Department of Transport; South African Rail Commuters Corporation (SARCC); Compensation Commissioner on Occupational Diseases: h

STANDING COMMITTEE ON PUBLIC ACCOUNTS (SCOPA)
7 June 2006
DEPARTMENT OF TRANSPORT; SOUTH AFRICAN RAIL COMMUTERS CORPORATION (SARCC); COMPENSATION COMMISSIONER ON OCCUPATIONAL DISEASES: HEARINGS

Chairperson: Mr T Godi (PAC)

Documents handed out:
Department of Transport Annual Report 2004/5 (available at www.trasnport.gov.za)
SARCC Annual Report 2005 (not yet on SARCC website)
Department of Health Annual Report 2004/5(available at www.doh.gov.za)
Auditor General's Report on Department of Transport 2004/5
Auditor General's Report on South African Rail Commuters Corporation (SARCC) 2004/5
Auditor General's Report on Compensation Commission for Occupational Diseases 2004/5

SUMMARY
The Auditor-General's audit opinion of the financial statements of the Department of Transport for 2004/5 was qualified. This was due to the late submission of financial statements, fruitless and wasteful expenditure, irregular expenditure, non-compliance with laws and regulations, internal control weaknesses, and weaknesses in the control of transport-related public entities. The Department was questioned on these matters and it generally acknowledged that there had been bad financial management.

The South African Rail Commuters Corporation (SARCC) was called to account for receivingf a qualified audit opninion from the Office of the Auditor General, for the year ended 31 March 2005. This qualification was due to non-compliance with legislation and regulations, lack of disclosure of remuneration, its investment policy, weaknesses in the Corporation’s corporate plan, weaknesses in the computer information technology environment, and consolidation. The SARCC was confident that since the issue of the qualified opinion, it had competently dealt with the weaknesses highlighted in the audit report, and that it would not have to appear before SCOPA to account for the results of the next financial audit report.

Representatives from the Department of Health were called in to account for the qualified audit opinion for it entity, the Compensation Commission for Occupational Diseases, for 2004/05. This opinion was due to its departure from statements of generally accepted accounting practice, limited inspection of risk shift registers, and inadequate controls over unclaimed benefits. It was explained that the Compensation Commission was in the process of being handed over to the Department of Labour, which would be better resourced to manage the entity’s financial matters.

MINUTES
Department of Transport
By way of introduction, Mr P Gerber (ANC) stated that the Committee was very concerned about the total disregard for laws and regulations within the Department, which had led to a number of problems occurring in the 2004/05 financial year. He noted the Committee’s concern for the lack of budgetary discipline within the Department, which had resulted in the inefficient management of contracts and poor control of funds. The Department of Transport would have to “get its house in order”, and tighten up its internal control.

Mr Gerber found it unacceptable that the Director General had not found it necessary to attend any of the four audit steering committee meetings which the Department had held with the Auditor General.

The Department of Transport Director General, Ms Mpumi Mpofu, responded that on taking office on 1 April 2005, she had met with the audit committee, where she clearly set out what she expected in terms of her relationship with that committee. Considering the clear evidence of bad financial management within the Department, she had also outlined the challenges ahead, in order to achieve an unqualified audit report over a period of time. In addition, at that meeting she had requested that members structure their meetings according to an outline provided by herself. Hereby, members would be enabled to meet, consider matters at hand, and in the end, call in the Director General in order to advise her on their various conclusions on these matters. She assured the Committee that as an accounting officer, she took her responsibilities very seriously. However, having sat in on numerous technical debates by similar committees over the years, she had found that she could use her time more productively. Subsequent to her request, meetings had been structured accordingly, and she was able to meet with the audit committee at the end of their deliberations, in order to be advised of their appropriately articulated findings.

Mr Gerber requested comment from the Auditor-General regarding attendance by the Director General at audit committee meetings.

The Auditor General acknowledged that at times, audit committee deliberations were of a technical nature, but that according to ‘best practice’ principles, it was advisable and appropriate for the Director General to attend audit committee meetings. He added that for the committee to come to an informed conclusion around recommendations and lines of action needing to be taken by departments, they very often would require the input of an official from the Department. The presence of the Director General, who was ultimately the accounting officer, would therefore be recommended.

Mr Gerber then proceeded to question the Department regarding its contract for the production of credit card format driving licences with the Prodiba. He commented that an amount of between R440 million and R600 million had passed through the Prodiba account. He asked who managed the account, how much surplus had accrued on the Prodiba bank account, and what the Department’s plans were to ensure that the surplus funds in the account were adequately accounted for and paid over.

The DG responded that the Prodiba account was managed on behalf of the Department. The Department had entered into an arrangement with a contractor to manage the Prodiba account, transferring funds for the production of the credit card format drivers’ licences. She acknowledged that the arrangements for the management of the account, including disclosure of the details of the account, were unsatisfactory.

The Director General continued that the management arrangements proposed by the Office of the Auditor-General and the Accountant General would ensure that the Prodiba account would be managed much more directly. The Department planned to transfer the funds, excluding the surplus funds that had accumulated, which stood at R105 million, to the Road Traffic Management Corporation (RTMC). That would assist in setting up accounting and financial arrangements between the Department and its agency, the RTMC. This would require adequate capacity within the RTMC to manage the account.

Mr Dan Pretorius, the Chief Financial Officer, stated that the Department’s Road Traffic Management Division was responsible for managing the account. In the past year, the Department had written up financial records from the inception of the contract from March 1998 to March 2006. They had compiled financial statements for each year, discussing the disclosure issues with the Auditor-General and the Accountant General. Both officers had confirmed that separate financial statements should be compiled for the Department and for the credit card licence facilities, so that the Auditor General could express separate opinions on both entities. The Auditor General was currently in the process of auditing all the records. He had indicated that although the Department had not created a trading account, it should possibly have done so at the very beginning. The Department was now planning to do that, until the ceding of the contract to the Road Traffic Management Corporation.

On the matter of financial misconduct, Mr Gerber referred to a memorandum that had been drawn up within the Department, regarding the unconstitutional extension of the contract. He asked what had happened to the individual responsible for the extension of that contract. He also wanted to know what had motivated National Treasury to approve the extension of the contract.

The Director General responded that disciplinary steps had been taken against the official who had irregularly extended the contract period. He subsequently resigned from the Department, and the matter was referred to the state attorney for further action. She added that the resignation of people who transgressed in the public service posed a problem for Government’s ability to take punitive action against such individuals. The state attorney had advised that in such cases, the nature of the action that could be taken was limited to civil action. Such an action could take a long time to conclude, and the Department had done the best that it was able to, in that regard.

Dr E Nkem Abonta (ANC) asked at what point the Department had become aware that there had been an irregular extension of the contract.

Mr J Makokoane (COO) responded that about three years back, the then Director General, having discovered the irregularity, had regularised the matter. A request was then sent to the State Tender Board, and on 9 October 2003, the Department got an extension of the contract. The contract had been awarded with the following considerations: (1) the tender was to be considered for extension if the company concerned could show that they had satisfied the requirements of the Department; (2) notwithstanding the irregular actions of the Departmental official having overstepped his authority, they were confident that the contract would have been awarded anyhow.

On the matter of credit card format drivers’ licences, Ms A Dreyer (DA) noted that Prodiba consisted mainly of three entities: Face Technologies (33%), ID Matics (wholly owned by Thomsons CSF, the French company which had been embroiled in the arms scandal)(33%), and Kobitech (33%), a division of Kobi Holdings, of which Mr Shabir Shaik is the Chairperson. She commented that 66% of Prodiba therefore consisted of “very suspect” entities. She asked if, on account of that, the Department had not considered reviewing its agreement with Prodiba upon the conclusion of Mr Shaik’s trial, should he be found guilty of fraud. Would the Department consider dropping the two latter components of Prodiba, in order to continue with a “more healthy” business arrangement?

The Director General responded that the Department had had to manage the issue very carefully. The Department had held meetings with Prodiba’s representatives to discuss the matter. However the Department would have to apply much wisdom as to how to deal with Prodiba, considering the 33% element (Face Technologies) which was not affected by the judgement against Thomsons CSF and Kobitech. Legal advice had been sought, and the Department was re-negotiating the contract on the basis of the findings of the judgement against the guilty parties, and with the parties unaffected by the judgement. They were considering reviewing the details of the contract based on the eventual findings of the trial, in relation to any corrective actions taken. They were faced by the matter of how to fulfill its commitment to unaffected component within Prodiba, and the matter of keeping the system fully operational so as not to interrupt the production of drivers’ licences. In short, there was considerable discussion surrounding the restructuring of contractual arrangements. She assured the Committee that, bearing in mind the Department’s concern for minimising negative effects upon operational issues, the Department would resolve the matter within a period six months.

Ms Dreyer put it to the Director General that the Department had appeared before SCOPA on the 22 May 2002 regarding more or less the same issues as now. It appeared that the situation had now deteriorated, and that the Department was in regression with regard to its financial matters. With its budget for the year under review of about R7 billion, and with R9.8 million under-spent, the Department had incurred millions in fruitless, wasteful and unauthorised expenditure. She asked for the Director General’s view on its financial management.

The Director General responded that she viewed financial management as the largest responsibility placed upon accounting officers in government. The transition in government from the old Treasury regulatory environment to the Public Finance Management Act's financial management framework placed an even more onerous task on Directors General to ensure that their departments performed efficient management and were able to account for everything that happened in respect to financial management. The Department of Transport currently required a lot of interventions to assist it to become what it should be in regard to its financial management. This was one of her primary tasks within the Department. She continued that the challenges they faced were not insurmountable. Her experience in government clearly indicated that sufficient attention to those matters could result in prudent and efficient financial management. The isolation of certain matters, especially those that have an historical bearing, were particularly important to resolve. Had the particular matter that had led to the qualified report in 2004/2005 been sufficiently attended to in previous financial years, the problem would have been already resolved.

Ms Dreyer observed that in the financial year under review, the Department was forced to pay R958 683 in interest to a service provider, a clear example of fruitless and wasteful expenditure. She asked for an explanation.

The Director General responded that the expenditure related to the lack of a properly specified tender. They had erroneously excluded the issues surrounding the migration from the previous National Traffic Information System (NATIS) to the new NATIS, and had not made provision for the decommissioning of the previous NATIS. In effect, the tender specifications, with a fixed budgeted amount, had not included two important elements. Additional work subsequently had to be done in relation that tender, which required a bigger budget for tender. Sufficient provision had now been made in the budget in order to deal with the matter.

Mr G Madikiza (UDM) questioned the Director General regarding the untimely submission of travel claims. He asked what control measures were being put in place to prevent a recurrence of this problem.

The Director General stated that the nature of the work of the Department required frequent travelling, to the extent that certain persons necessarily travelled internationally sometimes on a weekly or bi-weekly basis. There was a lack of control in managing and processing travel claims. There was a particular weakness in advancing amounts of money that had been paid out in excess of what had been required for particular trips, which resulted in an inability to make proper financial reconciliation. Secondly, the frequent travel by an official meant that often management was unable to timeously approve the authorisation of that trip. Further, the authorisation for the travel agent to issue a ticket was not subject to sufficient control. The travel policy of the Department was currently in place, however, and the Director General had introduced a measure where officials would not be paid more than they were entitled to for trips. The requirement for additional funds would need to be specially motivated, and those amounts would be separately allocated. Those people who did not return superfluous travel funds would have the amounts deducted from their salaries, so that in the end, amounts paid out could be properly reconciled.

Mr Pretorius noted that although the Department still experienced some problems where certain claims were being approved late by managers, at the end of March 2006, R391 000 was outstanding in travelling advances. Of that amount, R243 000 had been cleared. Monthly deductions from salaries stood at R60 000. A further R16 000 would be recovered in the current month of June 2006, and claims to the amount of R47 000 were in the process of being compiled. Problem areas amounted to R22 800, of which R16 000 was claimed back from people’s pensions, and in one case the outstanding R2 000 would be subject to legal action. Lastly, in another case, R4 000 would be reclaimed from the department to which a certain transgressor had been transferred.

Mr Madikiza asked what the Department had done to rectify the issue of the salary income tax in respect of temporary workers, which amounted to R1.1 million, and which had not been properly reconciled.

Mr Pretorius responded that at the end of each month, an automatic interface between PERSAL, the salary system, and BAS, the Basic Accounting System, took place. This interface credits the account of South African Revenue Service (SARS) with the amount that had been deducted from employees’ salaries. The amount is then paid over to SARS in the next financial year. Inexplicably, at the end of March 2005, that interface was automatically reversed by PERSAL. The problem was picked up by the Finance division just before the books closed, and the correcting journal entry was passed. Due to an administrative error, that correcting journal was posted the wrong way around, and the Department redid the entry in double figures. The amount was declared as owing to SARS in the Department’s financial statements, and was paid over in May 2005.

Mr Gumede (ANC) raised the matter of incompleteness of income on drivers’ licence registration fees. The same issue had been raised by the Office of the Auditor General for a number of years. The Department needed to either recover, or write off outstanding amounts. He asked for the reason for the recurring problem.

Mr Pretorius acknowledged that the Department had been grappling with this particular problem for many years. Currently there were over 400 driver licence testing centres, who were all required by a certain regulation, to pay over 3% of revenue to the Inspectorate of Driver Licence Testing Centres. For three consecutive years, the Department had attempted to receive and modify information from NATIS, to determine exactly what amount should have been paid by the testing centres. Although that had now been done, they could not reconcile the amounts that had actually been received. The Inspectorate of Testing Centres had analysed amounts from 1 December 2001 to 31 July 2004, and over that period there had been an over-payment of R956 000. The only explanation that the Inspectorate could find for the over-payment, was that during the period under analysis, testing centres had made payments for previous financial periods. The Department did not have the information to reveal which testing centres had paid or for which periods the amounts were paid. The regulation in question had been repealed with effect from 23 July 2004. The reason for this was that the regulation’s original intention, of funding the Inspectorate of Drivers’ Licence Testing Centres, had never materialised. The Department virtually collected the funds, and paid them over to the Revenue Fund. The Inspectorate was unable to reconcile the fees. The Department had determined what was due from NATIS, and it would try to analyse previous periods, to see whether it would be economical to pursue the matter any further. Should this not be the case, the Department would have to “put the whole matter to rest”.

Mr Gumede suggested that the Department give themselves three months, either to recover amounts, or to write them off, so that they would no longer be included in the Auditor General’s report.

Ms Dreyer observed that although the Department had a vacancy rate of 39% (the acceptable was 5%), the Director General stated in her annual report that none of the vacancies were critical positions. However, many of the vacancies existed in highly skilled production, supervision and management posts. She wanted to know what the Director General regarded as a critical position, and why she thought that the high rate of vacancies did not have a negative impact on service delivery in the Department.

The Director General replied that the Department had been restructured prior to 2004, with the intention of filling the posts which are now still vacant. The process had been started at the time she took office. One of her primary mandates was to re-look at the appropriateness of the structure in order to determine new functions. The new structure of the Department had just recently been approved. The posts referred to as non-critical, were held in abeyance in view of the restructuring exercise, because they were not considered critical, and likely to change in view of the restructuring exercise. The filling of critical posts had been proceeded with. Both the Strategic Plan of 2005/2006 and the restructured organisational establishment were now much more closely aligned in terms of functions for implementing of departmental programmes. The filling of vacancies had begun in earnest, following on the approval of the new departmental structure. The last two editions of the Sunday Times had carried advertisements for the most senior positions in the Department, and this move to fill vacancies would be continued in earnest in the coming weeks. An exact figure reflecting the vacancy rate could not be given at the time, as posts were being filled on a daily basis.

Mr Madikiza asked, in relation to irregular, fruitless and wasteful expenditure, what had been done about the Department’s neglect of duty, and what mechanisms were being put in place to prevent recurrence.

Mr Pretorius replied that all payments were made by either the financial division, or the Department’s supply chain management division. The latter division processed all tenders based on contracts that were tendered for or orders that were placed. The finance division paid all travelling claims, the Telkom account, foreign affairs, the state attorney’s account, transfer payments that were based on contracts, and so forth. In that sense, all payments made by the finance division were not direct procurement-related payments. The finance division had been instructed to stop making any payments that were contract-related, because a contract management system had been installed within the supply chain management division. Every order was logged onto the system, and all payments were checked against the orders placed. The system was able to identify over-payments leading to fruitless or wasteful expenditure. The two cases identified in the year under review, occurred when (1) the Departmental Information Technology Committee, due to a lack of knowledge, approved the purchase of goods where policy was not followed, and (2) an investigation initiated by the Department picked up an irregularity. Thus, the Department was “picking up” on financial irregularities and dealing with them. Matters were first taken to a financial advisory committee on financial irregularities, from where they could be handed over to Labour Relations or to Legal Services for further follow-up.

This concluded this section of the hearing. The Chairperson thanked the Director General and her team for their presence before SCOPA. He hoped that the Department would use the resources available to it as prudently as possible, in order to advance the political imperative of service delivery to the people of South Africa. Lots of interventions would be necessary to assist the Department to be all it could be. He commented that Ms Mpofu was the third Director General in a period of three years, and he hoped that she would not migrate to another area, but “stay put” to enhance the profile of the Department.

Ms Mpofu responded that she was “unlikely” to leave the Department soon, adding that in her previous portfolio, she had remained there for eight years.

South African Rail Commuters Corporation (SARCC)
Mr T Mofokeng (ANC) asked the SARCC delegation why the remuneration of the Chief Executive Officer, the Chief Financial Officer, and senior management were not disclosed in the annual financial statements, as required by Treasury regulations.

Ms Neli Xaba, Acting Chief Executive Officer, replied that although the Department had previously not complied with Treasury regulations “because of certain issues”, disclosure had now been made for the new financial year. On being pressed by the Chairperson on the specifics of the “certain issues”, she responded that the consolidation process which was taking place at the time, involving negotiations among the SARCC, Metro-Rail and the unions, contributed to the non-disclosure of remuneration figures.

Mr Mofokeng asked if performance bonuses had been paid out. If so, he asked how much had been paid, and what criteria had been used to decide whether individuals should receive bonuses or not.

Ms Xaba replied that for the year under review, Department officials did not earn bonuses. The SARCC used a performance management system which had been instituted in 2005. Bonuses would be determined at 10% of the basic salary, and all employees were eligible to earn bonuses, which were at the same level for all employees, without differentiation.

Mr H Bekker (IFP) asked if the disclosure of remuneration figures in the current financial year would include disclosure of remuneration figures for the previous financial year, which had not been reported on.

Ms Xaba replied that in terms of the submission that had been made on 31 May, the prior, unreported figures had not been shown. However, the submission could be adjusted to show those figures.

Mr Gerber commented that the Department’s decision not to disclose remuneration figures was wrong. As an agency of the state, that was being paid by taxpayers, they were employing unethical measures in refusing to disclose remuneration amounts as a maneuver to outwit other role-players with which it was negotiating. Further, he asked why the Committee had previously had to “battle” to receive information on remuneration figures, and had received that information just an hour and a half prior to the meeting, whereas that information would be available in the new report. Lastly, he asked if the reported thirteenth cheque for each member of executive management was in lieu of a performance bonus, or if it was in addition to a performance bonus. This particular question did not receive a response.

Ms Xaba indicated that the information on remuneration figures had been sent to her office at only 3pm on the previous day, and they had responded to that information immediately. All questions from SCOPA had only been received on Monday, 5 June, and responses had been sent off. The second batch of questions had been received on Tuesday, 6 June, and they had also been responded to.

Dr Nkem Abonta commented that where it was law to declare information, no entity had the right to decide not to declare. Should such an entity not wish to declare, they should follow proper procedure, in applying to National Treasury, explaining their reasons. Only upon receiving approval, could an entity not declare information. Not to follow such procedure was unlawful and unacceptable. He asked if employees had to meet certain criteria, based on which they could receive performance bonuses, and if everybody received the same bonus amount across the board, irrespective of the level of their performance.

Ms Xaba replied that the Corporation’s performance management system clearly defined objectives per employee, and the performance against the objectives was reviewed by analysts twice a year. The incentive system also rates and quantifies performances achieved by each individual in the organisation. Performance is rated in terms of the behaviour of the individual, the division in which individuals belong, and the organisation as a whole.

Mr Madikiza asked why, according to the Auditor General’s report, the Corporation did not comply with the requirements of Generally Accepted Accounting Principles (GAAP) where they related to the impairment of assets.

Ms Xaba explained that, at the time of the establishment of the SARCC, through the Legal Succession Act, all assets were transferred from SATS to SARCC. Instead of allowing for the previous depreciation of those assets, the SARCC incorrectly appreciated them as though they were brand new. The organisation had now embarked on an exercise where they were forced to verify each individual asset afresh, particularly the rolling stock. Because the Corporation had not complied with certain sections of GAAP, all elements were not complied with. The section further prescribes that all items had to be derecognised and recapitalised. Those processes were now complete, and all assets had been identified and classified into components. The rolling stock had been classified into four components. This entire exercise had taken the organisation a year and a half to complete, but for the current financial year, they were in compliance.

Ms Dreyer observed that the PFMA required that entities must have a borrowing programme for the year. Although the SARCC did enter into borrowing agreements for the year under review, it did not submit a borrowing programme for the year. She asked if the Acting CEO was aware that this omission could lead to irregular expenditure. Further, why was there no borrowing plan, why had the Minister’s approval not been obtained for the loans, and what steps had been taken to ratify these loans?

Ms Xaba explained that before 2000, SARCC did not receive a capital subsidy from government. It was allowed to borrow money from the marketplace in order to effect improvements on its buildings and rolling stock. When the PFMA was passed, it stopped the organisation from making loans of any sort. SARCC started to receive a capital subsidy to make improvements to its buildings and rolling stock. The SARCC subsidiary, Intersite, managed property on behalf of the Corporation. Intersite had been established to generate income through the exploitation of assets, in order to reduce SARCC’s reliance on the Department of Transport, and in order to subsidise its commuter services. To do that, it was necessary to effect some improvements on the Corporation’s buildings in order to generate rental income.

None of the employees at SARCC realised at the time that, because this arrangement created a liability on the financial books, it should be treated as a loan. The arrangement took the form of a discounted lease agreement, where there were no guarantees or securities required. The lease arrangement was able to secure for the Corporation a “state-of-the-art” building which it had not paid for, which it still owned at the end of the lease term, and for which it could obtain a high rental income. The secondary objective of Intersite, to reduce the subsidy reliance upon the Department of Transport, was now also being met.

SARCC started complying with GAAP in 2004/2005 financial year, with the assistance of the Auditor General. It was then that the Corporation was able to see in which areas they were non-compliant. This was why there was an Emphasis of Matter by the Auditor General on the Corporation’s annual financial statements. They had asked for pardon from the Minister of Transport, explaining that they had not realised at the time that the discounting of leases would affect the balance sheet as a liability. Even though the arrangement was in breach of legislation, it had assisted the organisation in obtaining rental incomes. The Minister understood the Corporation’s reasons for entering into these financial arrangements, and had indeed pardoned the Corporation for having transgressed the PFMA.

Dr Nkem Abonta questioned whether the Minister had the right to pardon an offence against legislation. He asked why the Corporation had failed to show any risk management systems or fraud prevention plans in its corporate plan, even though these were required.

Ms Xaba responded that a risk assessment and a fraud prevention plan had been submitted, although separately, and not as part of the corporate plan. The plan that had been submitted to the Department on the 31^st in terms of the corporate plan, now contained the bulk of all that information.

Mr Gerber, on the matter of internal privatisation, asked what the situation was regarding the consolidation of entities to make them more streamlined and cost effective.

Ms Xaba explained that this was a consolidation of SARCC and Metrorail. Metrorail was providing a commuter service on behalf of SARCC, and was being housed under the Department of Public Enterprises. The consolidation effectively brought together Metrorail and the owner of the asset. Metrorail had never owned any assets. All the overheads, the stations and so forth, had always been owned by SARCC. The operations of the commuter services were now being consolidated in order to make the service more effective. This meant that all decisions regarding the operations of the service would be effectively done together with the people who operate the assets, and those who own the asset, on behalf of government. Consolidation had taken place as of 1 May 2006, and the SARCC and Metrorail are now one entity. This included all the employees of Metrorail. Some of the integration processes were still being worked on, however.

Mr James Ngobeni, SARCC Chairperson, explained that the bringing together of the two entities were found to be absolutely desirable. Even though Metrorail was the operator, it was not reporting directly to SARCC or to the Department of Transport, but rather to Transnet. The nett effect of that was that it was creating tensions, with much duplication of work was being done. Consolidation would bring about a level of efficiency not experienced before. The current SATAWU strike under Transnet had delayed the process of consolidation for some time. Further, it was not possible yet to effectively see the nett result of consolidation due to the ongoing strike by SATAWU.

Mr Bekker asked, citing 9.1 of the SARCC Director's Report in the Annual Report, if it was advisable for an organisation’s CEO to form part of the Audit Committee. He suggested that this official’s presence could result in the Audit Committee being “hamstrung” in their discussions.

Mr Ngobeni explained that where the CEO participated in Audit Committee meetings, that person would not be present as a full member, but only by virtue of the fact that issues were being discussed that directly affected the operation of the organisation. It was desirable in that respect to have the CEO present, so that pertinent issues could be discussed for “on-the-spot” feedback by the CEO. However, when decisions needed to be taken as a board or committee, the CEO would be excluded.

Mr S. Fakie, the Auditor General, explained that the Audit Committee is an independent committee with outside members. He considered it best practice for the CEO to be part of the Audit Committee as an ex officio member. The Audit Committee, in order to arrive at any decision, needed to engage with the person responsible for the day-to-day operations of the organisation. The Audit Committee may choose to exclude the CEO from deliberations in certain sensitive matters.

Mr Gerber commented on the vandalised state of SARCC stations. This gave a poor impression of Intersite, the entity responsible for managing property on behalf of the SARCC. Millions of rands in infrastructure was being destroyed. He asked for comment on why Intersite was apparently not taking care of assets for which it was responsible, and for not optimising opportunities for improvement.

Mr Ngobeni stressed that Mr Gerber’s comments highlighted the problems caused by two entities operating one particular service, not only in terms of operations, but also in terms of safety and security. This situation led to the various role-players looking to one another to perform certain tasks, which in turn led to the state of affairs where the condition of assets were in a state of deterioration.

The Chairperson stated that the Committee required to know what specifically was being done to upgrade services. Although the SARCC might have an immediate, appropriate response, it was an issue that needed to be addressed.

Mr Mofokeng drew attention to the weaknesses in the computer technology environment identified in the Auditor General’s report. He asked what the present situation was regarding the disaster recovery plan.

Ms Xaba responded that, at the time of the audit, the organisation had been working on a disaster recovery plan which had now been completed, and they had already started with the first phase of the implementation of the plan.

Mr Mofokeng asked how the security control weaknesses on the operating control system were being addressed.

Ms Xaba explained that any weaknesses identified, whether in terms of internal or external audit reports, become the focus of all the executives responsible for those weaknesses. According to a review recently completed, most of the internal control weaknesses previously identified were no longer in existence.

Mr Mofokeng asked how the physical control weaknesses of the application server rooms had been addressed.

Ms Xaba stated that security control weaknesses in the server room were identified when the organisation started to work on its disaster recovery plan. All of their servers were now being housed in a separate room, and the organisation was in compliance with all regulations. She believed that the auditors would in the current year’s audit place reliance on the IT control environment of the SARCC for the first time.

Mr Mofokeng concluded that SARCC’s financial books were in a bad state of affairs, leading to an adverse audit opinion. SCOPA expected that the weaknesses highlighted by the auditors had to be dealt with and that the “culprits” be brought to book.

The Chairperson thanked the SARCC for their responses which had helped to give clarity and which would assist the Committee in developing a resolution and giving recommendations.

Compensation Commission for Occupational Diseases  (CCOD)
Mr E Trent (DA) said that since the Auditor General’s audit report of 2001/2002, the financial books of the organisation had become progressively worse. Why was it that it appeared as though no notice had been taken of the Auditor General’s concerns?

Mr T Mseleku, the Director General of the Department of Health, explained that the entity had been delisted in 2003/2004. For the 2004/2005 financial year, it was becoming the responsibility of the Department of Health. Since then, they had taken steps to improve certain aspects of the entity, particularly with regard to the issue of staffing. Here, they were in deep discussions with the Department of Labour and the Department of Minerals and Energy. The entity should ideally form part of the Department of Labour, and the discussions with Labour were geared towards this ideal.

The entity had, for various reasons, a dysfunctional audit committee, and steps were being taken to rectify the situation. They were considering the possibility of dissolving the committee, and the Minister had taken steps to establish a new committee.

With regard to the entity’s policies and procedures relating to steps for control, they were moving to ensure that this was taking place. On compensation for miners, there were now control systems in place that could begin to account for some of the measures taken. Nevertheless, there were difficulties that were being experienced. The Act which governed its operation was 33 years old, and although it has been amended, it needs to be overhauled.

Mr Trent asked if significant improvements could be expected in terms of the audit opinion.

Mr Mseleku responded that he hoped so.

Mr Trent asked what policies and procedures were necessary to rid both the Medical Bureau for Occupational Diseases (MBOD) and the Compensation Commission of significant backlogs in processing benefits.

Mr Mseleku responded that in relation to the MBOD, the Department was getting their provincial colleagues to put in place very clear controls with regard to the health personnel that was supposed to be assisting with the process. Their must be occupational people responsible for the processing of these benefits in a controlled manner, because in the absence of occupational staff being present, many uncontrolled claims were being processed.

In regard to CCOD, Mr Mseleku explained that fast-track processes had been implemented for dealing with certain backlogs. Payment of the former Transkei workers had to be fast-tracked, and many of those backlogs had been dealt with. With regard to other backlogs, they had to ensure delivery of service without compromising on quality controls.

Mr Trent asked what the Department would do to attract the necessary financial management and accounting skills in order to remedy the entity’s inability to verify unclaimed benefits, and debtors and creditors.

Mr Mseleku responded that this matter was linked to the restructuring process of this entity together with the other entities. It would have to fall within the accounting processes of the new entity that would be established in the Labour Department. This transfer of the entity would take approximately one year to occur. Meanwhile, they were drawing upon the accounting skills available in the Department of Health, and they were “beefing up” the structures of the CCOD to ensure that proper accounting processes were taking place. They also had to ensure against creating blockages for systems that might not be compatible with the systems that were going to be implemented.

Mr Trent asked why the Fund was not in a position to compile financial statements on an accrual basis. Accrual accounting had been done in the previous year, but for the year under review, they had reverted to cash accounting.

Ms L Mashiane (ANC) asked what was being done to improve the speed of processing claims, which was presently very slow.

The DG responded that the Department had just embarked on a process to review the CSIR system which it was using. They were trying to see what could be done to improve the system. They were working very closely with the Department of Labour on the matter. They were expecting a report by the following month.

The Compensation Commissioner, Mr B Mashego, stated that the purpose of verification by fingerprints was to ascertain whether people had claimed before in the 1970s or 80s. The process was a slow one. They were currently attempting to computerise the system through the services of the Department of Home Affairs. However, Home Affairs was currently experiencing a backlog in their system, and was not able to immediately accommodate the CCOD. Since that was the mandate of the Department of Home Affairs, the CCOD had no other recourse but to wait until they could be accommodated.

Ms Mashiane asked how the CCOD planned to visit the 278 registered mines to verify their condition, considering that less than 10% of the mines had thus far received a visit, and there was only one person available to perform visits.

The Commissioner replied that in the past two years, the CCOD did not have anyone who was able to visit the mines. In the current year, however, there were two people, although one had resigned. The vacant post would be filled very soon. He continued that not all mines had to be visited.

Mr V Smith (ANC) observed that the CCOD’s management fees had moved from R1 million to R3.6 million. To whom were these monies being paid? He also wanted to know about investment losses to the value of R45 million, and asked how that had happened.

The Commissioner responded that in 2001, the CCOD was listed as a public entity. They invested with private investors, with bonds, equities, and so forth. For that, management fees had to be paid. On the advice of the Auditor General, they had cancelled the agreement with the private investors, and listed with the Corporation for Public Deposits (CPD), subsequently incurring losses to the tune of R45 million.

Mr Smith commented that that was wasteful expenditure for which somebody must account.

The Commissioner explained that the Auditor General had made it clear to the CCOD that since they were not a public entity, they should invest with the CPD. National Treasury had also suggested the same.

The Auditor General commented that his Office would not make a suggestion of an operational nature. The Act which came into effect in 1973, required the Commissioner to invest any surplus funds with the Corporation for Public Deposits. His Office had advised the CCOD that they were not investing in terms of their own Act.

Mr M Fletcher, speaking for National Treasury, felt that a full report was necessary on the issue. Mr N du Plessis, also from Treasury, promised to submit a report from Treasury about this.

In closing, the Chairperson stated that there were serious challenges to be addressed, particularly in favour of those sick people who sought and required support from the Fund. The problems which the CCOD could not resolve were only compounding the suffering of those people. He called upon the CCOD to resolve the problems relating to the management and control of their financial matters speedily.

The meeting was adjourned.