Departments of Social Development & Labour, National Development Agency, SETAS: CETA, MAPPP-SETA, TETA: interrogation of Audit R

Public Accounts (SCOPA)

07 February 2007
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Meeting Summary

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Meeting report

STANDING COMMITTEE ON PUBLIC ACCOUNTS

STANDING COMMITTEE ON PUBLIC ACCOUNTS
07 February 2006
DEPARTMENTS OF SOCIAL DEVELOPMENT & LABOUR, NATIONAL DEVELOPMENT AGENCY, SETAS: CETA, MAPPP-SETA, TETA: INTERROGATION OF AUDIT REPORT 2005/6. INVESTMENT BY TRANSPORT SETA WITH FIDENTIA.

Chairperson:
 Mr T N Godi (PAC)

Relevant Documents:
2005/2006 Annual Reports of:
Department of Social Development (available at
www.dsd.gov.za)
Department of Labour  (
www.dol.gov.za)
National Development Agency (
www.nda.co.za)
Construction Education and Training Authority (
www.ceta.org.za)
Transport Education and Training Authority (TETA) (available at
www.teta26.co.za)
Media Advertising Publishing Printing and Packaging Education and Training Authority (available at
www.mappp-seta.co.za)  
Information Systems Electronic and Technologies Education and Training Authority (ISETT) (
www.isett.org.za)

Audio Recording of the meeting: Part1 and Part2

SUMMARY

The Committee interrogated the 2005/6 report of the Auditor General for the Department of Social Development. Questions were raised on the continuing weaknesses in the general controls of the Social Pension System, a lack of proper records and filing system, and high staff turnover rates, which led to lack of development of new systems or adherence to existing ones, and the lack of a disaster recovery plan for documents. Further questions related to the pension advances paid to service providers, the percentage of payments done electronically, the databases and monitoring of non-profit organisations, and the filling of posts. The relationship between provincial and national departments and the monitoring of expenditure was interrogated. Members questioned the transition to the Social Security Agency and how funds allocated were managed. They identified lack of capacity, lack of policy and lack of regulation as problematic. The Committee was told that the posts should be filled by March 2008.

The Auditor General’s 2005/6 report on the National Development Agency highlighted concerns relating to staff capacity issues, system related matters and governance issues. Members asked questions on the accumulated cash reserve increase, the lack of financial controls, the misappropriation of R8.6 million by an accounts clerk, and the lack of adequate audit training to support projects. Further questions related to the indefinite suspension of the CEO, the stage of forensic fraud investigations, and misrepresentation of the academic qualifications of some NDA staff. It was noted that the lack of basic systems and procedures impacted on the relevance of the Agency. Members questioned certain contracts and problems of document management, and the vacancy levels. A member proposed that SCOPA consider an oversight visit. The relationship with the Department was not problematic and it was hoped that the Agency would be able to restore public trust.

The Auditor General's report on the Department of Labour showed under spending and high vacancy levels. Members questioned the recruitment procedures, with particular reference to contract workers, but did not find the answers to these questions convincing. There were inefficiencies in safety monitoring and inspections, where there seemed lack of compliance to policies and regulations. Inadequate pay-roll certificates and irregular tender procedures were detected. Staff debts were high and were persisting despite lack of a formal policy on debt management. Performance agreements had not been filed with the Public Service Commission for the last three financial years. Senior management service members were performing inadequately but bonuses exceeding the limit were paid. There was ineffective record keeping. The Committee commented that policy frameworks relating to human resources planning, supply-chain management and matters relating to staff loans must be developed. There was no link between the objectives set in the strategic plan and the estimates of national expenditure with those set out in the work plan. Questions were asked on the under-utilisation of the training facility. The Committee commented that similar problems had been identified in the previous reports and had not been resolved. Asset registers remained a problem. There was lack of guidance by the Department to the Sector Training Authorities on issues of uniformity, systems and operations.

The Transport Education Training Authority had investigated funds of R200 million with Fidentia, and it appeared that these funds had been misappropriated. The Financial Services Board had sought to place Fidentia under curatorship. The circumstances surrounding the investment were fully interrogated and the Committee was particularly concerned that the money had been paid despite Fidentia having no bank account. The policies, checks and balances were investigated and the Committee was concerned that the investment contract was not available.  It seemed that insufficient attention was paid to risks. The Board must take responsibility for a reckless investment. The SETA was urged to consider instituting liquidation proceedings and the Department of Labour was requested to investigate whether other SETAs had made similar investments.

The Media Publishing Printing and Packaging Sector Education and Training Authority had an ineffective audit committee since inception. Questions were taken on the inefficiencies, the late signature of its Constitution, outsourcing of the internal audit function, the lack of mechanisms and structure, the de-registration in 2005, relocation of the head office to Johannesburg, and the costs involved, the lack of documentation on discretionary grants and the disappearance of funds. The results of the forensic report had been given to the National Prosecuting Authority. The further internal disciplinary processes were questioned. Further questions were raised on the recurrent irregular expenses in the SETA, and certain irregular payments that resulted from court actions. There was lack of communication with the Department of Labour.

The Auditor General had reported that the Construction Education and Training Authority was, during 2005/6, in a position of technical insolvency. The Committee interrogated whether this had been resolved and queried the new internal audit team, whether the management challenges were met, the learnership databases, high turnover in key positions, whether exit interviews were conducted, the appointment of the Board, and the forensic investigations and follow up on the report. The Committee noted that it expected the Authority to act on the recommendations made in the report.

The disclaimed audit report for the Information Systems Electronics and Technologies SETA highlighted the high staff turnover rates and inadequate skills levels, which influenced compliance of the financial statements with accepted accounting practices. The Committee was concerned that performance bonuses were paid despite the qualified report and high staff turnover, and these had not been confirmed with the remuneration committee. The Committee asked if systems were now in place to monitor consultants administering the financial statements, expressed dissatisfaction with the tendency to outsource internal audit function and asked what policies and procedures were in place. The recruitment policy was questioned. There had been lack of access to supporting documents regarding receipt of income and expenditure, expressed alarm that these recommendations were not yet being implemented. The awarding of performance bonuses to management and employees in spite of the disclaimed audit report was a cause of concern. Members encouraged this entity to develop and implement the necessary policies and procedures to ensure an improved audit report for the next financial year.

MINUTES
Department of Social Development (DSD): Interrogation of Audit Report 2005/6
Mr V Smith (ANC) noted that the Department managed a R56 billion budget and played a critical role in the eradication of poverty, affecting the most vulnerable sectors of society.  The Auditor General's (AG) report on the Social Pension System (SOCPEN) showed glaring and basic weaknesses and although DSD had committed itself to the correction of these weaknesses, it had not seemed to happen. He asked why the Department could not develop the necessary security controls to block unauthorized access to the systems.

Mr Vusi Madonsela, Director General, DSD reported that the weaknesses identified by the AG had been improved upon, but this was done after the AG's report as DSD was concentrating on the establishment of the South African Social Security Agency (SASSA) which shared the DSD's IT staff.

Mr Cockeko Pakade, Chief Financial Officer further explained that by the time the AG released its second audit, the policy, controls and procedures had been implemented. It was a work in progress.  He said unauthorized access into the IT system was detected while duties and controls were being segregated. DSD had since put in place the necessary controls and procedures.

Mr Smith commented that capacity constraints were not a justification for the lack of progress. . He asked why DSD could not keep proper records or establish a proper filing system.

Mr Madonsela answered that DSD did not have the physical space to store some of the information required by the AG. Systems now existed to create batches of documents that could be easily located.

The Chairperson asked why these problems were not detected prior to the AG’s audit.

Mr Madonsela said the AG’s report assisted in the identification of weaknesses.  He agreed that DSD needed to be proactive and assist the AG when conducting the audit.

Mr Pakade said that three main challenges were experienced during the audit.  There was only one newly appointed person working in the Internal Controls Section. The systems and procedures were not adhered to. Documentation could not be located at the time of the external audit.  This was mainly due to the lack of staff capacity and inexperience. DSD had now filled critical vacancies. Since National Archives could not assist with space, at the moment all recent records were stored in one office while older ones were filed separately. All were filed chronologically, and better solutions were being explored.

Mr Smith expressed his concerns that the Department did not have a disaster recovery plan for its IT or hard copy systems.

Mr Madonsela acknowledged that this was a challenge. A small percentage of all hard copies had been converted electronically. A disaster recovery plan for electronic records and documents had been discussed. Backup systems were created and updated on a daily basis, and tapes were stored offsite.

Mr Smith asked why the management information system (MIS) had not been implemented at the end of the current financial year.

Mr Madonsela confirmed that although this system had already been implemented in two provinces it had to be adapted for the specific challenges in others. Planning led to late expenditure on the project.

Mr Smith expressed his dissatisfaction that funds were not spent. DSD affected the lives of the vulnerable and the funds could have improved many lives. He asked why
R18 billion pension advances had been paid to service providers.
 
Mr Pakade responded that service contractors would receive advances a few days before payments were due to beneficiaries to ensure that money were distributed to the various pay points. Here the DSD needed to receive such advance payments from National Treasury and allowed provinces or SASSA to have an overdraft, which would be deducted from the budget allocations in the next financial year. In certain provinces, the service contractors issued payments to the beneficiaries first and then claimed from the provincial offices. Advances were usually paid towards the end of the financial year.  The ideal solution needed planning, dedication and thorough communication to ensure that beneficiaries were notified of any changes in payout dates. This would be dealt with when SASSA was up and running.

Mr Smith asked what percentage of payments was done electronically and what percentage used pay points.

Mr Pakade answered that these percentages could not be immediately provided. The majority of poor people were still in the rural areas and access to banks was still a challenge, although use of banks and post offices was increasing.  Specific figures would be provided at a later stage.

Mr E Pule (ANC) commented that the requirements of the Non-Profit Organization Act were not being met in accurate databases being kept. This was due to lack of capacity He enquired what had been done in this regard.

Mr Pakade answered that the Department had a proper database of organizations, registered as NPOs. However, the relevant unit had been battling to comply with the requirements of the legislation. He added that the DSD capacity to register the high number of organizations each month was outstretched. However, compliance with the legislation, and not the maintenance of the database, posed a serious challenge.

Mr Pakade continued that a review process of the NPO Act and its administration in the Department had been completed, in order to  better understand what capacity would be needed. 14 new positions had been created to eliminate the backlogs in registration. He confirmed that backlogs were a continuous challenge.

Mr Pule said that the filling of posts was not necessarily a solution and asked how these appointments would solve the problem.

Mr Pakade replied that all advertisements for posts would have specified the specific competencies required, and appointments would be made in accordance with that

The Chairperson noted that it was not always possible to appoint the most competent applicant. He asked if DSD was confident that those people employed were sufficiently skilled to perform their duties effectively.

Mr Pakade expressed his confidence in this regard. Mr Pule responded that the next annual report would indicate whether this answer was reliable.

Mr Pule asked what measures had now been put in place to ensure that provincial departments spent their budgets.

Mr Pakade answered that the DSD no longer transferred conditional grants to provinces, as these funds would now form part of each province’s Equitable Share. The problems experienced in the past were political rather than administrative. Although it was presumed that national departments monitored provincial departments, they were not legally and constitutionally required to do so. Provincial legislatures should ensure that provincial departments spent conditional grants. National departments could request provincial reports, but could only try to persuade provincial departments to spend responsibly.

Mr Pule contended that national departments should monitor how provinces spent funds.

The Chairperson commented that the governance of SASSA posed many challenges. He asked how the arrangements worked and how the risks associated with transition to SASSA were being addressed.

Mr Pakade replied that from 1 April 2006, R57 billion for social assistance to households formed part of the budget of the national department and was therefore not transferred to SASSA.  National Department remained accountable for this money. The CEO of SASSA was responsible for the administrative component. National Treasury (NT) favoured this arrangement even for the next financial year. Hopefully, NT would later be satisfied that SASSA had adequate capacity to administer the bulk of the funds.

Mr Pakade added that DSD had drafted a partnership agreement, governing the relationship between the department and its agency. DSD retained responsibility to monitor and oversee the implementation of the strategic plans of SASSA, which would need to submit monthly and quarterly financial reports to the DSD. Provincial departments were currently assisting SASSA with the administration and payments to beneficiaries. Discussions with NT were continuing regarding the flow of funds to the agency subsequent to 1 April 2007.

The Chairperson asked how the funds allocated for administration were managed.

Mr Pakade said that the budget covered the operational costs of the agency as well as the funds needed to ensure the integrity of the systems.  Regular meetings were being held to monitor the progress made in the institutional development of SASSA.

The Chairperson wanted to know how DSD could act on the reports from SASSA.  .

Mr Vincent said the year ending March 2006 highlighted an under spending due to the transfer of personnel to the agency as well as delays in the rollout of the IT.  He asked if this had been resolved and if SASSA was ready to operate on 1 April 2007.

Mr Madonsela cautioned that SASSA was still in its developmental process. SASSA was not yet fully capacitated and functional. Systems and capacity were still being set up.

The Chairperson noted that the Portfolio Committee on Social Development would deal with issues relating to SASSA in greater detail. SCOPA remained concerned that the agency's ability to administer money effectively could not be guaranteed. He hoped that the DSD would vigilantly monitor the process to ensure the system delivered effectively and efficiently.

Mr E W Trent (DA) said that the problems faced by DSD were common across all departments. Although the systems were being put in place, capacity to implement these systems was lacking. He asked whether all posts for the monitoring of social grants were funded posts. .
 
Mr Madonsela replied that not all post were funded. The structure of the Department had now become more realistic, as it no longer reflected the ideal number of posts, but rather the numbers that were capable of being funded. 

The Chairperson commented that restructuring had not necessarily eliminated the vacancies in the Department.

Mr Trent said that DSD needed to be more realistic about funding and the type of vacancies, and not merely the number, should be specified. He noted that the new function of the DSD was to coordinate all social development programmes. He asked how many registered NPOs complied with the Act and it there was capacity to monitor compliance. 

Mr Madonsela replied that he did not have the statistics with him but would send them on. The creation of the fourteen posts was seen as a measure to alleviate capacity problems. DSD was not yet fully compliant with the Act, but focus would be placed on issues relating to NPOs. 

Mr Trent expressed his satisfaction that DSD had acknowledged its lack of capacity to implement the Act. He asked if there had been an improvement in the lack of relevant policies and regulation, especially in light of 25% vacancy rate in the NPO directorate.

Mr Madonsela responded that if DSD had the funds to make the necessary appointments, these vacancy rates would not exist. DSD was attempting to operate on finite resources, and the number of posts was directly related to the funds available. New posts would be filled as allocations increased.

Mr Trent expressed his concerns over the 31% vacancy rate in the Development & Implementation Support units, and asked what plans were in place to address this.

Mr Madonsela answered that these posts were currently being filled. Additional funding had been received from NT. All prioritised posts would be filled during the course of the next financial year.

Mr Trent asked whether DSD intended to solve the vacancy problem before the end of the current financial year

Mr Madonsela answered that March 2008 was a more realistic target date.

Mr Trent wanted to know why the number of permanent staff in skills level 3 to 5 had shrunk.

Mr Madonsela answered permanent appointments could only be made once SASSA staffing needs were established. Certain contract appointments in the DSD would then be transferred to SASSA and converted to permanent appointments.

National Development Agency (NDA): Interrogation of Audit Report 2005/6
Mr Godfrey Mokate, Chief Executive Officer, NDA said that Bishop Malusi,Chairperson of the Board,could answer questions relating to the period prior to 2004.

Ms L Mashiane (ANC) asked if the alleged investigation on the present CEO Ms Laurie Less, at Weather Services had been concluded, and whether the NDA was happy with the result.

Mr Mokate replied that he could not comment on the investigation at the Weather Services.  Ms Less had been employed from the beginning of 2007 and the process of employment was transparent. There had been an investigation and Ms Less had won her case.

 The Chairperson agreed that the matter should not be dealt with further.

Ms Mashiane noted that staff capacity issues, system related matters and governance issues had been highlighted in the report, and a special investigation report highlighted additional key concerns. She askedhow the accumulated cash reserves had increased from R256 billion in 2005 to R261 billion at the end of 2006.

Mr Mokate replied that these funds were not cash reserves as would apply to a private entity. The revenue received by the NDA was deposited in a bank account, and the liabilities would then be paid through the financing of projects. The interest on the cash was included in the total funds in this account.

Ms Mashiane believed this response was unsatisfactory. The NDA was expected to spend these funds on projects aimed at poverty alleviation.

Ms Mashiane said that the AG's report highlighted the inadequacy of financial controls in the NDA. She asked what wasdone to improve these controls. She asked for explanation of the misappropriation of R8.6 million by an accounts clerk and the lack of adequate audit training to support projects.

Mr Mokate answered that the fraud in the NDA was a historical problem. In its first five-year period, two critical episodes shaped its level of performance as well as the organization. The process of establishing NDA as an entity resulted in institutional instability as well as systemic problems.

The Chairperson commented that the transitional arrangements and resultant systemic problems chould not justify the incidents of corruption. Proper controls and monitoring were needed.

Mr Mokate replied that due to these systemic problems incidences of fraud were not speedily detected. A leadership vacuum existed at the time as the Chief Executive Officer had been suspended, which exacerbated the problem.

The Chairperson asked why the CEO was indefinitely suspended and why there had not been speedy resolution of the investigation. The leadership at the time clearly failed the organisation. The indefinite suspension of a CEO also created institutional instability. This did not exonerate the remaining individuals in the organisation from not performing their duties. This response was not an adequate explanation for the level of corruption at the time. The Board was responsible to appoint an acting CEO.

Bishop Malusi explained that prior to the appointment of the Board, the Minister had concluded that the NDA was inefficient, and had suspended the previous CEO. The Minister, in consultation with the Board, should appoint the CEO of a public entity. The Minister then convened an investigation of both the CEO and the COO, and on a temporary basis appointed an envoy of the DSD to the NDA. These appointees could not be held responsible for the weaknesses in the system, as they were not as familiar with it. They were appointed to observe the operations of the agency. The current Board was established during the course of the investigation, and it was therefore the Board’s responsibility to institute disciplinary processes. A new CEO could not be appointed while the investigation and disciplinary procedures were not yet finalised. 

The Chairperson commented that the two appointees were accountable for the weaknesses and the problems experienced. They were mandated to run the institution. This task was not performed effectively.

Bishop Malusi said that the ineffectiveness of the appointed team was part of the historical reality that the organisation needed a fulltime chief executive officer. Two CEOs had been suspended and there was a history of systems failure. NDA, subsequent to the appointment of the current CEO, had been able to tackle the problems.

Ms Mashiane asked what had been done to recover the lost funds, and if the shortcomings in  internal control had been rectified.

Mr Mokate answered that criminal proceedings had been instituted against the relevant individuals. The person responsible for the fraud had been sentenced to a fifteen-year prison sentence. The systems necessary to detect irregular activities had been improved. The state of the NDA was starting to improve. The assets of the guilty individuals had been seized and a court ruling on conversion of these assets to cash was expected on 12 February 2007.

Ms Mashiane commented on a further incident involving misrepresentation of academic qualifications. She asked if NDA was able to detect this. 

Mr Mokate said that all applicants underwent the same processes, that were focused on verifying the academic records, references, credit history and a competency assessment test.

The Chairperson commented that the lack of basic systems and procedures in the NDA was shocking.

Ms Mashiane asked if NDA did have the necessary capacity to manage their projects.

Mr Mokade answered that the skills level of employees needed to be improved. This was articulated in the NDA’s strategic plan. A timetable for the improvement of capacity levels had been developed.

The Chairperson requested details of this plan.

Mr Mokate answered that this information could be made available to the Committee. Practical training had been developed to improve planning skills of employees.

The Chairperson reiterated that the issues raised by the Committee did  not require highly skilled competencies. He noted that NDA would not be relevant if it failed in its core task of project coordination.

Ms Mashiane asked why the contracts for two projects amounting to R3.6 million could not be submitted by the NDA, and why further contracts were not signed by both parties. The NDA did not have an adequate filing project management system to ensure the safekeeping of project documentation. There had been discrepencies between quoted and paid amounts. She asked how NDA was actually assisting in dealing with poverty alleviation. She commented that the recent fire at the NDA which resulted in loss of records was very suspect.

Mr Reuben Mogano, Director of Programmes, NDA answered that document management in the poverty eradication projects, and not the execution of the projects themselves, had led to the qualified AG report.  Three processes had impacted on the availability of documents. These were the AG's auditl, the forensic investigation on the misappropriation of the R8.7 million and the ongoing internal audit. NDA could confirm that these documents were available.

The Chairperson wanted to know what the real challenges to the management of documents were and how they were being addressed.

Mr Mogano replied that the internal audit unit could not verify the existence of six projects, worth  R7 million. An independent firm of auditors and other service providers had been commissioned and had subsequently verified the projects.

The Chairperson asked why an independent auditing firm wascommissioned at additional cost to the NDA, when officials employed by the NDA to monitor these processes could do so.

Mr Mogano replied that an independent and objectively verifiable source was needed to confirm the existence of projects.  He noted that the filing system had subsequently been redesigned. Scanning of documents was commissioned and hard and soft copies of these documents would be available shortly. An improved project management system had been established.

Ms Mashiane believed that SCOPA should pay an oversight visit to the NDA.

Ms Mashiane said that the AG report revealed that the special conditions needed before funding could be made, were not documented nor filed.

Mr Mogano explained that the issues of special conditions formed part of the improvements of  project management. If a timeline was not attached to a special condition, the completion of these conditions was open-ended, and caused problems. The Board responsible for conditions had been asked to tighten these timeframes.

The Chairperson commented that this problem was unnecessary.

Mr Trent wondered whether the 132 employees of the NDA provided sufficient capacity to comply with the legislation and guidelines governing the agency. The figures did not indicate what real capacity was available. He asked about the vacancy level.

Mr Mogane responded that this information was outdated. The NDA had rationalised and the current staff composition was about 98 people. A recently completed competency assessment had identified the necessary skills needed to carryout the functions of the NDA. The NDA would also assess the skills of its existing employees. This restructuring needed to be finalised within a year.

The Chairperson acknowledged the efforts made but cautioned that this process should not be too time-consuming.

Mr T Bonhomme (ANC) noted the number of key vacancies at management level during the 2005/2006 financial year and questioned the current situation.

Mr Mokate answered that the restructuring process had an impact on the number of vacancies.  75% of these vacancies had been filled, towards the target of 95% filling of vacacies. Some had been identified for urgent appointments and an independent company had been appointed to speed up the process.

Mr Bonhomme expressed a need to better understand the systems’ failures of the NDA and asked what impact the vacancies had on the efficiencies of the controls.

Mr Mokate answered that the vacancies impacted on the work of the IT manager. NDA did not have the ability to deal with the IT security environment and could not deal with archiving documents. It would deal with critical posts effectively and speedily.

Ms S Rajbally (MF) expressed her concern over the mismanagement and misappropriation apparent in the NDA, but acknowledged corrective measures established. She asked who would monitor the implementation of measures.

Mr Mokate said an internal audit unit had been established, and risk managers were appointed to assess the level of risks of all investments made by the agency. There was accountability to the Board.

Mr Trent commented that the internal audit unit had acknowledged that the assessment of NDA as a “going-concern" was dependent on the continued support of the DSD. If the agency was independent, this status should be reflected.

Bishop Malusi said that the relationship between the NDA and the DSD was not a contributing factor to the problems faced by the agency. NDA accepted full responsibility for these shortcomings. The Board had a responsibility to both develop oversight mechanisms, and broaden the resource base. It should also strengthen the relationships between the various entities of government. The government’s expenditure on poverty reduction was extensive and the NDA formed part of this strategy.

The relationship with DSD related to accountability and compliance with the relevant Act. The NDA should do some work on the NDA Act, as part of its reorganisation drive in this calendar year. An executive administration had been established. Through the internal audit and risk management system, more weaknesses had been identified and addressed.

The Chairperson  hoped that the Director-General of Social Development had taken note of the discussion to enable the DSD to assist the NDA to carry out its mandate. NDA had a responsibility to restore public trust.

The Department of Labour (DOL): Interrogation of audit report 2005/6
Ms A Dreyer (DA) said that the AG's qualification was based on DOL's  under spending of about 7%,  and high vacancy levels of about 12.5% generally and 20% at administrative levels. There were 1009 vacant positions. She stressed that the Department would be unable to deliver services and spend its budget if it did not have sufficient staff capacity. She asked what was done to speed up the currently time consuming process.

Dr V Mkhosana, Director-general; DOL answered that the 1009 vacancies in the Department included individuals on learnerships as well as those employed in relevant public entities. The staff system PERSAL reflected them as employees of the Department. If these individuals were excluded, the number of vacancies was reduced to 424. Mechanisms were in place to ensure that the recruitment process started as soon as vacancies arose. Posts were also filled through internal recruitment. Systems were also in place to ensure the closer monitoring of the daily functioning of the Department. DOL attempted to stabilise vacancy rates at 6%.

Ms Dreyer asked whether the Department was advertising externally as well as internally.

Mr Mkosana responded that vacancies were advertised both internally and externally. If posts could be filled internally, vacancies were only advertised within the Department.

The Chairperson asked whether the Department was satisfied that its recruitment process always selected the best suited candidates.

Mr Mkhosana said the best candidates were often appointed. The recruitment process followed certain guidelines, and the requirements of all positions were carefully established.

The Chairperson expressed his concern over levels of compliance to this recruitment process.

Mr Mkhosana expressed his satisfaction with the level of compliance.

Ms Dreyer noted that the Department tended to utilise contract based temporary workers. Since staff were employed on a temporary basis, there was a need for continuous training. This also increased the turnover rates in DoL. She asked how the high turnover was addressed and whether the DOL would be making more permanent appointments.

Mr Mkhosana replied that the high turnover rate was affected more by poaching of staff by other government departments The intended decentralisation of functions and operating authority to the labour centres would improve the level of vacancies.

Ms Dreyer asked how the employment of contract workers impacted on vacancy levels.

Ms Mkosana answered the Department had to delay the permanent employment of staff until the decentralisation programme could was implemented.

Ms Dreyer asked if this decentralisation would address the problem of vacancies, speed up the recruitment process, and reduce the number of temporary appointments.

Mr Mkhosana said that the devolution of functions and authority would enable both provinces and labour centres to make appointments.

The Chairperson was not satisfied with these responses He asked how decentralisation would impact employment of contract workers.

Mr Mkhosana answered that the decentralisation programme would affect the DOL organogram, and so  temporary appointments were currently made.

The Chairperson asked if decentralisation had been adequately conceptualised or was intended to take shape as it moved along.

Mr Mkhosana said the strategy had been properly conceptualised and would eventually provide an indication of the staff needs in each labour centre as well as the budgetary needs. Budget to link the labour centres to the head office would be phased in gradually. The Department could therefore not employ permanent staff.

The Chairperson said that this explanation was not convincing.

Ms Dreyer raised her concern that routine and proactive inspections had not been performed to  prevent an unsafe work environment and related accidents. This inefficiency was related to the level of vacancies. it had a direct impact on the safety of workers. She asked what was being done.

Mr Mkhosana said that the quality and frequency of inspections had improved over the last three years.  The same number of inspectors had increased their inspections from 33 000 in 2004 to 213 000 in 2005. The vacancy rate had not affected the work of the inspectorate.

The Chairperson asked whether the same number of inspectors doing more meant that the quality of these inspections had changed. He asked what mechanisms were in place to enable these inspectors to perform their tasks adequately.

Mr Mkhosana answered that inspectors were trained and equipped with essential tools of trade, were provided with vehicles, and that much of the workload could now be performed electronically.

Ms Dreyer asks if the present staff complement enabled DOL to conduct routine and adequate inspections.

Mr Mkhosana said DOL needed to improve the ability of inspectors to conduct inspections. Since inspections in the informal economy were challenging, greater sophistication was needed. This was work in progress.

The Chairperson asked whether a strategy was already in place to achieve these results.

Mr Mkosana said that the existing strategy needed to be reviewed to address changed circumstances.

Ms Dreyer requested the Committee to note her dissatisfaction with the answer. She noted that the high level of vacancies and the lack of financial expertise resulted in non- compliance to Public Finance Management Act (PFMA) and National Treasury regulations. Inadequate pay-roll certificates and irregular tender procedures were also detected. This was a possible indicator  of corruption. She asked what was done to ensure that the correct tender procedures were followed.

Mr Mkosana answered that DOL had begun to provide the necessary staff training and had developed policies, largely based on National Treasury regulations. Manuals were also developed as a resource for staff members.

Ms Dreyer wanted to know who should be held accountable for the correct implementation of tender procedures.

Ms Mkosana replied that, as the accounting officer, he accepted final responsibility for all activities in the Department.

Ms Dreyer commented that staff debts amounted to R40 million during the 2005/2006 financial year and some loans were long-standing. She asked how they were managed and how it ensured that loans were repaid when employees left.

Mr Mkhosana answered that DOL could not establish whether employees who were leaving the Department held loans. A direct strategy to deal with this matter had not yet been refined, but policy on staff debt management was under discussion.

Ms Dreyer said that in the absence of these being finalised or implemented the problem persisted. She asked when this would be addressed.

Mr Mkhosana replied that although a formal policy had not yet been put into operation, the Department had written off irrecoverable loans.

Ms Dreyer wondered what other additional debt recovery mechanism the Department had in place.

Mr Mkhosana answered that, with the assistance of a tracking system, DOL could locate loan holders and make follow-ups. The legal services section played an integral part in this process.

The Chairperson asked if loans were still being granted despite the fact that the debt recovery was still a work in progress.

Mr Mkhosana confirmed that loans were still being issued in unavoidable situations. I

The Chairperson urged the Department to appreciate the urgency of the situation and ensure that the necessary mechanisms were put in place. It should not continue issuing loans without the necessary framework for recovery. It was wasting funds.

Ms Dreyer said DOL had not filed performance agreements with the Public Service Commission (PSC) for the last three financial years. She asked for comment on the lack of proper performance by senior management members and the bonuses exceeding the 1.5% limit.

Mr Mkhosana answered that immediately prior to his appointment  the inadequate performance management was identified as a key challenge. It was decided in 2004  that top managers would not be paid bonuses. In 2005, 90% of performance agreements were signed, and 87% of performance assessments were concluded. In 2006 all performance agreements were signed and the mid term review was completed.  Assessments would commence shortly. Progress had been made. In regard to the bonuses, these had been paid out in the  2002/2003 financial year.

Mr Dreyer answered that she was aware that Minister Mdladlana had approved the payment of rewards without the finalisation of performance assessments. The Minister noted that there had been incorrect procedures and said he would not allow himself to be used again in this way.

Mr Mkhosana indicated that the non-compliance with PSC related to awarding of performance bonuses to three officials. Although reported otherwise in the PSC report, these officials had indeed signed performance agreements, that were subsequently sent to PSC. The matter had therefore been resolved.

The Chairperson commented that the PSC Report did not paint a good picture of the Department of Labour, as it stated that necessary documentation was not received from the Department. He asked what had been done to improve this situation.

Mr Mkosana answered that effective record keeping in the Department was a challenge that was currently being addressed. The necessary information was forwarded to the PSC subsequently. He reiterated that a process to improve the record keeping system within the Department was currently under way.

The Chairperson asked which officials had been responsible for the missing records.

Mr Mkhosana said that this problem was discovered during a search of performance agreements. Those who had managed the system had subsequently retired and had to directed the Department to the documentation.

Ms Dreyer expressed her hopes that the problems highlighted by the Committee would be addressed in the next financial year.

The Chairperson asked why the CFO, Mr Van Der Merwe, was appointed at the level of director and not at the level of deputy director-general.

Mr Mkosana answered that the CFO was currently appointed at a chief director level. DOL was aware that staff salaries needed to be pitched at a level that would attract the necessary expertise. This matter had not been adequately addressed..

The Chairperson urged DOL to address this matter as soon as possible to ensure that further skills were not lost.

The Chairperson noted the challenge of implementing approved policy frameworks. This related specifically to human resources planning, supply-chain management and matters relating to staff loans. She asked what had been done to address these matters.

Mr Mkhosana answered that relevant policies had been developed including policies relating to the management of human resources. The AG had also raised the lack of human resource planning. The human resource had not complied with the prescribed formatting guidelines. This had subsequently been corrected. A number of policies had been developed in response to the observations made by the AG.

The Chairperson asked whether the weaknesses of the plan were related to the formatting or the content of the policy.

Mr Mkosana answered that this was a combination of both form and substance.

The Chairperson asked whether progress had been made regarding the development of a supply-chain management policy, as this was an area in which there was high potential for corruption.

Mr Mkosana answered that DoL utilised the broader guidelines of the National Treasury. Although the plan was approved and being implemented, certain compliance problems still needed to be resolved. DOL could not as yet assess the success of this implementation. Understanding of all problems could be a contributing factor.

The Chairperson emphasised that there was no link between the objectives as set in the strategic plan and the estimates of national expenditure with those set out in the work plan. He enquired how this had happened and what was being done  to address this matter.

Mr Mkhosana answered that at the end of each financial year, the Department would develop plans for its work, in partnership with management and relevant social partners, and the priorities were influenced by labour market dynamics and the State of the Nation address. This sometimes resulted in new matters being raised that were not included in targets at the beginning of the year. DOL had made efforts to correct this matter and the estimates of National expenditure for the 2005/2006 financial year would reflect these efforts. A report in this regard had been finalised.

The Chairperson commented that this report should be sent to the Portfolio Committee on Labour
The Chairperson noted the underutilisation of  the training facility Indhlela and asked what measures had been put in place to address this shortcoming and to ensure that there was full utilization. An audit performed in 2004 made some recommendations after finding that corrective measures did not have the desired effect.

Mr Mkhosana replied that the Department had considered Indhlela in the context of the needs of the economy, with special reference to the specifications made by the Joint Initiative of Priority Skills (JIPSA) and the Accelerated Shared Growth Initiative (ASGISA). This included the need for artisans by 2020. A plan had been developed to reposition Indhlela. Previously the work had been partially decentralised, which had contributed to the under utilisation . However, the facility was now being utilised for training purposes, including use for some Further Education and Training (FET) instructor training.

The Chairperson asked whether JIPSA initiative could be interpreted as a vote of no confidence in the Sector Training Authorities.

Mr Mkosana explained that ASGISA and JIPSA were complimentary to the work of SETAs. These initiatives were aimed at identifying the immediate needs of the economy and had a shorter lifespan than the more permanent SETAs.

The Chairperson welcomed an opportunity to attend a meeting with the Portfolio Committee on Labour and DOL, to better understand SETA functions and work. The annual targets set by SETAs were too low to affect the skills shortages in the economy.

The Chairperson reminded DOL that it had provided similar responses to questions in the previous meeting with SCOPA, so it appeared that the issues were not resolved.  He asked if DOL had the capacity to resolve these matters by the end of the 2005/2006 financial year

Mr Mkhosana answered that DOL was confident that these issues would be resolved by the end of this financial year. It was working closely with the AG on matters of concern.

Mr T R Mofokeng (ANC) asked why there had been a qualified audit report for the past three financial years. He asked if the asset register had been updated, and what was the deadline to reflect the public private partnership additions, that should have been completed by 31 March 2006.

Mr Mkhosana answered that the updating of the asset register was a large challenge, and this process would be completed by March 2007. This system would reflect the identification and location of all assets and would enable the frequent updating of the register. A service provider had been contracted to lend assistance in this regard.

Mr Mofokeng noted that subsistence and travel reconciliations were not well performed in the 2004/2005 and 2005/2006 years. He asked what corrective actions had been implemented.

Mr Mkhosana replied that these reconciliations were being done. A procedure framework had also been put in place that would contain the challenges experienced.

The Chairperson wanted to know whether these challenges had been overcome.

Mr Mkhosana replied that these challenges had been addressed.

Mr Mofokeng wanted to know why there were no inspection and enforcement services. He asked the timeframes for implementing a national database for reporting accidents and instances of ill health, and for the implementation of the Occupational Safety System at the labour centres.  Since the Committee wanted to assist DOL, he urged it to provide the committee with all necessary information. Assistance now would prevent a qualified report later.

Mr Mkhosana answered that a database on occupational health and safety had been established, although it was not ideal.  DOL and International Labour Organisation had agreed to establish an internationally used system that recorded incidences and dealt with issues of compensation. This new system would assist in strengthening DOL’s national preventive strategy. This system was expected to be in place by March 2008.

Mr P Gerber (ANC) commented that the Committee had repeatedly raised concerns over the lack of guidance by the Department to SETAs concerning issues of uniformity, systems and operations. There were numerous disparities between SETAs. He requested the presence of the Department during the hearings with the respective SETAs.

The Chairperson agreed that DOL must familiarise itself with the problems faced by these authorities.

Mr Trent recalled that discussions had been held on integration of some functions from the Department of Health to the DOL. He asked the progress here.

Mr Mkhosana replied that this related to the integration of the occupational health and safety compensation competencies. A presentation would subsequently be delivered to Cabinet and it was hoped that the legislation process would be finalised this year.
 
Transport Education Training Authority (TETA): Interrogation of investment with Fidentia
Mr Gerber noted that TETA had made an investment with the Fidentia Group. The Financial Services Board had recently brought application for curatorship of Fidentia. It was alleged that the funds of TETA were deposited into Maddock Incorporated Trust account, since Fidentia lacked its own bank account. Fidentia received R200.3 million and these funds were used to defray various operational expenses and to purchase assets for the Brown Brothers and others in the Fidentia Group. Funds also appeared to have been utilised for the personal expenses and investments of Brown. TETA funds were intermingled with others. There had been misappropriation. Although monthly client reports were sent there was no proof that the representations were correct. Fidentia reported to TETA on 20 November 2006 that the  investment was part of a portfolio of promissory notes held by ABSA Investor Services. ABSA maintained that this belonged to CNM and its clients. ABSA held no promissory notes or any other instruments on behalf of Fidentia.  Asset Management. FSB believed that the funds entrusted to Fidentia had been misappropriated and that it could not repay the R245 677 210 investment balance.

Mr Gerber asked whether TETA had an investment policy that dealt particularly with fund management.

Mr Piet Bothma, CEO, TETA answered that the Board had approved an investment policy in 2003, shortly prior to the investment made with Fidentia.
 
The Chairperson requested the Department to provide a direct answer to the question posed.

Mr Bothma confirmed that the Department had an approved policy in place at the time.

Mr Gerber requested an explanation how Fidentia was selected for investments.

Mr Bothma answered that Fidentia had made a proposal to the board. This proposal was thoroughly scrutinized by its legal advisors and reference checks had been performed. These exercises did not yield any negative results. He stressed that TETA adhered to very strict checks and balances prior to the procurement.

The Chairperson wondered how reliable these checks and balances were.

Mr Bothma answered that since an independent legal company had been contracted to perform the assessment, it was accepted as high quality.

The Chairperson expressed his dissatisfaction that a new company with a limited track record had been procured without adequate verification processes.

Mr Bothma responded that the report compiled by the independent legal firm did not contain any negative observations. The Board’s decision was based entirely on the findings of this document. In retrospect, the Board acknowledged the weaknesses in its own decision regardless of the positive results of the verification process.

The Chairperson asked who had done the checks and who had recommended this company.

Mr Bothma said that SABNT legal services were used after a quotation process. This company had also done work on the verification of contracts for discretionary grants.

Mr Gerber wondered about the content of the investment contract sent to SABNT for legal analysis.
 
Mr Bothma replied that the report on the contract could be made available to the Committee

Mr Gerber expressed dissatisfaction that the relevant documentation, which had been requested prior to the meeting, was not available. He considered that an expert in the evaluation of investment contracts should have been commissioned to verify the contract.

Mr Bothma explained that the TETA Board was satisfied with the findings contained in this document, at the time. There was no reference to lack of a bank account.

Mr Gerber asked who had done the transfer and why this warning signal was not detected at the time. 

Mr Bothma explained that Fidentia had instructed TETA to transfer funds into its accounting firm’s account for safekeeping. Fidentia was instructed to ensure that the funds were invested in three A-rated banks.

Mr Gerber asked when the deposit was made.

Mr Bothma explained that TETA received acknowledgment of payment of funds on 30 April 2006. The 20% reported growth included growth in the investment as well as accumulated interest of its account.

Mr Gerber asked whether the TETA was not suspicious about the high growth potential rates provided by Fidentia (10.%), relative to those provided by Standard Bank (8%) and Absa (8.05%).

Mr Bothma explained that Fidentia provided regular updates on this investment. This documentation was also provided to the AG. He added that TETA accepted the explanation provided by the company to transfer money into its accounting firm’s account.

Mr Gerber requested the dates on which TETA decided to withdraw its investments.

Mr Bothma explained it had requested the relevant documentation regarding the investment from Fidentia, immediately after receiving FSB’s notification. The Board then decided to withdraw all funds. On 14 November there was agreement how the funds would be repaid to TETA.

The Chairperson noted that TETA’s action moved from one extreme to another. This suggested that it did not thoroughly contemplate the risks involved in making such an investment.
 
Ms Dreyer asked why TETA failed to make more than one investment, therefore spreading the risks involved.

Mr Bothma explained that TETA instructed Fidentia to invest the funds with three A-rated banks. It was subsequently decided that funds for investments needed to be managed by more than one fund manager. This policy was currently awaiting approval.

Ms Dreyer wondered whether Fidentia complied with its mandate to invest these funds with the three A-rated banks.

Mr Bothma replied that TETA needed to verify where the funds had been and if they were invested.

The Chairperson expressed his dissatisfaction that this information was not already available. It should have been checked at a far earlier stage.
.

Mr Gerber asked whether the TETA had been aware of irregular management fees paid for this investment.

Mr Bothma said he had no evidence of this.

Mr Gerber wanted to know when the curatorship might be ordered as there had been a postponement. .

Mr Bothma answered that it would be considered the following week.

Mr Gerber asked if DOL could assist TETA in recovering the lost funds.

Mr Bothma said that this suggestion would be raised with the Board. However, TETA was working closely with one of the leading legal firms in South Africa, in this regard.

Mr Gerber stressed that the matter was urgent. He suggested the State Law Advisors be asked to brief the Committee on possible recovery measures. It should be forwarded to the Public Protector for investigation

The Chairperson requested the AG and the National Treasury to comment on this matter, including issues of accountability.

Ms J Naidoo, National Treasury said that this issue would be raised with the NT’s Assets and Liabilities Unit that specialised in investments, and that it would provide a report to the Committee.

The AG explained that the Public Finance Management Act defined the authority of SETAs and other state entities to manage their own affairs. Section 50 also highlighted fiduciary responsibilities, along with clause 38, which provided the guidelines in the event of financial misconduct.

Mr
Smith wondered it this had been discussed with the Minister.

Mr Bothma said that a meeting had been requested with the Minister.

Mr
Smith suggested that Mr Mkhosana facilitate such a meeting. SCOPA could only make a decision if the views of the political authority were known.  He commented that given the amount of money involved in this investment, the initiator of this transaction needed to be made public. The Board needed to take responsibility for this reckless and shortsighted investment.

Mr Bothma explained that the recovery of funds was being prioritised. A Board meeting was scheduled for March when a decision would be taken, based on information supplied by its legal advisors.

Mr Trent said that the main function of SETAs was to assist in the skills development. Since these entities were cost centres the R250 million could have been utilized for more pressing matters. He enquired how it was that had the luxury to invest R200 million.

Mr Bothma explained that the mandate of TETA was to facilitate education and training to ensure the development of scarce and critical skills. It had a reputation of overachieving on all its set targets. Effective cash management processes allowed TETA to make investments. Payments on discretional grants were only paid out on completion of projects rather than contract based.

Mr Mofokeng agreed with Mr Vincent. The total funds used for this investment must be recovered, otherwise there would be requests for additional funding. This was not the first time that money intended for the development of workers were misappropriated. DoL needed to comment and to exercise a degree of control over these entities to ensure that such incidence were avoided. He asked for assurance that the money could be recovered before the end of the current financial year.

Mr Bothma assured the Committee that TETA was cooperating fully with the legal advisors as well as the curator to recover as much as possible. Unfortunately, it could not guarantee the full recovery of the total funds.

Mr Gerber enquired how TETA managed to keep the amount of money for the investment fixed for the last three years. He noted that Fidentia had communicated its decision to withdraw from its asset management business.  The assets dealt by Fidentia asset management, which included immovable properties, shares in private companies as well as money markets and other financial instruments, would be realised and returned to all investors over the next six months. He suggested that, in light of this unfulfilled assurance, TETA could file for liquidation of Fidentia.

The Chairperson that the quality of TETA’s risk management systems was not satisfactory. TETA management displayed a level of recklessness by investing funds in Fidentia.  Management needed to take responsibility for this decision. He hoped it would be able to recover the bulk of its investment. The involvement of DOL and the executive authority were critical to the resolution of this urgent matter. A call for the liquidation of Fidentia could speedily resolve and recover funds. DoL would need to investigate the investments of other Seta’s to ensure that this problem was not recurrent.

Media Publishing Printing and Packaging Sector Education and Training Authority (MAPPPSETA): Interrogation of Audit Report 2005/6
The Chairperson indicated that the report of the AG noted the ineffectiveness of  MAPPPSETA’s audit committee, since inception. He asked why this was so and what had been to address the issue. He noted that the audit committee had not yet responded to the findings of the AG.

Mr Gerhard Kemp, CFO, MAPPPSETA, (also Acting CEO during the illness of the present CEO) said that these inefficiencies had been inherited when the present CEO started his term. A new audit committee had been appointed and had held its first meeting in August 2005. The chairperson and another member had resigned in February 2006. These members were replaced.  A properly functioning audit committee had now been appointed.

The Chairperson noted that Constitution had only been submitted for signing to the Minister of Labour in September 2006. He asked what problems had delayed this matter and whether they were resolved.

Mr Kemp explained that although a constitution had been submitted to the Department of Labour, this document had been lost. A second constitution was submitted on 1 October 2006, and it was still awaiting approval from the legal unit of the DOL.

Mr Mkhosana explained that a follow-up will be made and the Committee would receive the necessary information in due course.

Mr Kemp explained that emails between the DOL and MAPPPSETA were available.

The Chairperson said that the Department had committed itself in assisting the SETA in this regard. He asked if the outsourcing of the internal audit function was this a transitional arrangement.

Mr Kemp confirmed that this function had been outsourced. MAPPPSETA had discovered that the cost of outsourcing this function was lower than establishing an internal audit function.

The Chairperson stressed that such functions needed to be transferred to the institutions. He asked whether the terms of reference for the executive committee had been finalised.

Mr Kemp answered that all authority members had signed the terms of reference. The delegation framework for the exco members was being processed and was expected to be approved on 20 February.

The Chairperson asked whether there were any independent observers monitoring the effectiveness of the executive committee.

Mr Kemp answered that the terms of reference of the authority had been signed and were regarded as the accountable authority.

The Chairperson expressed his dismay that these basic mechanisms had not been in place earlier and asked why they had not been established?

Mr Kemp answered that if the DOL had passed the constitution, these procedures would have been established.

The Chairperson said that, although the slow feedback of the DOL was a challenge, it was no reason why MAPPPSETA should not have conceptualised the structure.

The Chairperson noted MAPPSETA had been deregistered from the South African Qualification Authority (SAQA) due to the lack of controls, in the 2004/2005 financial year and asked the current situation.

Mr Kemp said that it had been reregistered by SAQA, in August 2005.

The AG responded that the observations made in the report focused on the capacity of the agency to deal with aspects of governance. Although a constitution was necessary as a legal framework, the functionality of the agency was a responsibility stipulated in Section 50 of the PFMA.

Mr Gerber wondered why the SETA’s legal counsel was present, and enquired who was carrying the cost.

Mr Kemp answered that this was in order to answer any possible questions about the legal challenges to the SETA during November/December 2005, that had also formed the basis for the qualification. Counsel would be paid from the administration budget for attending the meeting.

Mr Gerber asked for an explanation of the discrepancy in dates of signature as contained in the report and the AG’s report.

Mr Kemp answered that this was merely a technical error.

Mr Gerber asked why the Annual Report had referred to the relocation of the head office to Johannesburg as facilitating the the effective management of the internal audit function, through the Johannesburg office of the appointed audited firm.

Mr Kemp confirmed that the head office relocated to Johannesburg in 2006. MAPPPSETA was looking to hire a Johannesburg based auditing firm so that the internal audit function was carried out in close proximity to the new office. 

Mr Gerber asked whether a new internal auditor had been appointed.

Mr Kemp answered that the opportunity had been advertised and the SETA was now awaiting applications. Appointments should be finalised before 31 March 2007.

Mr Lowe (DA) raised concerns regarding the lack of documentation for the disbursing of discretionary grants. This issue was raised with the Minister in 2006, specifically regarding the investigation undertaken by the present CEO. The CEO had received threats to her personal safety and the Scorpions were commissioned to investigate the matter. Some investigation had also been carried out around the disappearance of R12 million. He asked if the forensic report had been made public, and what steps would be taken for recovery of the money and prosecution of offenders, as also to protect the CEO.

Mr Kemp explained that the present CEO had inherited this problem. A forensic audit had been conducted and completed. This report was handed over to the National Prosecuting Authority (NPA). MAPPPSETA could only take steps once the NPA concluded its investigation.

Mr Lowe asserted that the board had a responsibility to the CEO to reach speedy conclusion of the investigation. He asked what had happened since 22 September.

Mr Kemp said that the CEO had not yet received a response to a request to meet with the Minister during November 2006. MAPPSETA could not accuse any party of any wrongdoing, as nothing had yet been proven. It had to move cautiously, particularly since the current CEO had been accused of defamation, arising out of media reports.

Mr Mofokeng noted that MAPPSETA had been exceeding the expenditure threshold by 10% against its terms of reference in Section 3 (a) of the Skills Development Act. He called for an explanation.

Mr Kemp answered that the prior approval of the Minister had been requested, during July 2005, in line with the Skills Development Regulations, to overspend on the administration threshold. Unfortunately, the Minister’s response was still outstanding. This was another issue to be discussed with the Minister. .

Mr Mofokeng noted recurrent irregular expenses made by MAPPSETA, including grant and project expenses, and an amount of R9 million paid to a service provider in terms of a court order. He asked what this referred to.

Mr Kemp answered that the R9million referred to the discretionary grants that had been challenged in court. This had no relation to exceeding the administrative threshold. The threshold was 2.4% and the main reasons for the over-expenditure were unavoidable and unbudgeted legal expenses, and the necessity to employ consultants to have the SETA re-registered, which involved drafting and approval of 80 policies within a three to four month period. This occurred while the head office was still in Cape Town. These were not of a recurring nature.

Mr Mofokeng asked why MAPPSETA contravened certain clauses of the PFMA and caused an irregular expenditure of about R43 million. He also queried payments of about R3.6 million that were also considered irregular.

Mr Kemp replied that the Court case had ordered payment of R9.9 million. The SETA did not want to incur irregular expenditure, but the ruling of the court had to be adhered to and the payment had to be made in that year. The amounts were disclosed as irregular expenditure. Prior to the finalization of their financials, discussions were held with the AG, during which the AG indicated that the payments in 2005/2006 which related to the previous financial years must also be disclosed. The payments for the second service provider were the subject of a court case to commence the following week.

The Chairperson asked why MAPPPSETA was embroiled in court cases.

Mr Kemp answered that previous CEOs had not followed the main objective to uplift skills, and that the authority had been misled by information provided by the CEOs. Decisions were made that were now being challenged.

Mr Gerber noted that despite low inflation the salaries of the CEO and CFO had been increased by 20% and 24%. He asked how this calculation was made.

Mr Martin Deysel, MAPPPSETA answered that R557 000 reflected for the previous CEO was not a full year’s payment. The new salary was for a full year and included an adhoc bonus. This was the agreed salary package for the CEO. The CFO had done a comparison with other SETAs and these rates were below the average for CEOs.

Mr Gerber asked why there had been such high increases in rental and why reference was still made to the Cape Town Office in the Annual report.

Mr Deysel answered that this related to the relocation of head office to Johannesburg, as well as the expiration of the leases in Durban. Temporary accommodation was also rented due in Johannesburg, prior to the completion of the head quarters.

Mr Gerber asked for clarity on the increase in the auditors’ remuneration from R198 000 to R484 000.

Mr Deysel answered that when the audit was performed at the Cape Town offices, auditors frequently had to travel there. Costs also increased due to the services rendered during the court challenge.

Mr Gerber enquired about amounts paid to CMTC and AAA of R33 million and R3.6 million respectively. He enquired why a loan instalment of R360 000 relating to TIFSA had increased to R700 000.

Mr Deysel explained that this related to the trial on the disputed R9.9 million payment to a service provider. This had been based on financial modelling and not on the Skills Development Act. Since a legal expectation was created the SETA was ordered to pay. The amount included legal costs.

Ms Dreyer raised her concerns over the communication problems between SETA and Department of Labour.

The Chairperson ruled that the Minister should respond to this query.

Mr Mkhosana expressed his discomfort over the manner in which this matter had been raised.

Mr Trent queried the lack of supply chain management policy that was prescribed in the PFMA.

Mr Bothma answered that such a policy had been approved in the year 2005/2006.

Construction Education and Training Authority SETA (CETA): Interrogation of Audit Report 2005/6
The Chairperson asked why there had been a disclaimer report and asked if the situation was still deteriorating.

Mr T Tejeni, CEO, CETA answered that much work had been done to improve the operation of systems in CETA.

The Chairperson noted the negative reserves cited in the 2005/2006 Annual Report had placed CETA in a technically insolvent position. He asked for clarity on this.

Mr Tejeni responded that the current new management had worked very hard to improve the weaknesses in CETA’s operating systems that were inherited from its predecessors. The technical insolvency had since been resolved.

The CFO, CETA explained that the technical insolvency related to comparative ratios of current liabilities and current assets. Currently, current assets were greater than current liabilities and the nine-month statement assets were three times greater.

The Chairperson asked why no budget had been submitted and whether this would be a recurrent problem.

Mr Tejeni said that the previous CEO had failed to submit a budget, but one had been submitted subsequently. The 2006/2007 budgets had been submitted on time.

The Chairperson asked whether the internal audit situation had been improved.

Mr Tejeni answered that the ineffective internal audit referred to the failure of Price  WaterhouseCooper to complete the internal audit. An effective internal auditing team was subsequently appointed and had worked hard to implement the aspects that were highlighted by the AG.

Mr N Moloto, Chairperson of the Board added that Price WaterhouseCooper resigned without providing reasons for their resignation.

The Chairperson asked whether CETA lacked internal capacity to meet its internal auditing needs.

Mr Moloto responded that due to the auditing needs at the time an outside auditing firm had been commissioned. The CFO was currently in the process of establishing an internal audit committee. However, the outside firm’s contract had not yet expired so that the new committee could not yet take over.

The Chairperson noted that despite the challenges faced by the CETA, its Council was re-elected. He asked if the management challenges had been effectively met.

Mr Moloto answered that the Council consisted of all stakeholders of CETA.

The Chairperson noted that only four out of the twelve national skills development targets were met, yet the review of the Annual Report indicated that “a sufficient number” of targets were met. He commented that this did not seem satisfactory.

The Chairperson asked how CETA had managed the challenge of learnership information.

Mr Moloto responded that the learnerships  were previously reflected on two databases. A firm had been appointed to assist CETA to refine this data system. The creation of a single database was almost completed.

Ms Dreyer commented that CETA had no vacancies and therefore must be presumed to be operating efficiently. However, there was a very high turn over in key positions. The previous CEO term had been terminated with a settlement, while the CFO resigned. She asked if the Board was concerned about the matter.

Mr Moloto answered that at the time of this high turnover, Deloitte and Touche were contracted to establish the reasons. On the basis of their recommendations, the Board acted and the situation had been stabilized. Steps included the replacement of the entire management team.

Ms Dreyer asked why the previous CEO was given a settlement and whether the Board initiated his resignation.

Mr Moloto confirmed that an amicable agreement had been reached with the CEO. He could not comment on the present work of this official, as CETA did not employ him. The challenges faced by CETA at the time had necessitated a change of leadership.

Ms Dreyer asked whether CETA investigated reasons for resignations in order to manage and understand the high turnover rate. She asked if an exit interview was conducted with the CFO, and with PriceWaterhouseCooper.

Mr Moloto explained that exit interviews were held to understand the reasons for resignations. The resignation of the CEO, should be understood as part of the need to replace previous management with new leadership. The resignation of Price WaterhouseCooper was a unrelated issue.

Ms Dreyer asked who appointed the Board members.

Mr Moloto explained that Board members were appointed by the stakeholders of CETA in terms of its constitution, and, once constituted, the Board appointed management.

Ms Dreyer noted that the key findings of a forensic investigation conducted in 2002 related to allegations of corruption by staff members, and duplicate payments to service providers. However, the Board had removed certain items of the forensic brief on 9 February 2006. This resulted in certain allegations not being explored further. The investigation agency, due to lack of authority, was unable to secure relevant documentation and interviews with stakeholders. This led to incomplete findings. A report was released on 22 August 2006 and was discussed by the Board on 12 and 25 October 2006. She called for comment and the outcome of the meetings.

Mr Moloto answered that the forensic investigation was initiated by the authority,  and that clear terms of reference were provided on the issues leading to the qualification. These related to the learnership information, corruption and the lack of qualifications. The Board considered the report with reference to the questions posed by it. The report had not addressed all issues fully and therefore was not as useful as expected. For instance, the service providers suspected of defrauding CETA were not investigated fully, and there were inconclusive finding. The Board had since decided to follow another route of investigation and hoped to find answers soon.

Ms Dreyer said that if the original mandate of the investigation had been restricted, certain answers to questions would not be able to be given. She asked if the mandate would be expanded.    
Mr Moloto answered that the Board was not satisfied that specific concerns were resolved by the report. The Council expected that the investigation would be concluded by the time the AG commenced the audit. It was found that the investigators were focusing on areas outside of the key areas identified.

Ms Dreyer asserted that it seemed from Mr Moloto’s answers that the findings of the report were not favourable. The report had come to a range of disturbing conclusions, which included a list of incidences of possible corruption. Very firm recommendations were made. The report was possibly being disregarded as it implicated members of the Board and management. She asked whether the report would be reconsidered, since a number of observations needed further investigation?

The Chairperson said that since there were specific recommendations made the Board could not delay the implementation on specific areas, despite problem relating to the terms of reference. It would be a waste of money to initiate a new investigation. He suspected that although the investigation had looked at external maters, it might also have uncovered internal dynamics. The Committee demanded the implementation of the recommendations and should be informed of the progress made as these issues related to the management and governance of CETA.

Mr Moloto answered that it would be unwise of the Board to reject the findings of the report.

The Chairperson reiterated that the report made reference to specific incidents. He asked the status of the current report and whether the Board was delaying action on it to ensure that the shortcomings in the report could be dealt with.

Mr Moloto said that every recommendation would be acted on. Steps were taken to fill in the gaps. Certain issues in the report were also independently identified by the Board.

The Chairperson asked whether the Board would be implementing the very specific recommendations made by the Report.

Ms Dreyer requested the Board to provide the committee with specific incidents that had been dealt with by the Board.

This question was not answered.

Ms Dreyer asked why PriceWaterhouseCooper terminated its contract. She enquired if they had uncovered gross areas of corruption. She and the Chairperson were not satisfied with the responses given.

Mr Moloto said that no reasons had been given for the termination. A copy of their letter could be provided.

Mr R Mofokeng asked who was the accounting officer.

Mr Moloto confirmed that the CEO was the accounting officer.

Mr Terence Nombembe, AG answered that the PFMA did not make reference to “accounting officer” but “accounting authority”. In this respect the Board was the accounting authority. The CEO was merely working for the Board, which, in a public entity, was the ultimate accounting authority.

Mr Gerber noted that if problems were experienced with the implementation of the recommendations in the report, it could always be dealt with by resolution.

Mr Mshudulu wanted to know the status of the report, since a draft resolution could not be implemented.

Mr Moloto answered that it was a final report.

The Chairperson noted that CETA was expected to act on the recommendations of the report.

Information Systems Electronics and Technologies SETA (ISET-SETA): Interrogation of audit report 2005/6
Ms Dreyer raised concerns over the disclaimed audit report that highlighted the high staff turnover rates and inadequate skills levels. This influenced compliance of the financial statements with Generally Accepted Accounting Practices (GAAP). She asked why the ISET SETA were not able to retain senior management staff and whether a proper staff recruitment policy was in operation.

Mr Lucky Masilela, Chairperson of Board, ISET-SETA explained that the reasons for the high staff turnover rate were presently being investigated. Incentives could be developed to retain staff. Exit interviews with staff were also conducted to understand the motivations for leaving the SETA. A skilling plan would improve the skills levels of current employees. The human resources manager had also been requested to evaluate both the retention and recruitment strategies. The implementation of learnerships and the Workplace Skills Plan (WSP) were proceeding adequately. However, the staff capacity of both administrative and finance units needed improvement.

Mr Oupa Mopaki, CEO, ISET SETA explained the reasons for the high turnover rates of senior management. The previous CFO had resigned due to the deterioration of his working relationship with the Board, CFO and audit committee. This was subsequently cited as one of the reasons for the disclaimed audit report. A new CFO had been appointed.

The Chairperson noted that performance bonuses had been awarded despite the high rate. Ms Dreyer asked how performance bonuses were awarded without the involvement of the remuneration committee.

Mr Masilela responded that the rewarding of bonuses for senior management was done in collaboration with REMCO. The CEO and management team had determined the packages for the rest of the staff. The bonuses were structured so that 80% related to operational governance issues and 20% to the financial issues. REMCO provided the measurements for the payment of bonuses.

On request of the Chairperson, Mr Masilela said that ISET-SETA had 45 staff members.

The Chairperson asked if ISET was satisfied that bonuses totaling R1.1 million were paid out to 45 people.

Mr Masilela answered that the disclaimed audit report was taken into account when the size of bonuses were considered. The overall performance of all deliverables within the SETA, not only the financial performance, was considered. Poor performance was not rewarded, but good performance was. A model was used as the basis of the calculation.

The Chairperson commented that this model was questionable, as it did not appear to be sensitive to performance and could be misused as a mechanism for better remuneration. This was a general problem encountered in all public entities. SCOPA was very uncomfortable with this spending on bonuses. Tax money was being misused and this tendency created negative perceptions of the government.

Mr Masilela answered that although the model would be revisited, the awarding of bonuses served as a mechanism to retain staff. Additional strategies would also be explored.

Mr Ntombembe clarified that the remuneration committee had not held any meetings during the 2005/2006 financial year.

The Chairperson asked why bonuses were processed without the involvement of this committee.

Mr Mopaki explained that when the Board was constituted in the 2005/2006 financial year, there was some misunderstanding of PFMA. It was thought that REMCO would be constituted on an ad hoc basis. The Board had nominated certain board members to constitute REMCO and this body had then approved and discussed the awarding of bonuses.

The Chairperson asked if the inefficiencies of the entity’s financial systems and monitoring systems had improved.

Mr Mokapi confirmed that the weaknesses had been addressed. External service providers had been contracted to ensure that systems were streamlined. A competent internal auditor would be appointed in due course.

The Chairperson expressed his dissatisfaction with the tendency to outsource internal auditing functions. He asked what was done to ensure the institution’s capacity to perform internal audits.

Ms Bothakga Baker (CFO) answered that a new system would be implemented to ensure that all functions were performed internally. Outsourced functions would be taken over by the end of the current financial year.

The Chairperson asked whether the necessary policies and procedures were in place to ensure the smooth transfer of operations.

Ms Baker confirmed that such measures were in place. Staff would also receive the required training. The service providers would thus transfer their skills to the SETA.

Mr Gerber commented that aperson appointed to perform the audit had misrepresented his qualifications, and was not registered with the Institute of Certified Internal Auditors. He asked what systems were now in place to ensure that checks on qualifications and academic backgrounds were properly performed.

Mr Mopaki replied that the ISET-SETA had revised its recruitment policy that adhered to the necessary screening requirements.

Mr Gerber asked for an explanation on the increase in the VAT penalties and interests in the last two years.

Mr Masilela answered that these penalties had subsequently been corrected. The increase was simply due to difficulties experienced in the incorporation of VAT. VAT was no longer applicable to SETAs.

The Chairperson asked whether the problems relating to access to supporting documents on income and expenditure had been addressed.

Mr Mopaki responded that a separate account had not been created for funding received from the National Skills Fund and income received from levies. Service providers were drawn from the same account. As a result, it was very difficult to account to the AG on how funds from NATIONAL SKILLS FUND (NSF) were utilized. Service agreements had not been differentiated. The internal auditors had been mandated to organise the documents correctly and would then audit these documents.

The meeting was adjourned.



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