasury had reviewed the brief and recognised the Committee’s interest in the report from the Department of Education. To streamline the discussion, they concentrated on particular chapters, from Chapter A to F, and included page numbers to help the Committee navigate the annual report more easily. He invited the Committee to ask questions at any time, reassuring them that if certain questions could not be answered immediately, they would follow up later.

Annual Report process and guidelines presentation

Introduction

Ms Jurams outlined the oversight responsibilities of the Committee in reviewing annual reports, which included examining financial statements from all departments and reflecting on key messages delivered by the Auditor-General South Africa (AGSA). The Committee was also tasked with ensuring that previous resolutions were acted upon by the relevant state organs and that additional information could be requested to fulfil oversight duties.

The resolutions from these reports were then implemented by the relevant organ of state. She also provided insight into the guidelines given by National Treasury for departments and public entities, highlighting the importance of including financial and non-financial information to promote transparency and accountability.

Annual report process

Ms Jurams outlined the structure of the annual report, detailing its coverage of achievements, performance data, governance, human resources, and financial information. The report compared actual achievements against planned targets and budgets set out in the strategic plans, the annual performance plans (APPs), and revenue and expenditure estimates. She emphasised that the report must present accurate and balanced information, showcasing both successes and challenges.

She highlighted the review role of the AGSA, and described how the report fits into the broader accountability cycle, linking with strategic plans, APPs, budgetary processes, and monthly reports. Parts C, E, and F of the report were specifically requested by the Committee for more detail.

Governance Information

Mr Facoline took over, and discussed the governance information detailed in Part C of the annual report, which follows National Treasury guidelines. He outlined the different sections covering governance standards, risk management, and the role of audit committees, using the Department of Education’s annual report as a reference. He also stressed the importance of fraud prevention measures and mechanisms such as whistle-blowing channels, all of which were detailed in the report.

He described how the Committee could verify health, safety, and environmental issues, conflict of interest prevention measures, Standing Committee on Public Accounts (SCOPA) resolutions, and AGSA findings on service delivery and compliance. He pointed out the role of internal audit and control units in ensuring proper oversight, including attendance records and terms of reference for audit committees.

PFMA Compliance

Mr Facoline then focused on Part E, which covered Public Finance Management Act (PFMA) compliance. He addressed irregular, fruitless, wasteful, and unauthorised expenditure, explaining how such cases were managed, investigated, and reported. He also discussed the disciplinary measures and corrective actions in place to prevent reputational damage.

Moreover, he stressed the importance of timely payment to suppliers and the systems that departments must use to ensure compliance with the 30-day payment requirement. Procurement deviations and contract variations were discussed, with Mr Facoline highlighting the need for fairness and transparency in supply chain management (SCM) processes.

Financial Information

Ms Jurams resumed the presentation, explaining the different audit opinions a department could receive, from the most severe (a disclaimer of opinion) to the best possible outcome (a clean audit). She provided an overview of the Education Department's performance, noting that it had received an unqualified audit opinion with other matters for the past three years.

She also described the format of annual financial statements, following National Treasury’s modified cash standard. This ensured consistency across departments and included detailed sections covering budget expenditure, revenue, liabilities, and accruals. She pointed out that Members should pay particular attention to accruals over 30 days and their potential impact on future budgets.

Changes in guidelines

Mr Facoline concluded the presentation by informing the Committee about changes in the annual report guidelines issued by National Treasury, particularly in relation to reporting irregular expenditure and material losses. He outlined how these changes simplified headings and made clearer distinctions in reporting across different expenditure categories. He also pointed out the amendments related to interdepartmental arrangements and compliance steps taken as a result of irregular expenditure.

He commented that the presentation had been made available for further review, and thanked the Committee for their attention.

[See attached for full presentation]

Mr Smith said that Treasury's goal had been to simplify the process to aid in analysing the Department of Education's report. He also clarified that, as Ms B van Minnen (DA) had mentioned, the report in question was for the 2022/23 financial year, not 2023/24. According to protocol, the report must first be submitted to the Standing Committee before being made available for provincial review. However, he noted that the structure of the annual reports remained consistent, allowing for the replacement of page numbers when dealing with the 2023/24 report.

Discussion

Mr B Petrus (PA) asked the Chairperson and colleagues what the latest or cut-off date was for Members to comment on the report.

The Chairperson clarified that there was no cut-off date, as the presentation was meant to prepare them for the annual report. He explained that it was a presentation from the provincial Treasury to ensure they were ready when they reviewed the annual reports the following month, so they would be familiar with what was being presented.

Mr Petrus responded that the Chairperson had been too quick in his explanation regarding the cut-off date.

The Chairperson reiterated that there was no cut-off date. He explained that the provincial Treasury had taken the annual report and walked them through the education sector to help them prepare and highlight any amendments they should look out for. This presentation was meant to assist them ahead of their review of the annual reports during the upcoming three-week period in October. He added that the previous week, they had been briefed by the AGSA and the Audit Committee on what the Committee should focus on when conducting oversight with the various departments.

Ms P Lekker (ANC) asked about the consequences if some invoices were not paid within the 30-day period, and questioned whether any laws either prevented or promoted such delays. She also raised concerns about clean audits, asking what the norm was and what should be expected if services were not rendered, despite payment being made. She also questioned what the consequences were in situations where services were either not delivered or had been paid for, but were not rendered.

Ms N Nkondlo (ANC) sought clarity on the fraud prevention measures and ethics environment. She noted that the presenter had mentioned tracking processes, and asked if this tracking was done by the Auditor-General (AG). Referring to the presenter’s mention of reports, she inquired whether these reports were investigated, and what role the AG played in verifying the legitimacy of the information provided by departments and entities. She was particularly interested in how this verification related to the internal control environment.

Her second question concerned irregular expenditure or fruitless and wasteful expenditure with funding. She asked for further explanation, particularly about the concept of fruitless or wasteful expenditure. Although she acknowledged that the officials were not the AG, she requested clarification on whether Parliament would be able to detect irregularities during the audit process if such issues emanated from the departments. She admitted that she had heard some of the explanation during the presentation, but required further insight.

Treasury's response

Mr Smith assured the Committee that he would respond as comprehensively as possible, with the possibility of his team adding any further details if necessary.

He began by addressing the 30-day payment period and the associated consequences. He explained that this requirement had been recently included in the annual report to ensure accountability among accounting officers in various departments. He added that at the provincial level, they reported monthly to National Treasury, which then reported to the Office of the President. The 30-day payment rule was monitored at the presidential level, with the goal of ensuring that government fulfilled its contractual obligations by paying companies on time.

He stressed that the 30-day payment period was crucial to adhering to government commitments, and linked this to Ms Lekker's question about clean audits. He clarified that payments could be made only if service providers had met their contractual obligations. Any payment for undelivered services would be identified by the Auditor-General and considered illegal expenditure, which would result in the loss of clean audit status. This process ensured that government funds were spent effectively and only on services rendered.

Turning to the question of fraud prevention raised by Ms Nkondlo, Mr Smith said that in the province, they had a centralised forensic audit unit under the Department of the Premier that investigated fraud cases. The audit committee received regular reports on any identified fraud cases and their progress. Although the AG had access to all this information during departmental audits, it was not necessarily disclosed to the Committee unless requested by the accounting officer. He added that most fraud cases were confidential and took time to resolve, but the AG continuously followed up on any issues raised.

He said that there was a defined process for handling irregular expenditure. In the past, irregular expenditure was dealt with solely by the provincial Treasury, but in the previous year, the National Treasury had revised this, granting accounting officers the power to condone irregular expenditure. Once incurred and condoned, irregular expenditure was written off against the Department's baseline.

Mr Smith further clarified the issue of unauthorised expenditure, explaining that unauthorised expenditure occurred when funds were spent on items not appropriated for in the budget, which meant it had to go through a legislative process for condonation. Unlike irregular expenditure, neither the department nor the provincial Treasury had the authority to condone unauthorised expenditure -- it had to be reviewed by the legislature, since it involved funds appropriated through a parliamentary process.

Further discussion

Mr L van Wyk (DA) raised concerns about the process the Committee would need to follow in the coming weeks. He reminded the Members that the meetings would take place daily, from Monday to Friday, over three to four weeks during October. His primary concern was whether these meetings would be held in person or online, noting the challenges for those who needed to travel, especially those coming from places like George. He said that on some occasions, they were informed about an in-person meeting, only to arrive and be told it would be held via Teams. He expressed his concerns about the costs incurred from such unnecessary travel, and highlighted the need for prior permission to make changes.

The Chairperson interjected, noting that the Committee would address this matter after they had released the provincial Treasury. He said such discussions typically took place after departmental representatives had left, and assured Mr Van Wyk that they would discuss the process after this session. He then asked if there were any further questions for the provincial treasury.

Seeing no additional questions, he invited Mr Smith to make closing remarks before releasing the Treasury.

Closing remarks

Mr Smith reiterated that it was a privilege for him and his team to provide the Committee with information to support their functions. He assured the Committee that he and his team were available to assist if they required further details or clarity on any issues. He expressed his gratitude to both his team and the Committee Members for their cooperation.

The Chairperson thanked Mr Smith and his team, expressing appreciation for what he deemed an excellent presentation. He acknowledged their time and contributions, and then excused them from the meeting, thanking them once more as they left.

Committee matters

The Chairperson said the Committee would move through the agenda and would then address Mr Van Wyk's question. Before doing so, he inquired if there were any further resolutions or matters Members wanted to raise with the provincial Treasury. He explained that the intention behind bringing in the Treasury was to prepare them for the upcoming meetings in October, particularly for Members who were new to the provincial Parliament, or who had come from the National Parliament, while some others were already familiar with the processes.

He returned to the matter raised by Mr Van Wyk, acknowledging its importance. He said he had spoken with the Committee procedural officer and confirmed that it would not be feasible for all meetings to be held in person. He acknowledged the logistical issues of departments attending morning standing committee meetings, and then staying on for the afternoon's SCOPA meetings. He intended to coordinate this better to avoid unnecessary travel, particularly for those who had to travel long distances, like Mr Van Wyk.

The Chairperson assured the Committee that most, if not all, of the upcoming meetings would likely be held online to minimise costs. He planned to discuss this further with the Chief Whip and the Speaker to better coordinate the logistics. He emphasised that travelling long distances for single meetings would not be practical or efficient, and they were considering a structure that would avoid such situations.

He concluded by saying that they would provide clear communication on the final decisions regarding meeting arrangements by the following week, once he had spoken with the procedural officer. He also acknowledged the particular importance of having in-person engagement with large departments, such as Education and Health, but stressed that overall, most meetings would be conducted online.

Annual reports programme

Mr Dustin Davids, Committee Procedural Officer, began by seeking permission from the Chairperson to display the latest schedule for the annual report on the screen. He confirmed that it would start on 7 October, and asked if this was acceptable. After receiving confirmation, he proceeded to share the schedule.

He said that the programme had been developed after discussions with the various ministries and Heads of Departments (HODs). The schedule ran from Monday, 7 October, to Tuesday, 29 October. As the Chairperson had mentioned, some meetings would be held online, while others, particularly with significant departments, might be conducted in person.

He highlighted several important departments marked for potential in-person meetings, including the Department of the Premier, the Department of Infrastructure, and the Department of Social Development. These departments were indicated in yellow on the schedule. Other departments listed, such as the Department of Education, the Department of Mobility, and the Department of Health, would also be considered for in-person meetings.

Mr Davids said that the arrangement was still subject to further consultation with the Chief Whip and that adjustments might be made to the highlighted meetings. He outlined the proposed structure for the Standing Committee meetings, stating that they would convene on the same vote in the morning, with the SCOPA meeting in the afternoon. For instance, on 7 October, there would be a session for the Department of the Premier, followed by a break from 1:00 to 2:00, before continuing with the Public Accounts Committee, the Department of the Premier, the Auditor-General, and the audit committee. This would be the order of proceedings they were aiming to follow.

The Chairperson thanked the Procedural Officer, and asked if there were any comments from the Members. He reiterated that the discussed plan was intended to move forward, highlighting the importance of being wise and considerate towards the Members. By the following week, they would have a clearer understanding of which meetings would be held in the Chamber, and which would be online. He confirmed that the large departments would be prioritised for in-person sessions, while the others would remain virtual.

Mr Van Wyk expressed his agreement, commenting that he trusted the Chairperson to handle the matter efficiently. He mentioned the complexity of gaining approvals and making arrangements, emphasising his concern for cost-consciousness and avoiding unnecessary expenses.

The Chairperson promised to return with updates as soon as possible after consulting with the Procedural Officer. He concluded the meeting by thanking everyone once more.

Adoption of minutes

Minutes dated 18 September

The Procedural Officer reported that the minutes from the meeting on 14 August had been approved the previous week, with only one resolution remaining. This involved a request for information from the chairperson of the audit committee of the Western Cape Education Department regarding the outcomes of the audit findings from the last financial year. Communication had been sent to the chairperson, requesting a response by the following Friday. Once received, this response would be forwarded to all Members for their information.

Mr Van Wyk moved the adoption of the minutes, and was seconded by Mr Petrus.

The meeting was adjourned.