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Meeting report

PUBLIC ACCOUNTS STANDING COMMITTEE

PUBLIC ACCOUNTS STANDING COMMITTEE
25 May 2005
DEPARTMENT OF HOME AFFAIRS: HEARING

Chairperson:
Mr F Beukman (ANC)

Documents handed out:
Draft Committee Programme: 20 May to December 2005
Department of Home Affairs (and Government Printing Works) Annual Report – 190 page bound booklet.

SUMMARY
The Department of Home Affairs briefed the Committee on their work and that of the related Government Printing Works, with particular focus on the Auditor-General’s Report of 2003/04. The Committee expressed concern about the Department of Home Affairs’ lack of progress since their last Committee resolution in 2003. The Government Printing Works audit was reason for concern because they had gone from a unqualified to a qualified report.

First, the Committee addressed the Government Printing Works’ problems in financial management, management of debtors, Information Technology systems, and surpluses. Secondly, the Lindela Detention Centre was discussed due to their lack of financial management controls. Thirdly, the Committee posed questions around the management of revenue, interrogating the implementation of the Basis Accounting System (BAS), unallocated deposits, and the practice of altering carbon copies of deposit slips. Fraud risks were discussed in this regard. Finally, the Committee expressed concern about the failure of the internal audit unit to implement corrective measures, and posed questions about the internal audit unit’s monitoring mechanisms.

MINUTES
The Chairperson expressed the Committee’s concern about the Department of Home Affairs’ lack of progress since the last SCOPA resolution in 2003. The Department had only addressed the validity of the contract of employment of the former Director-General properly, whereas all the other problematic areas that had been indicated by the Auditor-General and SCOPA were still unresolved. The unsatisfactory situation regarding financial management control, for instance, had not been tackled yet.

Mr E Trent (DA) reminded Members that the Department of Home Affairs and Government Printing Works (GPW) appeared before SCOPA the first time on 21 May 2003. During that meeting, SCOPA had posed questions with reference to the Auditor-General’s report of 2001/02. Today they would discuss the Auditor-General report of 2003/04 because not much progress had been made since. Further, the Auditor-General’s report had revealed two new issues of concern: First, the Lindela Detention Centre, where the Department could be exposing itself to possible legal action, and secondly the Department’s IT systems where adequate controls over access had not been implemented.

Mr Maqetuka, Department Director-General, pointed out that he had only been in office for 62 days. Thus, he asked his team and the former DG to provide him with background information where necessary. He further requested whether Mr T Moyane, CEO of GPW, would be allowed to answer specific questions about the GPW.

Government Printing Works discussion
Mr Trent asked about the current status of GPW and queried whether arrangements with the National Treasury had been made regarding their surpluses. He wondered why that money had been retained by the GPW and not returned to the National Treasury. If no arrangement with National Treasury existed in this regard, they would be in default.

Mr Maqetuka commented that Mr T Moyane had been appointed as the new CEO of GPW. The Department assisted GPW with tackling their problems. The CEO and the Deputy Minister had undertaken extensive visits to investigate how GPW was dealt with abroad. GPW was in the process of corporatisation, which implied that it would be converted into a public entity. He requested that Mr Moyane give specific information about GPW, provide timeframes, and outline arrangements with National Treasury.

Mr T Moyane, CEO of GPW, said that the Deputy Minister had set up a ministerial Advisory Committee that dealt with the corporatisation of the GPW. The first Committee meeting took place in December last year. Currently, they were in the process of finalising a document. By the end of June this year, they would propose a model to the Minister, Deputy Minister and Director-General as to how to transform the GPW into a vibrant organisation. They also investigated whether the process of transformation was in line with international standards.

Mr M Ntimba, CFO of GPW, explained that they would allocate the GPW surpluses in terms of their capital requirements in other areas. The money remaining after allocation to capital needs would be paid back to the National Treasury.

Mr Trent asked again whether they had an arrangement with National Treasury to retain money. Mr Ntimba answered that there were no such arrangements. Mr Trent stressed that this matter had to be looked into.

Mr Trent then addressed the issue of financial management, highlighting that GPW had gone from a qualified to a disclaimed audit opinion. He asked what measures had been undertaken to tackle this problem. Further, the Auditor-General’s report stated that they had a shortage of critical skills. He asked whether those posts had been filled.

Mr Moyane answered that a skill audit within GPW would address the skill shortages faced. The ineffective financial management within GPW was being "grappled" with.

Ms N Mbina, National Treasury, commented that GPW was a Chief Directorate of the Department of Home Affairs. Thus, the Department had an oversight role with regard to GPW. However, the Department had been in management transition and was facing the challenge of increasing their staff from 6000 to 11000 people, which they had not achieved yet. As GPW depended to a certain degree on the Department, it had proved difficult to solve their problems.

Mr Trent asked if any improvements could be expected at this stage; whether there were plans to rectify the situation, and what their capabilities were.

Mr Gilder, former DG of the Department of Home Affairs, stressed that financial accounting and management had not been the only problems in previous years. A Turnaround Strategy had been developed by Senior Management in 2003 to address critical people-, infrastructure-, and technology shortcomings. He concurred with the CEO that the GPW was presently still an untransformed and not representative organ of government. While in office, the main challenge had been the transformation of GPW into a state enterprise, because the corporatisation had taken longer than expected. During the interim period, they had set up a task team consisting of senior managers from the Department of Home Affairs with the task to oversee the performance of GPW. Moreover, they had appointed an interim CEO responsible for the transformation of GPW into a state enterprise. The Deputy Minister, who had been responsible for the GPW subsequent to elections in 2004, had set up an Advisory Committee. GPW had to co-operate closely with the Audit Committee, the Advisory Committee, and the task team of Home Affairs. He highlighted that significant progress had been made over the last six to nine months; however many issues still had to be addressed.

Mr Ntimba agreed that significant progress had been made and the concerns raised by the Auditor-General addressed. This progress would be reflected in the upcoming Auditor-General report for 2004/05. However, they still grappled with attracting skilled people. This had an adverse impact on the financial management of GPW.

Mr Maqetuka commented that the shortage of personnel had been reduced and thus the capacity improved. Before the close of the financial year, 1 000 new staff members had been recruited. They aimed to fill 800 positions in the current financial year. They had filled all the vacant positions of Deputy Directors-General. Only a few Chief Director positions were still vacant. Thus, the Department could henceforth assist the GPW in a more effective way.

Mr K Hoosain, Corporate Executive of the Auditor-General, pointed out that the absence of supervision had contributed significantly to the GPW’s poor performance. He was pleased to hear that all the Deputy Director-General positions had been filled. He asked how many supervisory positions had been filled with the 1000 newly recruited staff members.

Mr Trent voiced his concern about the GPW’s management of debtors.

Mr Ntimba informed the Committee that out of the R137 million debt, R86 million had been collected. Thus, improvements had been made in terms of debtor’s management. During the last 12 months, they had set up a debt collection division; and they had reconciled debtor accounts on a monthly basis. At the beginning of April 2004, they had started to charge interest on all accounts that were outstanding for more than 30 days. However, many departments had refused to pay the interest. Thus, the implementation of interest on overdue debts had to be discussed anew.

Mr Trent said that the Auditor-General had voiced concern about the fact that IT system codes were easily accessible. This could result in fraud. He asked how this situation had been rectified. Furthermore, due to the large number of ongoing manual computations involved in stock valuation, the Auditor-General had not been able to verify the accuracy, completeness and validity of the stock balance. The high risk of error in stock valuation would cause further potential for fraud.

Mr Ntimba replied that they had appointed two qualified IT specialists to review the entire GPW network, including the access to IT systems. They would complete an IT-plan by September this year. Hence, significant improvements had been made regarding programme control. He said that the problem of stock valuation stemmed largely from lack of skilled personnel. However, they had started to address this problem and received advice from the Auditor-General on the matter.

Mr Maqetuka commented that they had a Deputy Director-General who was solely responsible for their IT systems. He reiterated that the capacity of IT systems had been significantly improved. Smart refugee and ID cards, for instance, would be ready for implementation. Furthermore, fully equipped and electronically linked mobile units had been set up. He was confident that the upcoming Auditor-General report would reflect the progress in the IT systems of GPW.

Lindela Detention Centre
Mr R Bhoola (MF) commented that the Lindela Detention Centre had been decried in the local news because of the following reasons: accusations of xenophobia, poor facilities, illegal confiscation of ID’s, and maltreatment of detainees. Furthermore, there was a lack of financial management controls. The latter had already been indicated in the 2002/03 report. Hence, he asked why the Department had taken so long to implement corrective measures, and how these measures had impacted on the improvement of financial accountability in the Lindela Detention Centre.

Mr P Nkambule, Chief Financial Officer of the Department of Home Affairs, commented that the Department had grappled with capacity constraints. With regard to financial control measures, he stressed that 76 new posts had been created, of which 49 had already been filled. Presently, they were operating a 24-hour service at the Lindela Detention Centre. The IT systems were fully equipped and processes had been speeded up. Furthermore, the Lindela Detention Centre used to have huge expenditure, particularly with regard to deportation of illegal immigrants. This situation had been remedied as trains were running now on a weekly basis for deportation. Hence, the current financial year would show a decrease in expenditure. He added that they had discussed with their service provider BOSASA how to tackle the problems raised by the Auditor-General.

Mr Bhoola commented that the internal audit unit had stated that the corrective measures addressing the internal weaknesses of the Lindela Detention Centre had still been inadequate for the period under review. He asked what corrective actions had been taken, and what the reasons had been for their failure.

Mr Nkambule replied that the corrective actions had been unsuccessful because of both lack of human resources and inadequate IT systems. He reiterated that the 49 new posts would address the segregation of duties.

Mr S Fakie, Auditor-General, asked when the 49 new staff members had been appointed in order to get an indication of their impact on the financial management controls. Furthermore, he asked when they had changed from an Excel Programme to a biometric system to deal with the intake of illegal foreigners.

Mr Nkambule replied that corrective measures had come into force at the end of the financial year 2003/04. The new staff members had been employed at the beginning of the subsequent financial year.

Ms Mbina commented that in the year under review, the costs of running the Lindela operations had been approximately R100 million. In the last year, they had spent around R45 million. This indicated that improvements had been made with regard to the financial expenditure at the Lindela Detention Centre.

Mr Bhoola asked whether the Department was able to improve the financial accountability of the Lindela Detention Centre before the next Auditor-General report was due.

Mr Maqetuka replied that they would submit their financial statements by 31 May 2005. Corrective measures had come into force and the Department was thus confident about the qualification of the Auditor-General’s upcoming report.

Mr Bhoola pointed out the Auditor-General had been unable to evaluate the accuracy and validity of the holding expenditure of R95.9 million. He asked how that money had been spent.

Mr Nkambule replied that the money had been spent on accommodation and providing meals to illegal immigrants awaiting deportation. He stressed that the R95.9 million had been spent fruitfully.

Mr Gilder added that the R95.9 had been spent. A fixed amount per inmate per day was paid by the Department to BOSASA. The Auditor-General’s concern had been the lack of control in the reconciliation of departmental records with those of BOSASA, because no reliable method had existed to make sure that the service provider’s monthly invoice indeed reflected the actual number of inmates per day. The manual system that they had put into place to grapple with this problem had proved ineffective. Hence, they had implemented a new IT system in the previous year.

Mr Fakie concurred with Mr Gilder’s elaborations. He stressed that their main concern had been that the Department had paid the service provider without being able to verify the figures. Hence, they had entirely depended on the service provider’s records. He asked whether there would be a mechanism to ensure that agreements between the Department and the service provider would be complied with.

Mr Maqetuka replied that there were mechanisms in place to check the service provider’s compliance. In the following week, there would be a meeting with the top management of BOSASA to review their agreements.

Mr Gilder highlighted that the implementation of permanent full-time staff and the new management at the Lindela Detention Centre had removed the service provider’s scope to provide incorrect figures.

Mr V Smith (ANC) commented that in the previous financial year, approximately 165 000 people had been processed through the Lindela Detention Centre. He asked how many people had been processed in the financial year ending on 31 March 2005.

Mr Nkambule replied that he could not give accurate figures at this point in time. However, he estimated that the people processed had decreased by approximately 20% in comparison to the previous year.

Mr Smith commented that the costs of running the Lindela Detention Centre had decreased from R100 million to R45 million as indicated by the National Treasury. Thus, the cost had been reduced by approximately 50%, whereas the people processed declined by approximately 20%. He asked what the reasons were and whether this was an indication of fruitless expenditure.

Mr Nkambule replied that the figures provided by the National Treasury had not been accurate. For the financial year 2004/05, the expenditure had been R73.9 million.

Mr Gilder added that over the last three to five years, the figure of people passing through the Lindela Detention Centre fluctuated between 150 000 and 180 000. He further explained that the reason for the declining costs was not the reduction in inmates, but instead the reduction in time spent in the Centre. He explained that the time had been reduced because the number of deportation trains had been increased. This had resulted in decreasing costs. The Auditor-General had only indicated that there was a possibility of fruitless expenditure due to the lack of financial management controls.

Mr Smith commented that the contract with the service provider expired in August this year. He asked what the Department’s plan of action was. Would they put out to tender, advertise, or simply renew the contract with BOSASA?

Mr Nkambule replied that in order to assure transparency, they intended to put out to tender. Mr Smith asked when exactly they would put out to tender, warning that the tendering process would take time. Time constraints could not be ‘blamed’ the following year, as the Department was fully aware of the expiring contract in August.

Mr Smith further asked for information on the meaning of the salary bands in the senior management service. According to the Annual Report for 2003/04, 26 employees were in salary band A, out of which 24 had received performance bonuses. Conversely, 11 employees were listed in salary band B, out of which 11 had been beneficiaries. The Auditor-General had emphasised that the corrective action to resolve the internal control weaknesses in the Lindela Detention Centre had not been adequate. Hence, this gave the impression that no measures had been taken to tackle the financial weakness pointed out by SCOPA two years ago. At the same time however, 92.3% of band A senior managers got rewarded with bonuses. He asked on what basis performance bonuses were paid.

Mr Nkambule replied that the problem lay in their capacity constraints. He emphasised that 11 700 positions would be required; however, at the time of the audit only 5 000 positions had been filled. The fact that 92.3% of Band A senior managers had received performance bonuses implied the lack of capacity and the subsequent work overload.

Mr Smith asked the Department to submit the names of those senior managers who had received bonuses to the Committee within the next two weeks. Mr Fakie added that they should also state what criteria they had used to award senior managers performance bonuses.

Management of Revenue
The Chairperson commented that according to the Auditor-General’s report, the Basic Accounting System (BAS) was not available to all regional offices due to logistical constraints and this had resulted in significant backlogs in capturing the receipts onto BAS. Thus far, BAS had been installed in 29 offices, whereas the total number of offices without BAS was 50. However, the Annual Report for 2003/04 had indicated that there were 240 district offices and service points in total. He asked what they were doing to improve the backlog with implementing BAS.

Mr Nkambule explained that out of the 240 service points, only 146 offices required BAS. To date, they had implemented BAS in 101 offices. The implementation of BAS in the outstanding 45 offices would be completed by the end of July this year. The implementation of BAS had been challenged by inadequate network infrastructure in certain areas. He highlighted that extensive training had been provided to people operating BAS.

The Chairperson commented that the Department’s Turnaround Strategy had outlined many long-time goals. However, priority should be given to the management of revenue, particularly in the implementation of BAS in the outstanding 45 offices. Mr Maqetuka replied it would be prioritised and reiterated that they would have completed the implementation by July this year.

Mr Nkambule commented that there was a serious problem of capacity in various provincial offices. Establishments were restricted by funding shortages.

Ms Mbina informed the Committee that the Department had asked for a rollover of R350 million. She explained that reprioritisation would not be a National Treasury function. She expressed doubt that the Department would succeed in recruiting 5000 people in one year.

Mr Gilder commented that the Department never intended to fill 5000 posts in one year. He further added that the rollout of BAS in all their offices had been a priority. He had worked closely with the CFO to make sure that the Department would catch up with the backlogs in capturing the receipts onto BAS.

Mr Hoosain said that the practice of altering carbon copies of deposit slips was of particular concern because it entailed a serious risk for fraud. He asked about the measures that had come into force to address this problem.

Mr Nkambule replied that they had engaged commercial banks to address fraud risks, and that they considered opening separate accounts for each office. The implementation of BAS would ensure that receipts were captured on the day of issue. Potential fraud and counter-corruption plans would be investigated by the internal auditors.

The Chairperson asked whether the unallocated deposits of R32 million from various regional offices and the unallocated R6.8 million referring to the deposit account had been allocated, and if not what the deadlines were for the allocation.

Mr Nkambule replied that they had made significant progress, but that thus far not all deposits had been allocated. He was not able to give deadlines as to when these amounts would be allocated to the relevant revenue items. Payments received from client departments carried insufficient details to allocate them. They had urged the relevant departments, particularly the Department of Foreign Affairs, to provide adequate information so that receipts could be allocated in time. However, most departments had not paid attention to their request. A further challenge would be the transition from the old to the new BAS. The assistance of National Treasury would be required in this regard.

The Chairperson asked what steps they had taken to urge the Department of Foreign Affairs to comply with their request. He further queried how they had addressed the change to the new BAS.

Mr Nkambule replied that they had engaged with the Department of Foreign Affairs. They were in the process of setting up a new system that would assist Departments to provide the required information. The allocation of those outstanding amounts would receive priority and new procedures and systems would assist the Department in this regard.

Mr Fakie asked about the amount of the current unallocated deposits. Furthermore, he asked what compensating controls were put into place to address the high fraud risk deriving from the unallocated deposits.

Mr Nkambule replied that the unallocated R32 million had been reduced by R17 million, and the unallocated R6 million by R2 million. They were trying to allocate the amounts to relevant revenue items as far as possible.

Ms Mbina suggested that the Department of Home Affairs separated their accounts from the Department of Foreign Affairs invoices. The Department of Foreign Affairs would only be able to solve their problems within the next two years.

Internal Audit
Ms Mashiane (ANC) stressed that the Department had failed to implement previous SCOPA resolutions on internal control. She asked why the Department had failed to address the issue of internal control over the course of the year.

Mr B Dlalisa, Head of Internal Audit of the Department of Home Affairs, replied that they had encountered difficulties in recruiting skilled personnel.

Ms Mashiane asked the reasons for the Department’s failure to submit complete internal audit reports to the Auditor-General; why the reports had been submitted late; what corrective measures they had taken to prevent reoccurrence; and how they would ensure that the more than 80% of the unit’s approved annual work would be executed.

Mr Dlalisa replied that the problem stemmed from inadequate internal structures and processes, and from lack of co-operation. They had tried to address these problems. He explained that the reports for the Auditor-General had not been delivered on time because of misunderstandings within the internal audit. He reiterated that there was a lack of capacity.

Mr Moqetuka added that while they were trying to recruit skilled people to the internal audit function, they had also agreed to outsource some of the functions in order to ensure the accelerated completion of tasks.

Ms Mashiane stressed that it was the responsibility of the Head of Internal Audit to make sure that reports would be drawn up and submitted within required timeframes. Mr Dlalisa explained that there had been a misunderstanding between him and his staff members regarding the submission of the Auditor-General report.

Ms Mashiane asked how many internal audit reports had been finalised since the previous audit. Mr Dlalisa replied that thus far, they had finalised 10 internal audit reports out of 21. Ms Mashiane asked the Auditor-General to confirm this. Mr Fakie answered that he could not confirm this figure at this point in time because they had not yet commenced with the audit for the year ended 31 March 2005. However, they would inform the Committee on this matter once the audit had been completed.

Ms Mashiane asked about the current funding situation of the internal audit unit. Mr Dlalisa conceded that he was not aware of any funding problems. Mr Nkambule informed Members that there was no problem with regard to funding.

Ms Mashiane asked for detailed timeframes of steps undertaken to rectify the situation within the Internal Audit Unit. Mr Maqetuka replied that the Senior Management had agreed on upgrading the position of the Head of Internal Audit. He added that the process of filling of vacant posts was ongoing. They were also discussing the role of the internal audit unit in Audit Committee meetings.

Mr Mshiane asked whether processes within the internal audit unit would be monitored. Mr Nkambule explained that the Head of Internal Audit reported directly to the Director-General. Furthermore, the Audit Committee would evaluate processes.

Mr Gilder added that they had introduced a monthly reporting system at the beginning of 2004 for all business units in the Department, including that of the internal audit unit. Those monthly reports indicated the projects they were working on and their progress. The Director-General read those reports and expressed concern if there was a lack of progress. In addition to the monthly reporting system, internal audit presented a report at every Audit Committee meeting. Thus, there was a monitoring system in place.

Mr Fakie stated that the problem stemmed not only from an ineffective Internal Audit Unit and lack of capacity, but also partly from overoptimistic plans. Only 19% of the audit plan for 2004 had been implemented. However, the Department had addressed those issues.

Mr Russouw, Chairperson of the Audit Committee, stated there was not only a capacity problem, but also a serious quality problem within the internal audit unit.

General questions
Mr Trent asked whether the Department intended to re-establish an internal audit component within GPW, or whether it was more cost-effective to have one internal audit unit for both institutions. Mr Ntimba replied that they had already established an independent internal audit unit for GPW.

Mr Trent asked whether they had enough auditors. Mr Ntimba answered that presently there was a lack of capacity.

Mr Fakie commented that with regard to the IT systems, the Auditor-General’s concern had referred to the lack of controls. He cautioned that even if progress had been made on the utilisation and innovation of IT systems, fundamental control had to be taken into account.

Mr R Ndou (ANC) asked how the National Treasury would assist the three departments who had received qualified audit reports over the past four years, namely the Departments of Home Affairs, Public Works, and Water Affairs and Forestry.

Ms Mbina replied that the National Treasury would help resolving the matter in terms of financial and management accounting. They were aware of the fact that the continual change of leadership in these departments had contributed to the situation, as well as the change within the National Treasury itself. She highlighted that National Treasury would not sanction the departments, but would instead intensify co-operation.

The meeting was adjourned.

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