Department of Water Affairs and Forestry: Interrogation of Audit Report 2005/06

STANDING COMMITTEE ON PUBLIC ACCOUNTS (SCOPA)
13 March 2007
DEPARTMENT OF WATER AFFAIRS AND FORESTRY: INTERROGATION OF AUDIT REPORT 2005/06

Chairperson: Mr T N Godi (PAC)

Documents Handed Out:
Department of Water Affairs and Forestry Annual Report 2005/06 [available at www.dwaf.gov.za
Auditor-General Report: Department of Water Affairs and Forestry Annual Report 2005/06

Audio recording of the meeting Part 1 & Part 2

SUMMARY
Members of the Committee met with the Department of Water Affairs and Forestry (DWAF), in order to discuss the issues raised by the Auditor General in the 2005/06 Annual report. Members asked the Department to provide clarity regarding the various plans in place that would alleviate the governance and asset management issues. Members also focused on the issues of non compliance with regards to expenditure, the overdraft in the bank account, the issuing of a finance lease without proper approval, non compliance with Division of Revenue Act, and non compliance with the Environmental Implementation Programme. The Department was asked to comment on the logistical skills, on the fact that some of the purchased assets could not be verified, to comment on who attended to that verification,weaknesses in the internal control mechanisms, and inadequate controls on spending. The Committee asked that the Department also set out the measures to prevent wasteful expenditure in the regional offices, the reasons behind the non-declaration of conflicts of interest and to explain the R14 million allegedly spent on transport. The staff debts, the R39 million of interest owed, irregular performance bonuses,  the progress of investigating risk management and the amounts spent on travelling were also questioned. The Committee felt that it was unacceptable that the Department had apparently not gone through the Auditor-General’s report in sufficient depth to pick up on all issues, and believed that there was much room for improvement. The Auditor General and National Treasury reported that there was better interaction with the Department.

MINUTES
Mr E Trent (DA) asked the Department to state the various plans in place that would alleviate the inadequacies in the governance and asset management that had been identified by the Auditor General (AG) in the report. 

Mr Jabulani Sindane, Director General, Water Affairs and Forestry (DWAF) responded that there were policies in place, which were adopted in 2004. It was important to note that 120 of the Departmental staff members had received asset management training from National Treasury (NT). However, he stated that the Department did not have an up to date asset register, but that the issue was currently being corrected.

Mr Trent stated that there was no point in having an asset management policy in place when it was not being implemented. The Committee needed assurance that something wass being done to address the matter.

Mr Sindane acknowledged the comment and stated that there certainly would be a difference in he asset management when the next report was presented. The Department had implemented an electronic management system that wwould record all assets, and this should hopefully make a big difference.

Mr Trent moved on to the issue of the National Forest Recreation and Access Trust, where the AG had reported a matter of emphasis in relation to the transfer, during 1999/2000 of an amount of R1.6 million. The Trust had remained dormant since inception. The Department was asked by SCOPA in 2003 to seek clarity on the status from National Treasury. He asked  the Department to comment on the progress of the matter.

Mr Sindane responded  that the issue was still pending and that the Department was taking the matter very seriously.

Mr Trent stated that the Committee would still like to know when there would be closure on this matter.

Mr Sindane responded that he had received the submissions that had been made. In view of the issues at hand, he was not sure that it would be appropriate at this stage to discuss them with the Committee. 

The Chairperson then requested that the submissions be handed over to the members of the Committee after the meeting.

Mr Trent then raised the issue of non-compliance with the requirements of the Public Finance Management Act (PFMA) in regard to expenditure. He asked the Department to comment why there was non-compliance, and also to provide reasons why the Department's bank account had gone into an overdraft.

Mr Sindane responded that the staff who were involved with the Department's expenditure lacked the necessary capacity. He stated that the Department took full responsibility for the non-compliance, and several steps had been taken to try to identify all the problems that had been raised by the AG. The Department had also approached National Treasury (NT) in order to find ways to address the issues surrounding irregular expenditure and the bank overdraft.

The Chairperson stated that the answer of the lack of capacity was unacceptable.

Mr Sindane assured the members of the Committee that the Departmental staff were not in any way involved in fraudulent activities. He stated that there was lack of capacity to the extent that they made several mistakes while carrying out their duties.

The Chairperson said that he still was not convinced with the answer provided, and that lack of knowledge should not be used as an excuse. The Departmental staff should able to perform simple tasks.

Mr Sindane responded by stating that there was a low skill base across the Department, and the accumulation of errors stemmed from different levels of skills, which remained a matter that still needed to be corrected. The Department however was currently implementing a system of performance, which focused on addressing areas where there was a very low level of skills.

Mr Trent raised the issue of irregular expenditure and asked the department to provide reasons why a finance lease in regard to the Equipment Trading Account was issued without the Minister of Finance’s approval.

Mr Sindane responded that the Department had approached NT regarding the matter, owing to the fact that those people who were responsible and should be called to account had left the Department.

Mr Trent again raised the issue of non-compliance, and he asked the Department to provide clarity on whether there was an effective supply chain management system in place.

Mr Sindane responded that there were several supply chain structures in place, which included an internal audit committee.

Mr Trent then asked the Department to provide clarity regarding non-compliance to the Division of Revenue Act (DORA).

Mr Sindane stated that there were conditions of monitoring now in place, and as the Department performed oversight, it ensured that there was compliance to DORA.

Mr Trent asked the Department to provide reasons why there was non-compliance with the Environmental Implementation Programme.

Mr Sindane responded that the Department had sent a request to the directorate of legal services, in which the Department asked for a checklist that would determine to what extent the Department had now complied.

Mr Trent stated that the Department was plagued with serious governance matters, and the Committee was anxious to see that the problems around governance had been addressed properly by the time of the next report.

Mr Sindane assured Mr Trent that there was going to be an improvement in the governance matters, and that the checklist provided would be constantly followed, since the directorate of legal services would be doing the monitoring and ensuring oversight.

Mr B Pule (UCDP) asked that the Department should comment on its logistical systems.

Mr Sindane responded that the Department was re-considering its logistical system, since the people that were currently tasked with the duty lacked the relevant skills and expertise. The problem stemmed from the regional offices, and the Department was currently trying to rectify the matter.

The Chairperson then stated that if the people lacked the relevant skills, then there was a possibility that the Department had lost some of its assets.

Mr Sindane responded that there was a possibility that some of the Department's assets had been lost.

The Chairperson noted that the Department had stated that the Deputy Director General was responsible for providing oversight in the regional offices. He asked if it should then be the Deputy Director General who should be appearing before the Committee and be called to account.

Mr Pule stated that according to the AG, some of the purchased assets could not be verified. Therefore the Department should state whether or not assets were actually purchased.

Mr Sindane responded that the matter had already been corrected since the implementation of the electronic recording of assets. He stated that it was possible that this situation could have arisen because an asset that might have been purchased in one province would have been erroneously listed in another province.

Mr Pule asked the Department to provide clarity whether the task of verifying the assets was done by the Department or by independent auditors.

Mr Sindane responded that the Department was tasked with the verification of assets, and had employed a service provider in order to assist with the implementation of a bar-coding system. Once the process was completed the results would be freely available.

Mr Pule said that he had noted the fact that there were systems in place, however was concerned that there was still a lack of monitoring in the Department.

Mr Sindane assured Mr Pule that the Department did have monitoring structures in place, and had also been involved in upgrading its own internal audit structures. The Department also had weekly meetings that focused on the monitoring systems, and was hoping that through the recruitment strategy there would also be greater improvement in the monitoring capabilities.

The Chairperson asked the Department to state whether the high vacancy rate affected its monitoring capabilities.

Mr Sindane said that the vacancy rate did impact on its monitoring capabilities. Once again, however, the Department was planning on rectifying the matter through its recruitment strategy.

Mr Pule then raised the issue of the Department's own internal control mechanisms, which the AG had commented were insufficient. He asked the Department to state how it planned to address the weakness in the internal mechanisms.

Mr Sindane responded that part of the solution to the problem was to implement a system that would move away from the current accounting system, to a new accrual system of accounting.  The Department hoped that the new system of accounting would ensure that the issues do not occur again.

Mr Pule asked the Department to state whether the policy document referring to supply chain management system had been compiled and put in place.

Mr Sindane responded that that the document had been compiled and had already been implemented.

Mr Pule then said that according to the AG, there were inadequate systems in terms of spending funds.

Mr Sindane responded that the Department was a large one. Part of the expenditure had accrued as a result of travelling. Sometimes when the employees cancelled their trips they would forget to cancel the accommodation bookings, which were then charged for.

Mr Pule stated that this clearly showed that the Department failed to spend economically and that was a matter that seriously needed to be rectified.

Mr Sindane responded that the Department was currently upgrading its management structure, and hopefully the issue would not come up again.

Mr Pule then asked the Department to state the measures that were in place to prevent wasteful expenditure in the regional offices.

Mr Sindane responded that there were various issues regarding tendering processes in the regional offices, which had now been corrected.  The Department had to recruit a chief information officer, who was tasked with monitoring the various processes and who would be ensuring that there was no wasteful expenditure in the offices.
 
Mr Pule raised the issue of certain employees who had been discovered not to have declared a conflict of interest with the Department, and asked for clarity on what was being done to resolve the matter.

Mr Sindane said that the Department had corrected the matter and the staff members involved would be dealt with.

The Chairperson commented that it was unacceptable that the people involved were still to be dealt with, as the report came out in September 2006. The Department had had more than enough time to resolve the matter. He however noted that some of the issues raised by Mr Pule, which had emanated from information in the Annual Report, stemmed from previous financial years, and were not specifically related with the year under review.

Mr Pule explained that he had wanted to raise the issues in light of the history of mismanagement at the Department, and the impression created that things were still not fully in order. However he did acknowledge that the Department had made significant progress in rectifying certain issues.

Mr V Smith (ANC) asked the Department to provide clarity on the transport payment suspense account of R14 million, that was referred to in the Annual Report, and also to provide clarity on why the amount was listed under debtors.

Mr Sindane responded that the suspense account was for transactions that had not yet been cleared. The transactions included payments made to service providers, who provided transport to the Department.

Mr Smith stated that R14million seemed to be far too high an amount to be paid for transport. It was also important to note that a debtor was someone who owed money. He asked that the Department should provide a clear explanation on who the other debtors were.

The Chairperson then asked the Accountant General if there could be any clarity on the matter

A representative from National Treasury stated that Treasury was unable to provide clarity on the specific amount.

The Chairperson then stated that the amount could possibly have been placed under an incorrect heading.

Mr Smith said that it was unacceptable that an error like that was made, and this type of  matter could lead to a situation where money was being spent without any accountability. He noted that there was reference to staff debtors in the Annual Report, and asked that the Department should provide clarity on what the staff debtors represented.

Mr Sindane responded that the staff debtors included irrecoverable funds from former staff members that had now left the Department. The Department had had trouble recovering the funds due to its size and the weak systems that were in place.

Mr Smith asked the Department to provide further clarity on how the situation could have arisen.

Mr Sindane explained that staff left the Department during the financial year, still owing repayments on bursaries, but by the time the matter was reported to the Head Office it was already too late to deduct the amounts or to trace them.

Mr Smith said that it was once again unacceptable that the Department could find itself in a situation where they had to write off outstanding debt, as it led to a situation where the Department was essentially paying for “ghost” employees.

Mr Sindane responded that the Department performed regular investigations into the salaries, and there was a legal team that had been tasked with locating the former staff members.

Mr Smith again commented that the answer provided was unacceptable as some of the debts had been outstanding for three years.

The Chairperson then asked the Auditor General to comment on the matter of staff debtors

Ms Clarinda Simpson, Senior Manager, National Department of Water Affairs, Office of the AG stated that some of the debtors could have been staff that had moved to other Departments and were still being paid by DWAF.

Mr Smith said that his primary concern was the fact that there had been debt outstanding for three years, and he felt that the answer provided by the auditor general did not help the situation, as it pointed to the potential of an employee receiving two salaries from different Departments.

Mr Smith noted that there was an amount of R39 million interest owed to the Department, listed under “other debtors”on Page 114 of the Annual Report, and asked the Department to provide clarity on what this interest represented.

Mr Sindane stated that there were several clients, which included municipalities and commercial farmers, that owed the Department money. The interest was charged on services provided to the clients, and the Department would compile a list of all clients and send it to the members of the Committee.
 
Mr Smith stated that it was unacceptable to have a situation where a Department was owed R39 million, and therefore should provide clarity on the extent of the debt. 

Mr Terence Nombembe, Auditor General pointed out the fact that the Department had recovered R24 million during the previous financial year, and that it did seem plausible for the figure owing in interest from other entities to be as high as R39 million.

Mr Smith then asked the Department to comment on the issue of intergovernmental receivables, which was set out on page 147 of the Annual Report.

Mr Sindane responded that there was still insufficient information regarding the matter, and the Department would forward the necessary information as soon as it was available.

Mr Smith asked the Department to clarify whether the figure of R178 million listed as travelling expenses on page 112 of the Annual Report had anything to do with the cancelled bookings. He felt that R178 million was an excessive amount for local travel, and the Department should provide a list of who had travelled during the financial year, and for what reasons.

Mr Sindane stated that the Department would provide a written answer to the question.

Ms A Dreyer (DA) raised the issue of performance bonuses. The performance bonuses comprised 2.2% of the Department's total salaries, which was far higher than the percentage set out in the public service regulations, and which was not approved by the Minister. She asked the Department to confirm who had authorised the issuing of the bonuses.

Mr Sindane stated that the Department's human resource management could have issued it.

Ms Dreyer then asked Mr Sindane to state whether he was personally involved with the issuing of the bonuses.

Mr Sindane responded that the he was not the Director General at the time of the issuing of the bonuses, but it was possible that the previous Director General could have erroneously approved it.

Ms Dreyer asked Mr Sindane to state whether the Department had a performance bonuses policy in place.

Mr Sindane responded that there was a policy in place, but that it was not strictly enforced.

Ms Dreyer said that it was unacceptable for Departments to have policies in place that were not applied. Since performance polices were not applied, the Department should state the criteria that were used to set the performance bonuses.
 
The Chairperson stated that Ms Dreyer was seeking specific information which appeared to be unavailable. He therefore requested that the Department must investigate the issue and  provide information on the performance policies in writing.

Ms Dreyer asked Mr Sindane whether he agreed that the issuing of the bonuses was irregular expenditure

Mr Sindane responded that the issuing of the bonuses was irregular expenditure, but the Department had measures in place that would ensure that the issue does not arise again.

Ms Dreyer asked the Department to state how it planned on recovering the funds

Mr Sindane replied that the Department would be seeking advice from other Departments in order to determine ways in which the funds could be recovered.

Ms Drayer stated that the Department should call the person who authorised the illegal expenditure to account, and should provide assurance to the Committee on what was going to be done to recover the irregular expenditure.

Mr P Gerber (ANC) asked the Department to explain why commercial farmers were listed as debtors.

Mr Sindane responded that farmers paid for the water they used. There were some cases where the meters were not installed, and therefore the farmers had not been charged.

Mr Gerber asked the Department to state whether there were areas where people paid for water they did not use, and whether the Department sent bills to farmers who lived in areas where the rivers had dried out.

Mr Sindane said that people paid for water wherever it was available, and there were very few areas where the rivers were completely dry. If the Department had sent accounts to the farmers in drought stricken areas then those farmers would object, and their accounts would be adjusted accordingly.

Mr Gerber asked the Department to state whether there was a system in place that would clean up the debtors system.

Mr Sindane responded that there was a process under way, and the Department would try to establish who the legal users of water were.

Ms Dreyer stated that there were various investigations based on risk management that were under way in the Department. The investigations involved alleged theft, improper procurement procedures, and fraudulent conduct. She requested that the Department provide clarity on the progress that had been made on the investigations.

Mr Sindane stated that he would follow up on the progress and try to forward the information as soon as it was available.

Ms Dreyer stated that this was an unacceptably vague answer. She reiterated that the Committee needed to know from the Department when the investigations would be completed.

Mr Sindane replied that the Department had the information, but that the information was not up to date.

Ms Dreyer asked the Department to state why two golf carts were purchased

Mr Sindane stated that this related to the purchase by a particular employee of golf carts, using DWAF money.

Ms Dreyer stated that the issue was a serious matter that the Committee needed to investigate

Ms L Mashiane (ANC) asked the Department to provide clarity on the individuals that benefited from the performance bonuses.

Mr Sindane responded that he will provide the information at a later stage.
 
The Chairperson commented that the issues raised by the AG were available in the audit report from September 2006. It seemed that the Department had not gone through that report.  It was unacceptable that the Department had not picked up on the issues relating to the performance bonuses, and also unacceptable that vague answers were provided to serious questions. He asked the AG and NT to state whether they were of the opinion that their interaction with the Department was adequate.

Mr Nombembe stated that there was continuous interaction with the Department in order to ensure minimal qualifications. If there were issues that were not cleared then it was important to note that there were underlying causes, and therefore the Department needed to ensure that it investigated and clarified the underlying causes.

The Chairperson stated that did not seem to be much interaction, but that in the end the responsibilities lay within the management of the Department.

The representative from National Treasury stated that the interactions with the Department were challenging but that the interaction was improving. He noted that the continuous interactions were bound to lead to better progress, and the Minister was committed to achieving progress.

The Chairperson commented that DWAF seemed to be in a sorry state. He noted that it should be calling for assistance whenever needed, and that it could be assured of this Committee's full support in its attempts to correct serious issues.

The meeting was adjourned.