Department of Social Development Audit Report:Review

Meeting report

STANDING COMMITTEE ON PUBLIC ACCOUNTS
13 June 2001
DEPARTMENT OF SOCIAL DEVELOPMENT AUDIT REPORT: REVIEW

Chairperson: Mr G Woods

Documents handed out:
Department of Social Development's response to SCOPA's written questions on Vote 36: Welfare (see Appendix)
Report of the Auditor-General on the Financial Statements of Vote 36: Welfare for the year ended 31 March 2000 [RP 145/2000]

SUMMARY
Last years meeting with the Department of Social Development (previously the Department of Welfare) resulted in various recommendations for improved financial management of the Department. The Chairperson expressed his hope that this year's meeting would reflect an improvement in this area.

Mr Kannemeyer raised questions on behalf of the Committee on matters relating to financial management. Ms Hlangwana raised questions on unauthorised expenditure and Ms Mothoagae with regards to asset management and unspent funds.

MINUTES
Financial Management
The new Chief Financial Officer (CFO), Mr Pakade, was appointed on 1 June 2001. Mr Kannemeyer questions related particularly to page 3 of the Auditor-General's report and the Department's responses to written questions from SCOPA. In its response, the Department referred to a document submitted to the Audit Committee and comments that had been received from that Committee. Mr Kannemeyer asked when the document had been submitted for comment, and what comments had been received.

Ms A Bester (Director-General, Department Social Development) replied that a document had been sent to the Audit Committee last year. Suggestions were included in a new document, which was submitted to the Audit Committee on the 1st of May.

Mr Kannemeyer indicated that SCOPA would like feedback on the new document when it was received from the Audit Committee. He also asked for clarification on the comments made by the Audit Committee with regards to the previous document. In addition, Mr Kannemeyer asked if the required documents for 2000/2001 had been submitted to the Auditor-General by the 31 May, as required by the new Public Finance Management Act (PFMA).

Ms Snyman (Department Social Development) replied that the comments from the Audit Committee related to notes attached to the documents. She also said that the documents had been completed on time, but had only been submitted on 1 June.

Mr Kannemeyer asked why the Departments action plan had been submitted before the final document was sent to the Audit Committee.

Ms Snyman replied that the reason for this was to improve the quality of the documents that the Department submitted.

Mr Kannemeyer asked what internal control measures had been implemented since the Audit Committee's recommendations.

Ms Bester responded saying that a report on risk management commenced in November 2000. The report was expected at the end of the month. The Department has also expanded its internal audit capacity, providing training for officials in accounting and the PFMA. The Department has involved managers in Presidential Leadership training and has expanded its the financial capacity.

Mr Kannemeyer acknowledged that the Department was at the beginning stages but asked for a time estimate for the systems and internal audit functions to be in place.

Ms Bester replied that within six months, they could give the Committee the measures and findings of the risk assessment as well as the final internal audit plan. She also stressed that, despite the systems development and other current processes, the Department had still performed some internal auditing.

Mr Kannemeyer asked who had been responsible for carrying out the functions of the CFO before the new appointment.

Ms Bester responded that they had employed a chartered accountant.

Mr Kannemeyer asked if that person was still employed.

The Director-General replied in the affirmative and, she said, the contract was for 22 months. At this stage negotiations are underway to adapt his function to the current needs of the Department.

Mr Kannemeyer indicated that the Committee is concerned about the appointment of consultants, particularly with regard to the issue of skills transfer and capacity building. He said there is a fear that, when consultants leave, there will be a relapse if capacity has not been developed sufficiently.

Ms Bester indicated that the contract did not only cover the National Department. Skills transfer is a requirement stipulated in the contract. A number of projects involve the consultants and Departmental staff, sometimes in management capacities. This, she argued, facilitates ownership of the projects by the Departmental staff, whilst allowing them to develop their capacity. This has been made easier by the filling of several posts. She added that a steering Committee monitored the projects to ensure the transfer of skills. There is also a capacity developing program for 7 of the provinces, which varies depending on the province. There are some difficulties with skills transfer to the provinces.

Mr Kannemeyer asked for some elaboration on the skills and expertise of the new CFO.

Ms Bester said that the apart from his formal qualifications, Mr Pakade has the capacity for linking strategy to finance and experience with transfers and conditional grants. She said he had gone though two interviews. She then asked Mr Pakade to elaborate on his formal qualifications and experience.

Mr Pakade said that he had been in public service for a number of years at local government level, and although he had not passed his board exams, he had an Honours in Accounting Science from Unisa. He has worked in local government in Umtata and Gauteng and has completed his articles.

Ms Bester also pointed out that he had been appointed on 1 May, but only started working full time from 1 June. Thus, she argued, he has spent some time engaging with issues facing the Department.

Mr Kannemeyer accepted the response to question 8 in the written questions concerning the performance contract of the CFO but asked for a time frame for its completion. If it had been finalised, he requested details of it, if not he asked for an estimate of when it would be finalised and signed.

Ms Bester replied that the contract should be finalised. A copy will then be sent to the Committee.

Mr Kannemeyer accepted this. He asked the Director-General to brief the Committee on the draft strategic plan for the Department and provide the Committee with a final draft when available.

Ms Bester said they would send a copy of the plan to the Committee. She also said that they had a strategic plan drawn up last year, to start from the current financial year. This strategic plan gave an idea of how to implement the Ministers ten-point plan over the next three years. This year the focus was on summing up and refining the performance indicators. It provides guidelines for a medium-term expenditure framework. The new draft is to be presented to the Minister next week for approval. She also cautioned that the plan may need adjustment subject to budget constraints.

Mr Kannemeyer asked Ms Bester if she, as Director-General, had seen improvements in the financial management of the Department. Further he asked if she was sufficiently satisfied that the problems which had been experienced had been addressed.

Ms Bester provided some background before answering the question. The contracts for the consultants were drafted prior to the PFMA. Negotiations occurred at provincial and national level and it was decided which areas the consultants would deal with. Nationally, priorities focussed on budgeting, procurement (which was still being implemented), and risk assessment. Ms Bester felt that progress has been made, but added that there was room for improvement, particularly with regard to procurement procedures. This she said was in light of changes to the State Tender Board procedures. Consultants have assisted in structuring monthly reports to SCOPA and in making improvements to conditional grants. Further, the procurement function will form part of the performance agreement with the CFO.

Mr Kannemeyer asked which provinces were part of the contract, and why not all of the provinces were included.

Ms Bester replied that the Western Cape felt that it did not require assistance because two years previously, all provinces had received an allocation to improve their systems. The Free State had already appointed consultants, but representatives attended the meetings to share their experiences.

Mr Kannemeyer insisted that it would be better for all provinces to be on one system.

Ms Bester responded by saying that the National Department was responsible for setting norms and standards for service delivery, including the support processes. The National Department also monitors conditional grants to the provinces. Concerns are dealt with between the National and Provincial Departments.

Mr Kannemeyer said that he might need to follow up on possible problems at a later stage.

The Chairperson pointed out that the Auditor-General had given a qualification to the report because of unauthorised expenditure made by the Department.

Unauthorised Expenditure
Ms Hlangwana highlighted that the Committee was disturbed by the fact that no training was being provided for mangers with regard to State Tender Board procedures. Circulars were sent out outlining any changes to State Tender Board regulations and this should help to reduce the confusion. She asked what measures exist to stop financial mismanagement and how managers were being trained on State Tender Board regulations.

Ms Bester replied that she had earlier raised a concern over procurement, including State Tender Board procedures. She felt that circulars were insufficient since the regulations are complex and there are different interpretations of them. Workshops will be held and she said she hoped that these would help train managers on the regulations.

Ms Snyman said that the workshops would be taking place within the next two months, but had been delayed because the Department is moving offices. Simplified versions of the regulations, particularly those concerning service procurement, have been provided to managers.

The Director-General also made the point that she did not hesitate to discipline staff with regard to financial mismanagement. The case raised last year in the meeting had been dealt with and the person concerned had been dismissed. These issues she insisted are taken very seriously in the Department.

Ms Hlangwana asked if the official Ms Bester referred to had been dismissed in relation to donor funding.

Ms Bester said that it was not in connection with donor funding, but another matter.

Ms Hlangwana asked for an explanation as to how there seems to be unauthorised expenditure because government directives are not being adhered to.

Ms Bester said that there was confusion because this problem concerns donor funding. There are no clear guidelines from State on this expenditure. Her Department has held meetings with the donor (the Netherlands Government) and has visited the projects that the money has been spent on. She said that the donor is happy that the money has been utilised correctly. She felt that this was a purely technical matter.

Ms Hlangwana reiterated that the Committee was concerned with the confusion in the last paragraph of the written response to question 1, concerning paragraph 2.2.1a on page 2 of the Auditor-General's report.

Ms Snyman suggested she explain. Prior to 1998, donor funds were part of budget allocations, but subsequent to changes in the legislation, these allocations were kept separate from budget allocations. The Treasury did not issue guidelines concerning the use of these funds. The line functionaries felt that the expenditure was in the best interests of the project concerned and for this reason, had not followed State Tender Board regulations. After this was discovered, discussion with the Treasury had resulted in an agreement to follow donor directives. These directives stipulate that State Tender Board directives must comply with State Tender Board directives and hence, the way in which such funds are dealt with has changed.

Ms Hlangwana asked if it would not have been better to consult the Treasury before spending the funds.

Ms Snyman acknowledged that it should have been done that way.

Ms Hlangwana then asked for confirmation from the Treasury that this had happened. Further she asked for the Treasury's view on consulting with the donor.

Mr Marais from the Treasury replied that consulting with the donor was viewed as an acceptable solution to ensure that the funds were spent in the manner originally intended. However, he felt that there were controls in place at the time. He acknowledged that the Department seemed sincere but the Treasury would prefer consultation to take place prior to spending.

Mr Kannemeyer asked if parliamentary oversight was necessary since the funds were donated to the State.

It was agreed that if the method of asking the donor for approval was followed, parliament's oversight role is removed.

Mr Marais and others agreed that since tender board regulations were not adhered to, it constituted unauthorised expenditure. This view was accepted by the Committee. He felt that the Committee should express a view on the incident, donor approval notwithstanding.

Ms Hlangwana (quoting page 8 of the written responses) referred to question 1b of the Preparatory Document. She asked why the person concerned had not done what was required, since it was acknowledged that normal procedures were not followed.

The Department insisted that action was taken and the person concerned had been found guilty and given a final warning.

Ms Hlangwana then referred to the response to question 2b, on page 9 of the written responses. She asked which discrepancies had to be clarified with the State Tender Board.

Ms Snyman replied that some dates had been incorrectly mentioned in the response. She said the delay was partly because the province responded quite late. However, a quote had been received concerning the larger amount mentioned.

Mr Kannemeyer wanted to know whether the R30 000 catering fee for 250 people was not considered excessive.

Ms Snyman said that this figure was for two full days and State Tender Board regulations had been followed. The final figure was R36 000 for 500 people, and she was able to provide the Department with details, if required.

Ms Hlangwana asked if this was the only tender which had been received.

Ms Snyman said that three quotes had been received, the one chosen was for 500 people and the figures were about R19 000 for the first day, and R17 000 for the second. Another company quoted R22 500 per day.

Mr Pakade pointed to the creation of a register for mis-spending which must be submitted to the Financial Misconduct Board (page 6 of the written responses). He asked why it was necessary to create this register if there was an Anti-Corruption Board and directives had been issued to members to prevent fruitless and unauthorised expenditure.

Ms Bester said that she hoped the register would be blank, but stated that the register was to aid in the monitoring and reporting to SCOPA. It was intended to facilitate the clearing up of reports which arose from these meetings. She added that managers had been trained and Human Resource strategy plan had been completed at National and Provincial level to try and increase capacity.

The Chairperson said the register would help the Accounting Officer follow through on the procedures and recommendations arising from the monthly submissions to SCOPA.

Asset Management and Unspent Funds
Ms Mothoagae asked why the Department was only now implementing procedures to barcode all assets and monitor them in this way.

The response from Ms Snyman was that Logis had only been operating since May 2000, and full implementation only occurred in October. This had to happen before the bar-coding took place. Ms Mothoagae asked if this meant that the Department did not know what assets it had at the current moment.

Ms Snyman elaborated saying that the Department did know what assets it had, but the new system allowed assets to be managed. This means that specific assets with a unique number and bar-code can be tracked to particular people.

Ms Mothoagae asked when the numbering will be finalised.

Ms Snyman replied that normal tendering procedures take about eight weeks, so the process will be underway within two to three months.

Ms Mothoagae pointed out the apparent discrepancy between the interest rate figure of 7.2% on unspent funds (quoted in the written response) and the figure the Committee had independently obtained of 10.5%.

Ms Bester replied that her Department had now done recalculations with the new figure, and arrived at the same figure for interest as SCOPA.

Ms Mothoagae asked what measures had been implemented to monitor unspent funds in the Poverty Relief Funds.

Ms Bester responded by saying that evaluations were carried out in May and June with site visits around the country. A comprehensive audit revealed a need to develop the capacity of the communities themselves with regard to financial management and project management. She also said that projects are required to submit reports before the next amount of money is provided to them. The R37 million depicted as unspent funds was in fact committed but had not yet been paid because of questions pertaining to the projects.

Ms Mothoagae asked what assurances the Director-General had that IDT met PMFA procurement procedures.

Ms Bester replied that they had a signed agreement, but that IDT did not contract on behalf of the Department.

Ms Mothoagae commented that what Ms Bester had said did help, but that ultimately there needed to be an evaluation of the value-for-money that was being obtained.

Ms Bester elaborated, saying that audits and site visits were carried out, and money was reaching the people that needed it. However she said that because of the small budget, the Department would not meet all the needs. She reiterated that money was reaching the people. For 2000/2001 she said that they had spent their budget, and what more could they do? She also stated that a more comprehensive evaluation of the impact of projects is needed.

Ms Mothoagae said that she was following up on what had been revealed last year, namely the lack of capacity at provincial level.

Mr Kannemeyer said that the Committee took cognisance of the improvements. He went on to say that the site visits were a once-off exercise and therefore asked what capacity had been developed in the provinces to monitor the projects. Further, he asked how the reports received were verified and how it was determined that problems (referring to the R37 million underspend) had been resolved. He stated that a particular concern is the role of provinces in monitoring. He suggested on-site inspections of samples of projects.

Ms Bester said that the R37 million had not been retained purely because of problems with the projects but also due to procedures. She pointed to the fact that some rural projects had only been finalised this year. In respect of provinces, a portion of the budget has been allocated to deal with capacity building and site visits. Orientation programmes are also increasing capacity.

The Department's National Programme Monitor revealed that, from the end of this month, standard monitoring processes are to be implemented. After three months, Provinces must inspect and approve projects, and then only is the next amount of funding released.

Mr Kannemeyer made the point that budget input and consequently the Departments output were the central concern of SCOPA. Hence the Committee wants to see implementation taking place.

The Chairperson followed up on the value-for-money issue. He said that the Director-General had assured the Committee that money was reaching the people. He asked if projects are operating from business plans and if the business plans included measurable outcomes.

Ms Bester replied that proposals are required for all projects, which are converted into business plans with time-frames. However, she pointed out that in a context of need, this was hard to do. She said that the challenge was to have the community develop their own plans based on their needs, rather than consultants developing plans. She said that the Department was trying to make funds available to develop community capacity to generate plans and proposals. However, the communities have day-to-day needs which are not being met. She cautioned against being too strict in requiring business plans from poor communities.

Mr Woods elaborated by saying that if a certain number of meals are meant to be provided for a certain number of people, the Committee needed some assessment of this.

Ms Bester said that monitoring systems are in place but in-depth evaluations of the project impact are needed.

The National Programme Monitor also said that the Department has limited 10% of funds to the drafting of business plans and consultants fees. A further 10% is dedicated to capacity building and the remaining 80% is for the community. This was to prevent previous situations where consultants claimed 50% of the money from the projects.

Ms Bester said that Treasury had given them the guidelines regarding 10% of the money going to administration costs.

A member of the Committee said that although the projects had been audited, he was concerned that the dispensing agencies needed to provide proof of their accounts. He said that the media had reported on people defrauding schemes at agency level and he felt the Committee needed assurances that the Department monitors these agencies.

Ms Bester responded that for the last year, the focus has been on communities, not intermediaries, thus funds went to communities and not agencies. She also highlighted the fact that communities submit accounts to the Department.

The Chairperson asked for closing comments.

Ms Bester said that the Department was moving towards improvement. She said she could submit the relevant documents for the Committee to peruse. She also indicated that evaluations were being prepared to address the issue of value-for-money.

Mr Kannemeyer concluded by pointing out the improvement in the Department's performance. He said that last year, there had been underspend of 98%. For the year under discussion, this had dropped to 15% or R37 million. Further, he said that reports for 2000/2001, indicated that 99% of the funds had been spent. He said that improvement was visible in various areas but looked forward to improvement with regard to the remaining issues.

Mr Woods wished the new CFO luck in dealing with internal controls particularly relating to accelerating the implementation of control measures in line with the PFMA.

The meeting was adjourned.

Appendix:
REPORT OF THE AUDITOR-GENERAL ON THE FINANCIAL STATEMENTS OF VOTE 36 - WELFARE FOR THE YEAR ENDED 31 MARCH 2000 [RP 145/2000]

QUESTIONS TO THE ACCOUNTING OFFICER FOR WRITTEN RESPONSE

A. STANDARD QUESTIONS

To the Director-General: Social Development - Ms A Bester

1. Could you inform the Committee of the measures that have been introduced in the department to adhere to the requirements of section 38 (1)(a)(i) of the Public Finance Management Act relating to effective and efficient risk management?

As part of the existing contract with the Deloitte and Touché Consortium, consultants were contracted during September 2000, to conduct a risk assessment for the Department. It is envisaged that the risk assessment process will be finalised by the end of June 2001.

The Department managed to establish an Internal Audit Unit during October 2000, with the appointment of the Deputy Director: Internal Audit. The Director: Internal Audit was appointed during February 2001.

An Assistant Director: Internal Control was also appointed during February 2001, to facilitate the implementation of effective internal control mechanisms and financial management and administration policies and procedures in the Department. The Internal Control Section will also be responsible for the development and the implementation of the Fraud Prevention Plan of the Department.

2. Could you inform the Committee whether the above-mentioned measures taken, include a formal fraud prevention plan against improper practices and opportunities for fraud, theft and corruption?

The Department is in the process of developing the Anti-Corruption and Fraud Prevention Strategy for the Department. Officials within the Department were appointed to serve on the Anti-Corruption and Fraud Prevention Operational Committee to develop the strategy. The strategy involves a number of processes, namely;

• The development of the Anti-Corruption and Fraud Prevention policy,
• The development of the Anti-Corruption and Fraud Response Plan,
• The development of the Anti-Corruption and Fraud Prevention plan and;
• The development of the Anti-Corruption and Fraud Prevention implementation Plan.

The Policy document has been drafted and consulted with the management of the Department and the relevant Trade Unions. The Policy document has also been referred to the Audit Committee for comment and input, and their input is awaited.

The Response Plan has also been drafted and referred to management for comment and input.

It should, however, be noted that the finalisation of the Anti-Corruption and Fraud Prevention Plan is dependent on the risk assessment, which is scheduled to be finalized by the end of June 2001. It is envisaged that the Anti-Corruption and Fraud Prevention Strategy will only be finalised and ready for adoption by the end of July 2001.

3. Briefly inform the Committee on the steps taken to ensure the submission of financial statements and Annual Report by the new deadlines as required by section 40(1)(c) and (d) of the Public Finance Management Act.

A Departmental action plan for the timeous finalisation of the financial statements was drafted and implemented to ensure that the financial statements are delivered to the Office of the Auditor-General by 31 May 2001.

In terms of the Guideline to the Accounting Officers, the draft financial statements were also presented to the Department's Audit Committee on 17 May 2001. Although the Audit Committee has indicated that they could not comment on the un-audited financial statements of the Department, they have provided the Department with valuable general comments on the compilation of the financial statements.

At the Audit Committee meeting of 17 May 2001, the Office of the Auditor-General has also committed themselves to ensure that the audit on the financial statements of the Department will be finalized by the end of July 2001.

As far as the Annual Report of the Department is concerned, all the necessary actions will be taken to ensure that the Executive Authority will table it in Parliament, within the prescribed six months after the end of the financial year.

4. Could you inform the Committee whether the internal audit component complies with the requirements of section 76(4)(e) of the Public Finance Management Act and Treasury Regulation 3.2?

Yes, the Internal Audit component complies with the requirements of section 76(4)(e) of the PFMA and Treasury Regulation 3.2.

The Directorate: Internal Audit reports to the Director-General and the Audit Committee, which is also in line with the standards (Standard 110) set by the Institute of Internal Auditors.

The Head of Internal Audit will establish and maintain a quality assurance programme to evaluate the operations of the Directorate. This will include a review of all audit reports before distribution, development of a structured training programme and submissions of activity reports to the Audit Committee on a quarterly basis.

The methodology used in Internal Audits is in line with the guidelines issues by the Institute of Internal Auditors.

The Directorate: Internal Audit will prepare a three-year strategic plan as soon as the risk assessment is finalised. The first year of the strategic plan will be adopted as the Internal Audit Coverage plan. This will be followed by the development of plans indicating the proposed scope of each audit in the annual plan.

The Internal Audit Charter, which forms part of the Audit Policy, has been drafted and forwarded to the Audit Committee members for input and comment. The Internal Audit Charter outlines the purpose, authority and responsibility of Internal Audit. The Charter will be tabled at the next Audit Committee meeting scheduled for 3 August 2001 for discussion followed by its approval.

5. Could you inform the Committee of the benefits of the internal audit function to management?

The Internal Audit function will assist managers to achieve their objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management and control.

The Internal Audit function will therefore provide Management and the Audit Committee with the analysis, appraisals and recommendations on counseling and information concerning all the activities reviewed.

The Internal Audit function will also conduct reviews and advice on:

• Whether there is compliance with those policies, procedures, laws and regulations that could have a significant impact on operations and reports.
• Whether the results of operations and programs are consistent with the established objectives and goals and whether the operations or programmes are being carried out as planned.
• The reliability and integrity of recorded information.
• The economic, efficient and effective utilisation of resources and cost effective implementation of goals, objectives and programmes.
• The appropriateness of the means of safeguarding assets and the verification of the existence of such assets.

6. Could you inform the Committee whether the composition of the audit committee adheres to the criteria as set out in section 77 of the Public Finance Management Act and Treasury Regulation 3.1?

Yes, the composition of the Audit Committee conforms to Section 77 of the PFMA and is as follows:

• 3 members are from outside the public service;
• The chairperson is from outside the public service;
• Has a representative from the National Treasury; and
• The Committee meets at least quarterly.

7. Could you inform the Committee on the progress made against National Treasury's date-linked PFMA Implementation Plan?

Attached is a copy of the Department's PFMA Implementation Plan with an indication on the progress made with the implementation thereof.

8. Could you inform the Committee whether a formal performance contract with the chief financial officer (to be appointed by 1 April 2001) responsible for financial management, exists and what are the key performance areas?

No, not yet. The newly appointed CFO will only take office on 1 June 2001, after which a formal Performance Contract will be finalized.

9. Could you inform the Committee whether the Department is in the process of developing a strategic plan for 2002-03 in terms of Treasury Regulation 5.1.1 as is to be submitted to the relevant Executive Authority as well as the National Treasury by 30 June 2001 for the MTEF period commencing 1 April 2002?

Yes, the Department is in the process of finalizing the Draft Strategic Plan for the 2002/03 to 2004/05 financial years.

The final Strategic Plan will be tabled in Parliament by the Executive Authority, in terms of paragraph 5.2.1of the amended Treasury Regulations, dated 9 April 2001.

10. Could you inform the Committee of the steps taken by the department to timeously prepare itself to apply proper principles for performance budgeting as required in terms of the strategic plan?

The Department has started with the process of linking the Strategic Plan outputs to the MTEF estimated cost. The Strategic Plan outputs and the MTEF costs will also be linked to the Performance Agreements of Senior managers as well as the individual work plans of each official in the Department.

The integration of budgeting and performance management will be done through the Department's Performance Management Development System.

11. Has a system been instituted for the management of assets, including safeguarding and maintenance, as well as the management of liabilities in terms of section 38(1)(d) of the Public Finance Management Act and Treasury Regulation 6.5?

Yes, the Department has implemented the Logistic Information Management system (LOGIS) during May 2000, as prescribed by the National Treasury. It is envisaged that this computerized provisioning administration system will improve the overall management and administration of stock levels and assets in the Department.

During October 2000, the LOGIS system was linked to the FMS System, which will improve the overall management of liabilities.

The Department is in the process of finalising the specifications for the appointment of a service provider to number all individual assets in the Department with item control numbers, which will be linked to the LOGIS System. This item control numbers will enable the Department to manage the movement of assets on the main inventories and will improve stock takes.

1. Briefly indicate what measures you have put in place to prevent unauthorized, irregular and fruitless and wasteful expenditure and losses occurring as a result of criminal conduct. [See section 38(1)(c)(ii) of the Public Finance Management Act.]

The Department has provided training on the requirements of the PFMA and the Division of Revenue Act, 2001 to all managers.

Officials were also nominated to attend courses on the PFMA at outside institutions, such as the University of Pretoria.

Circulars on the State Tender Board and Treasury directives are sent out on an on-going basis, as and when new amendments are received.

The financial delegations of the Department in terms of the PFMA and the Treasury Regulations have also been finalized and implemented during January 2001. These delegations have been distributed to all officials, from the rank of Deputy-Director in the Department. Programme Managers have also been appointed to account for the expenditure in such programmes.

The Department is in the process of establishing a Financial Misconduct Board, who will consider all cases of possible financial misconduct, to make recommendations to the accounting officer on further actions to be taken.

The Department has also managed to establish an Internal Control Unit in the Directorate: Financial Management and Administration to facilitate the development and implementation of effective and efficient internal mechanisms and financial policies and procedures.

It is also envisaged that the establishment of the Internal Audit function will assist the managers in the Department and the Finance Section to comply with the regularity aspects of all relevant legislation, procedures and directives, to ensure effective and efficient financial management and administration in government.

The Finance Section has also implemented a register system to keep proper record of all un-authorised, irregular and fruitless and wasteful expenditure and losses, which will then be submitted to the Financial Misconduct Board for consideration and further recommendations.

2. Could you inform the Committee whether any incidents were detected and were they dealt with according to section 38(1)(g) and (h)

During the 1999/2000 financial year only two cases of unauthorized expenditure (irregular expenditure in terms of the new definition) occurred, which was reported in the Report of the Auditor-General on the Financial Statements of the Department of Social Development.

Ex post facto approval was obtained from the State Tender Board for the amount of R36 594 for the National Conference on Victim Empowerment.

As far as the R187 375 for the payment of contracts with individuals from non-governmental organizations is concerned, a letter was sent to the Netherlands Embassy for the condonation of the expenditure. A response is awaited.

12. Briefly indicate what measures you have put in place to manage available working capital efficiently and economically, according to section 38(1)(c)(iii) of the Public Finance Management Act, specially regarding stock holdings.

The management of stores and equipment is done in accordance with the directives and procedures of the National Treasury contained in the provisioning administration procedure manual and LOGIS manual.

The payments for all supply and services are done in terms of the directives of the National Treasury through the transverse Financial Management System.

As far as debt collection is concerned, monthly follow-ups are done to all outstanding amounts. The Department has also established an Internal Control Unit to develop and implement effective internal control systems, policies and procedures. These will include an effective debt management system.

13. Could you explain to the Committee what measures you are taking to ensure that your department is in possession of adequate expertise and knowledge necessary to achieve the levels of financial management required by the Public Finance Management Act?

The following measures have been taken to ensure that the correct level of financial management expertise is available in the Department for the implementation of the PFMA:

• A CFO has been appointed and will take office on 1 June 2001.
• Line managers have attended courses on the implications of the PFMA and its requirements together with the Treasury Regulations to equip them with the capacity to execute their duties and responsibilities in this regard.
• A Chartered Accountant was employed on contract from May 2000 to March 2002 to assist the Department with the implementation of the PFMA, the improvement of the overall financial management and administration in the Department and to ensure effective capacity building within the Department.
• The Department is also in the process of establishing additional financial administration capacity for Programme Managers to promote their ability to meet the requirements of the PFMA and DORA and the other related prescripts and procedures.

14. What is your view about the current computer system and the ability to meet the financial management system required of the Public Finance Management Act?

The Department is of the opinion that the current transversal Financial Management System will assist in meeting the financial management requirements, while the accounting of government is still done on a cash basis.

Director-General: Social Development - Ms A Bester

PARAGRAPH 2.2.1(a), PAGE 2: UNAUTHORISED EXPENDITURE

1. Could you furnish the Committee with details regarding the unauthorised expenditure of R 187 375 with reference to the following?

1. Why weren't State Tender Board directives adhered to?

This expenditure was paid from Donor funding. In the absence of formal guidelines on the administration of Donor Funds from the National Treasury, the unauthorized expenditure arose partly due to there being confusion as to which procurement procedures were to be followed. The unauthorized expenditure was due to the fact that the payments made to the individuals from the non-governmental organisations involved in the Developmental Quality Assurance (DQA) pilot projects with residential facilities, were not done in line with the normal government procurement directives, as they should have been in terms of the Agreement with the Donor.

The Developmental Quality Assurance is a tool to ensure a cost effective quality service within the child and youth care system. As this was a newly developed, tool it had to be tested before fully been implemented. The crisis within the system endangering the lives of many children at risk, urged the testing of the DQA. Within the parameters of the agreement with the donor, the DQA was introduced as an official joint process of the Inter-Ministerial Committee on Young People at Risk and the national and provincial Departments of Welfare in January 1999.

The State Tender Board directives were not adhered to due to the fact that the lives of children in residential care facilities were continuously put in jeopardy, because to ineffective services and called for urgent action. Therefore, the transformation process had to be expedited and the DQA as a new tool, had to be tested urgently.

2. Were any actions taken against any official?

No, but the Official involved in the administration of the donor funds in the Department was requested to explain to the members of an Information Hearing Committee, why the normal government procurement processes were not followed.

A letter was sent during January 2001 to the Netherlands Embassy to obtain condonation for the expenditure. A response is awaited.

3. What was the nature thereof?

The payments were mainly for consultancy services with regard to the training on the implementation of the Developmental Quality Assurance (DQA) principles.

PARAGRAPH 2.2.1(b), PAGE 2: UNAUTHORISED EXPENDITURE

2. Could you furnish the Committee with details regarding the unauthorized expenditure of R 36 594 with reference to the following:

1. Why weren't Departmental procedures followed?

As the Victim Empowerment Conference was held in Kimberley, the provincial Department of Welfare obtained the quotations for refreshments for the Conference. At the beginning the indication was that 250 people would attend the conference and the quotations obtained were for less than R 30 000.00, which was in accordance with the prescribed procedures. A day before the Conference started, it was established that 500 people would attend the Conference. This resulted in a cost of R36 594, which required full tender procedures.

2. What were the matters identified for clarification by the State Tender Board?

In the original submission sent to the State Tender Board some discrepancies in the information were detected. The State Tender Board required clarity on the information provided.

3. Why didn't the Department timeously attend to the request of the State Tender Board?

Due to an oversight, the initial submission was not followed-up. During February 2001 a response was submitted to the State Tender Board. On 18 April 2001, the State Tender Board granted ex post facto approval for the expenditure.

PARAGRAPH 3.1, PAGE 2: INTERNAL CONTROL

During 1999/2000, the Sub Directorate: Financial Management experienced an overall lack of human resources. This lead to serious problems in the section and proper verification and quality control could not be done. Junior officials in the section were also not capacitated in all the different work fields in the Finance Section.

4. Could you inform the Committee on what measures are envisaged to rectify the matter?

To improve the Department's financial management capabilities in general, the Directorate: Financial Management was restructured to make provision of the appointment of a Deputy Director-General as a Chief Financial Officer and an additional Director's post for Budget Planning and Monitoring.

Further, the human resource capacity of the sub-directorate: Financial Management has been improved, by the transferring of two officials to this Sub directorate during December 1999 and February 2000. However, shortcomings in the understanding of processes, duties and responsibilities by the junior officials, are still problematic.

Ongoing training is being provided and officials are also nominated to attend appropriate financial management and administration training courses.

An Internal Control Unit was also established on 19 February 2001, with the appointment of the Assistant Director. This Unit will evaluate all the existing financial policies and procedures applied in the Department. This Unit will also facilitate the upgrading of all existing policies, procedures and processes and the development of new policies and other internal control mechanisms to ensure effective and efficient financial management and administration in the Department.

5. Could you supply the Committee with a progress report on the situation regarding the suspense and advance accounts?

During the 2000/2001 financial year all the suspense accounts were followed up on a regular basis and only a few old balances are still in the suspense account.

The necessary actions to either write-off the amounts or to recover the outstanding amounts are in the process of finalisation.

PARAGRAPH 3.2, PAGE 3: FINANCIAL MANAGEMENT

6. Could you briefly inform the Committee on the progress being made with the appointment of a chief financial officer?

A suitable candidate was identified and appointed. He will take office on 1 June 2001.

7. Could you elaborate on the terms of reference of the consortium of financial experts and what successes they had experienced this far?

The terms of reference of the consortium of financial experts were based on the duties and responsibilities of the Financial Manager set out in the Exchequer Act, 1975 (Act 66 of 1975) and the Treasury Instructions.

With the implementation of the new PFMA, the objective of the contract is still to ensure that the National and Provincial Departments of Welfare possess effective and sound financial management and administration practices with regard to all financial, procurement and project management activities. However, the focus has been shifted from the requirements of the old Exchequer Act to the new transformed financial management principles set out in the PFMA, Treasury Regulations and the Division of Revenue Act and other related prescripts and procedures.

The progress on the project includes the following:

• The shortcomings in the Financial Management, Administration and Procurement functions in the National and Provincial Departments of Social Development has been identified and documented. An action plan has been developed and implemented to address these shortcomings.
• Assistance with the development and monitoring of the national departmental PFMA Implementation Plan.
• Assistance with expenditure monitoring and facilitation of expenditure in line with the budget of the Department.
• Assistance and advice with regard to the financial reconciliations that need to be performed.
• Assistance with the response to the Auditor-General queries.
• A risk assessment project is currently being conducted, which will enable the Department to have a comprehensive work plan for the Internal Audit Unit and a high-level risk management plan.
• Assistance with the training and capacity building of officials.
• With regard to the specific progress in the seven provincial departments that is part of this contract, progress is variable. Significant progress have however been made on the operational level and not on the strategic level of financial management and administration as initially intended. This is mainly due to the shortage of staff in the Financial Management Sections of the Provincial Social Development Departments.

4. Could you inform the Committee on the steps taken to ensure the sufficient functioning of the internal audit division while the post of the deputy Director: Internal Audit was vacant?

Although budgeted for, the internal audit division was only officially established in October 2000, with the appointment of the Deputy Director: Internal Audit.

Internal audits were however, been conducted when necessary through the appointment of outside services delivery agencies in terms of the normal tender procedures.

To the Director-General: National Treasury - Ms M Ramos

PARAGRAPH 3.3, PAGE 3: BUDGET PROCESS

Although this question is directed to Ms M Ramos, Director-General for the National Treasury, please accept the following information:

• The Department of Social Development has requested for the rollover of the full amount of R74, 731 million of the unspent portion of the initial R200 million grant received for the Improvement of the Social Security System to the 2000/01 financial year.
• However, during the evaluation of the roll-over requests of the Department by the National Treasury, and taking into consideration the capacity and infrastructure difficulties experienced at provincial level, it was already clear, at that stage that the full amount of funds will not be spent during the 2000/01 financial year.
• An agreement was then reached with the National Treasury to spread the amount over the 2001/02 to 2002/03 financial years, by including it in the MTEF inputs of the Department for those years as one of the Special Policy options. The MTEF input of the Department was then submitted and evaluated by the MTEC committee and Budget Council, after which a final approval was given by Parliament on the amounts allocated to the Department of Social Development over the current MTEF period, 2001/02 to 2002/03.

To the Director-General: Social Development - Ms A Bester

PARAGRAPH 3.3.2, PAGE 4: UNSPENT FUNDS

The main savings occurred as a result of delays in project specific spending and the filling of vacant posts due to the transformation and restructuring of the Department of Social Development. The project related savings accounts to approximately R120,033 million. The saving on operational expenditure was approximately R7,102 million. This gives a total saving of R127,135 million.

From the R127,135 million saved during the 1999/2000 financial year, an amount of R63,718 million was received as rollover funds in the 2000/01 financial year. Of the remaining R 63,417 million approximately R51 million in terms of the grant for the Improvement of the Social Security System was received in the MTEF allocations for the 2001/02 to 2002/03 financial years. This was to ensure the effective and efficient utilization of these funds, which are mainly for the improvement of social security technological infrastructure and financial management in the provinces.

The R37,678 million saving on the Poverty Relief Project was only 15,5% of the total Voted funds of R242,950 million for this project during the 1999/2000 financial year. Due to the large scale of this multi-year poverty relief project, administrative blockages occurred from time to time. The Department, therefore, took the decision not to disburse the final amount of R37,678 million, until the blockages had first been unraveled. The amount of R37,678 million formed part of the R63,718 million received as roll-over funds in the 2000/01 financial year.

As reflected in the Report of the Auditor-General on pages 11, the over-expenditure on Programme 6 and 7 is due to-

• The fact that no provision was made in the budget of Programme 6 for the Union of African Population Studies Conference held in Durban during December 1999, but for which special virement was obtained from the Director-General.
• The over-expenditure on Programme 7 was due to the purchasing of two vehicles for the Minister in line with a Cabinet decision and for which special virement was also obtained from the Director-General.

From a technical point of view, it seems that although approval for the virements were obtained, the funds was not shifted on the Financial Management System, so as to reflect no over-expenditure on these two programmes.

PARAGRAPH 3.4, PAGE 4: OVERSTATEMENT

9. Could you provide the Committee with reasons why the amount of R202 198, approved by the State Tender Board, has not been rectified in the records of the Department?

The R202 198 indicated as unauthorized expenditure in the records of the Department was not corrected, as according to the records of the Department and the Office of the Tender Board, no ex post facto approval for the expenditure was granted.

Following a decision at an Audit Committee meeting during 2000/01 and the agreement by the Office of the Auditor-General, the amount was taken out of the unauthorized records of the Department and reflected as expenditure against the allocated funds for the 2000/2001 financial year.

PARAGRAPH 3.5, PAGE 4: FRUITLESS EXPENDITURE, R29 273

10. Could you inform the Committee on the progress made in establishing the liability to recover the amount of R29 273?

On 4 February 2001 a letter was sent to National Treasury in order to request permission to write off the fruitless expenditure of the payment to Ms Taback as the officials responsible for the cancellation of the contract had already left the service of the Department.

On 21 February 2001, National Treasury recommended that the Department accept the recommendation and finalised the problem in terms of Treasury Regulation 12.2.

3. COMPUTER AUDIT QUESTIONS

To the Director-General: Social Development - Ms A Bester

PARAGRAPH 3.6, PAGE 4: COMPUTER AUDIT OF THE SYSTEM DEVELOPMENT LIFE CYCLE OF THE SOCIAL PENSION COMPUTERISED SYSTEM

1. Could you inform the Committee on the measures implemented or envisaged to ensure that future system development projects are developed and implemented in a structured manner and to ensure that the feasibility study, alternative courses of action, technical specifications and programming standards are adequately documented?

The Department will ensure that the specifications for any system development project are comprehensive and broadly consulted with experts in this field, including the State Information Technology Agency and the National Treasury.

Furthermore, the detail service delivery requirements of such projects will be formalized in business contracts and service level agreements.

The Department is also in a process to establish an effective contract management system, to facilitate proper monitoring and evaluation of all projects.

2. Could you inform the Committee on the measures implemented or envisaged to ensure that adequate controls exist to prevent future system development and implementation projects from being converted into a long-term maintenance project?

The Department will make use of accepted and acknowledged system development life-cycle methodology, such as METISE and SUMMIT D and S.

A project management approach will be followed, and processes and procedures will be audited on a regular basis.

3. Could you inform the Committee on the measures implemented or envisaged to ensure that future projects periodic and post-implementation reviews of systems are timeously conducted to identify and address changes in user requirements?

The Department envisages the implementation of a proper monitoring and evaluation system, which will include on-going quality assurance and reviews of systems and projects.

4. Could you inform the Committee what the current status of the SOCPEN system development project is and when it will be completed and what the original estimated cost and the final cost will be?

The existing SOCPEN project should not be seen as a system development project, but is primarily a maintenance contract, which includes enhancements.

The current contract with the service provider QDATA Consulting was concluded for a period of two-years, starting from 1 April 1999, with an option to extend the contract for a year. Approval was obtained from the State Tender Board to extend the existing contract until the end of September 2001. The Department has been concerned about delivery on and the cost of the contract. The Auditor-General, at the request of the Department, is conducting a performance audit of the QDATA contract.

The cost for the existing contract is estimated at R34 million.