A summary of this committee meeting is not yet available.
STANDING COMMITTEE ON PUBLIC ACCOUNTS (SCOPA)
7 March 2007
DEPARTMENT OF HOME AFFAIRS, GOVERNMENT PRINTING WORKS, AFRICA INSTITUTE OF SOUTH AFRICA, GOVERNMENT PRINTING WORKS, ESTATE AGENCY AFFAIRS BOARD: INTERROGATION OF AUDIT REPORT 2005/06
Chairperson: Mr T Godi (PAC)
Department of Home Affairs Annual Report (available at www.dha.gov.za)
Africa Institute of South Africa Annual Report (available at www.ai.org.za)
Government Printing Works (in Home Affairs Annual Report at www.dha.gov.za)
Estate Agency Affairs Board Annual Report (available later at www.eaab.org.za)
Home Affairs Intervention Task Team: briefing by Minister - 8 Mar 2007
Audio recording of the meeting
The Committee was concerned by the high vacancy rate in the Department of Home Affairs and its financial management. Of concern also was the lack of effectiveness of their internal audit functions. The Department explained that the structure of the internal audit function had been changed. The function was now being headed by a Chief Director and not just by a Director.
The Accountant-General commented that there were serious problems in the Department but many basic steps could be done to improve matters. Some of the initiatives of the task team would take time but some would be immediate. Many of the areas raised by the Auditor General in his last report had been dealt with and measures were being taken in response.
The Committee said that there were many problems within the Government Printing Works that mirrored those in the Department of Home Affairs. The Auditor-General reported that there were inadequate steps to collect money timeously, compounded by a lack of skills, competent staff and management reviews. There were major weaknesses in their IT environment, including an IT security policy that had been drafted but had not yet been approved by management, and the segregation of duties was inadequate.
The Africa Institute of South Africa had received a qualified report from the Auditor-General for its lack of adequate skills and the constant upheavals in the senior management. In the core business of the Institute, which was research, there was vacancy rate of over 30%.
The top six individuals in the Estate Agency Affairs Board earned from R429 000 to R881 000 per year. One official had a travel allowance of R180 000. Another had an allowance of R120 000. The Committee were surprised by these figures. The Committee noted that the Department of Trade and Industry was in the process of appointing a Board but wondered if a Board existed at present.
Department of Home Affairs
The Chairperson began by asking the Acting Director-General how long he had been in an ‘acting’ position in the Department.
Mr Joel Chavalala, the Acting Director-General, replied that he had been in the position since 2 October 2006 and would continue to do so “until further notice.” However, it was unlikely that he would take on the job permanently.
The Chairperson then asked if he was comfortable with this situation.
Mr Chavalala replied that his role was just to “keep the ship afloat,” to make sure that the Department achieved its mandate. There were many challenges in the Department and they were confronting them on a daily basis and “remarkable” progress had been made.
The Chairperson said that he had brought up this issue to highlight that the Department was struggling also because of a lack of sustained leadership and this affected good governance in the Department.
Mr Chavalala agreed with this, but the leadership there now was trying its best under the circumstances.
The Chairperson said that another thing that affected governance was the lack of capacity in the Department and high vacancy rate therein. The last time they were before the Committee they had a 29% vacancy rate. Was this still the case?
Ms Ohara Diseko, Deputy Director-General: Corporate Services, confirmed that this figure had remained about the same and could actually be higher.
That being the case, the Chairperson asked if the Department had any plans, even at a conceptual stage, to address this issue.
Mr Chavalala said that the figures were correct but the Committee had to note that some of the vacancies were for posts that were not funded. They had been created but funding for them was yet to be approved. This was going to be phased in during the MTEF period and a certain number of the posts were going to be filled in the next financial year. The whole process would be staggered over the next three years.
The Chairperson said that the understaffing problem in the Department affected the financial management office. What was the reason for the understaffing in such an important area of the Department, and this greatly affected service delivery? Also, what was the situation now?
Mr Pat Nkambule, Chief Financial Officer (CFO), replied that yes, in the year under review there were staff shortages in that section, and the situation right now was that there were still vacancies at the head office, but not as many as there used to be. The shortages in staff in the provincial offices however, were more acute. The task team from the DBSA that was constituted to help the Department concluded that there had to be an overhaul in the Department’s systems. In regional offices were money was handled there was a problem of a lack of supervision and monitoring for instance.
The Chairperson reminded the Department that the Committee had made a resolution on the Lindela Detention Centre regarding the lack of adequate financial controls there. What was the situation now?
Mr Nkambule replied that Lindela’s financial situation was now “stable.” All the control problems had been dealt with.
The Chairperson said that in the year under review, there had been issues raised about the lack of effectiveness of their internal audit functions. What was the situation now?
Mr Nkambule replied that the structure of the internal audit function had been changed. The function was now being headed by a Chief Director and not by just a Director (even though the post was unfilled). Other interventions were that they had gone out on tender to outsource some of their auditing. Through this process some skills transfer could also occur.
The Chairperson said that the Auditor-General (AG) had noted that an amount of R90 million should have been classified as an irregular expense but the Department did not do so. Why?
Mr Nkambule replied that the amount arose from a process the Department followed to acquire goods and services, following supply management frameworks, following tender procedures. However, in cases where it was unpractical to follow those procedures, the accounting officer had the discretion to use other means to secure the goods/services. Such a situation arose, and it was this expenditure that the AG had (incorrectly) classified as “irregular.”
The Chairperson then asked what the money was spent on and why it had been impractical to follow the normal procedures.
Mr Nkambule replied that there had been a backlog in the processing of some applications for their acquisition of buildings and furniture for use by asylum seekers. They had to buy these things under pressure from organisations like the UNHCR.
The Chairperson remarked that this situation was of the Department’s own making due to a lack of planning. He did not approve of the use of a provision in law that allowed the Department to cover up their lack of planning.
Mr Nkambule replied that the intention of Department had not been to flout the normal procedures, but the circumstances forced them to do so.
The Chairperson said that a forensic investigation had been implemented in the Department. At what stage was this process?
Mr Nkambule replied that the investigation had two parts. The first had been concluded and lead to a more in-depth investigation. At first only internal processes were investigated but later, service providers were included.
Mr George Gorekwang, Director of Financial Management, added that disciplinary processes were under way after the completion of the first stage of the investigation. The second part had just been completed and the report had just been finalised. It would be passed onto the Minister and the Deputy Minister and the Department would then take recommendations.
The Chairperson said that he wanted the Committee to also have access to that report.
Mr T Bonhomme (ANC) asked how the Department had dealt with the issues relating to the lack of computerisation of the Department.
Mr Nkambule replied that they had put the necessary systems in place and had installed the basic accounting system in 146 offices. A further 70 offices could not be computerised due to the lack of Telkom lines.
Mr Bonhomme then asked if they had analysed their risk management systems as the AG’s report had indicated that it was ineffective.
Mr Chavalala replied that this process was currently under way in collaboration and with the support of the intervention task team from the National Treasury.
Mr V Smith (ANC) said that the Department had been an accrual of R42 million. R25 million of that had been spent by the end of the year but no goods/services had been received. That is, they actually inflated their expenditure, which equated to fiscal dumping. An expense could not be raised if no goods/services were received.
Mr Nkambule replied that the finding was correct but it was not fiscal dumping. ‘Accrual’ implied that money had been committed, even though no goods/services were received in return. The error had been rectified, but it had merely been an error in non-disclosure.
Mr Smith was not convinced with this explanation as they had a separate section in their books for ‘commitments’ and another for ‘accruals.’
Ms Brenda Swart, from the National Treasury, agreed with Mr Smith’s interpretation. She read out part of a letter from the Treasury Director-General to the former Director-General of Home Affairs which said: “there is evidence of fiscal dumping in the form of transfers.”
Mr Graham Randall from the AG’s office added that they agreed with Mr Smith as well.
Mr Smith went on and said he was very frustrated and wondered if the Department should be forced to redo their book. It was not worth the Committee’s time if the Department was disputing all of the evidence of their mismanagement that were in their own documents.
Mr Smith then said that the Department had an alien bank account and it had not been audited since its inception. There was R280 million in it. What was the situation now?
Mr Nkambule replied that it had still not been audited.
Mr Smith said that this issue came out a long time ago and nothing had been done. This Department was “in crisis.” What was being done to rectify this?
Mr Nkambule replied that they were consulting with the AG and the Accountant-General about the format of the audited statements and this account would be audited in the next one.
Mr Smith said that they had paid 559 cars but only received 455. Had this been rectified and why had there been a delay that got the attention of the AG?
Mr Nkambule replied that they had since been received. Money was transferred and by the time the audit was completed the cars had still not been arrived.
Mr Smith went on and said that there were R61 million in claims for travel but there was no reconciliation between the kilometres claimed and the money paid. How was the reconciliation happening now?
Mr Nkambule replied that a now log system was being used throughout the country. Confirmation had to be received from the official in charge of a particular Government Garage of the distance travelled before payments were made.
Mr Smith said that according to the AG’s Report, the Department had surrendered R236 million to the National Revenue Fund. However, only R223 million had actually been transferred, with R12 million unreconciled. Why did this happen and what was happening now?
Mr Gorekwang replied that the money had to be allocated to revenue items and the last R12 million was going to be transferred “this week.”
Mr Smith said that the AG noted this last year in March. The country could not wait 12 months for things like this. This contributed to the lack of service delivery by the Government, so their explanation was “unacceptable.” It was for reasons like this that people were “going to be fired.”
He then asked why there were staff debts of R3 million.
Mr Nkambule replied that the debts arose out of study loans granted by the Department but were not repaid. In some cases the people resigned or just did not finish the courses.
Mr Smith then said that personally he had a problem with suspense and clearing accounts. The Department had an amount of R7 million that was yet to clear. This was indicative of the poor financial management in the Department that money could not be allocated to where it had to due to a lack of supporting documents for instance. He asked what the total figure was in their suspense accounts.
Mr Gorekwang said that they R71 million in their revenue account that was clearing “right now.”
Mr Smith wanted more information on the progress of the clearance of the expense and alien bank accounts.
Mr Freeman Nomvalo, the Accountant-General, added that there were serious problems in the Department but many basic things could be done to improve things. Some of the initiatives of the task team would take time but some would be immediate. Many of the areas raised by the AG in his last report had been dealt with and measures were being taken in response. The problems though, were not insurmountable. Skills and capacity issues remained but the Department “would be rescued.”
Government Printing Works (GPW)
Mr L Pule said that there were many problems in the Printing Works that mirrored those in the Department of Home Affairs. The AG reported that there were inadequate steps to collect money timeously, compounded by a lack of skills and competent staff and management reviews. This led to the poor management of debtors, for which they received a ‘disclaimer’ in 2003 and 2004. in 2005 and 2006, they received an ‘adverse opinion.’ What was being done to salvage the entity?
Mr T Moyane, the Chief Executive Officer, said that over the past few years they had received ‘disclaimers’ and it was not a good position to be in. The ‘adverse opinion’ was a slight improvement and measures had been taken to make further improvements. They had employed a consultant to help their staff and had employed a person to deal with debt collection. More people were being trained internally as well to ease their skills concerns.
Mr Pule then asked what the GPW had done to improve on their internal audit function as they had received three ‘emphasis of matters’ in a row.
Mr Moyane replied that when he took over in 2005, the GPW did not have an internal audit team. At the end of 2005, someone was appointed to head the team. Currently, the rest of the team was being appointed.
Mr Pule then highlighted that the GPW’s risk assessment and fraud prevention plans had also received three ‘emphasis of matters’ in a row. What was being done about this?
Mr Moyane replied that in the absence of an internal audit plan, you could not have a viable risk assessment and fraud prevention plan either. However, it was now in place.
Ms L Mashiane said that there were major weaknesses in their IT environment, including an IT security policy that had been drafted but had not yet been approved by management, and the segregation of duties was inadequate and developers had access to the financial system, data and programs amongst others.
Mr Moyane replied that an IT policy had been approved as soon as the AG had brought it up. Also, duties had now been segregated properly. Where they had issues was with the disaster recovery plan. They were working on this and an IT Committee would advise on the way forward.
Ms Mashiane then asked if they had enough manpower to solve the problems in the IT section
Mr Moyane said that they currently did not have enough people in the IT section.
Africa Institute of South Africa (AISA)
Ms A Dreyer (DA) said that the institute had received a qualified report from the AG for its lack of adequate skills and the constant upheavals in the senior management. In the core business of the AISA (research), there was vacancy rate of over 30%. What steps were they taking to fix these issues?
Prof Nthabiseng Ogude, the Council Chairperson, agreed that the AISA had been highly unstable over the last few years with a few acting Chief Executive Officers (CEOs). There was a shortlist for a new one and by May, new CEO would be appointed. She conceded that the current situation was unacceptable.
Mr D Gumede (ANC) said that the AG noted that the entity did not have adequate policy and procedure frameworks to manage and finalise their performance information for audit purposes. Why was this, and what action had been taken?
Prof Bobby Soobrayan, the Acting CEO, said that this matter had been rectified “emphatically” as a vital management tool to meet their reporting obligations. They had finalised a template for recording information credibly. They had also done work to ensure the integrity of the system and the reports they produced would all have confirmations of the credibility of the information.
Estate Agency Affairs Board (EAAB)
Mr P Gerber (ANC) said that an independent auditor’s report carried a note that neither the budgets for 2005 or 2006 had been approved as per section 33(4) of the Public Finance Management Act (PFMA). There were no minutes or signatures regarding the approval in the records of the EAAB. He asked Ms Astrid Ludin, Deputy Director-General: Consumer and Corporate Regulation in the Department of Trade and Industry (DTI), who had chaired the meeting, why she had not signed the report.
Ms Ludin replied that she had chaired the council until April and then Mr K Naidoo, the CFO of the DTI, took over while she went on maternity leave.
Mr Gerber and continued that none of the subsequent reports of the independent auditor had been signed either. It gave a very disturbing impression and hoped that this would be sorted out by their next visit to the Committee.
Mr Gerber said that in 2004 the auditors found two emphases of matter. The 2005 and 2006 report found another emphasis of matter. They had a lot of work to do. He then went on about the remuneration of the management. The top six individuals in the organisation earned from R429 000 to R881 000 per year. One official had a travel allowance of R180 000. Another had an allowance of R120 000. How were these figures arrived at? Did they have a remuneration committee and how often did it meet?
Ms Nomonde Mapetla, the CEO of the EAAB, accepted that she had a duty to date and sign fully on all reports that came before her. There was a human resources and remuneration committee but the basis on which people were paid was the “cost to the company,” that allowed individuals to package their salaries as they deemed fit for tax purposes.
Mr Gerber said that these practices did exist, but stressed the need for caution to make sure that the system was not abused. He continued that the EAAB had an investment policy with R390 million in investments and another R30 million on call. How was this policy drawn up and who approved it?
Ms Mapetla replied that the manner in which they invested was governed by legislation, but they had developed a specific investment policy with the help of the external auditors. The revised policy had not yet been approved yet though.
Carrying on about the investment policy, Mr Gerber noted that there were many role players who had a say in the policy, from the CEO, the CFO, the Board, the finance committee and the audit committee. The Standing Committee was probably going to come up with some recommendations regarding this policy, to make sure it was administered properly given the recent Fidentia scandal.
The Chairperson noted that the DTI was in the process of appointing a Board right now. Did a Board exist?
Mr Naidoo replied that in effect a Board did not exist at present as the previous Board had been dismissed last year after allegations of irregularities, including fraud. An interim Board was appointed to get things in order. The new Board would consist of 15 people and the final list was awaiting Cabinet approval.
Mr Gerber said irregularities in travel subsistence payments amounting to R1 million had been picked up. Did the EAAB now have a policy to make sure this did not happen again?
Ms Mapetla replied that a policy had been developed.
Ms Dreyer said that one the EAAB’s core functions was to issue certificates for fidelity funds trusts that allowed estate agents to operate legally. However, in their report the EAAB did not indicate how many applications were received and were rejected or approved. Some agents claimed that after making their applications and paying the necessary costs, they did not receive any feedback from the EAAB about the status of their applications. She wanted to make the EAAB aware of this.
The Chairperson said that he still had a number of issues to raise regarding the EAAB’s non-compliance with certain Acts but they had run out of time. However, if need be, they could call the EAAB before them again.
The meeting was adjourned.
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