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HOME AFFAIRS PORTFOLIO COMMITTEE
15 May 2007
FILM AND PUBLICATION BOARD & GOVERNMENT PRINTING WORKS: 2005 FORENSIC AUDIT REPORT BRIEFINGS & ANNUAL REPORT ADOPTION
Chairperson: Mr H Chauke (ANC)
Documents handed out:
Audio Recording of the Meeting
Both the Film and Publication Board and the Government Printing Works had been the subject of separate forensic audit reports during 2005, and those reports and responses were now to be discussed.
The Film and Publication Board's new CEO had commissioned an investigation into the former mismanagement and irregularities of management and administration. She tabled the key findings and recommendations. It appeared that there had been a write-off of R339 000 paid in error to the Revenue Service, that there were irregularities in procurement of furnishings and fittings, service providers, problems with a lease agreement, purchases and travelling and cellphone allowances. There were furthermore problems in governance and management, lack of cooperative management, and problems in the overall organisation. The consultants had recommended that disciplinary proceedings should be instituted against two executive staff members, that actions should be instituted against other staff, including some from the Ministry, and that overpayment's should be recovered and the lease investigated. Although disciplinary proceedings had been investigated, neither action had proceeded, one because the staff member had resigned and one because the processes had been successfully challenged, and the latter member was still employed by the Board. The lease was problematic as the Board was not the principle lessee. The Ministry had been asked to take action. Policies and procedures had been developed since, expert advice was sought on recovery prospects and there had been discussions with prosecutors.
Members examined extensively the problems, lack of processes and systems and steps taken in regard to the prosecutions, in particular querying the time lapses, whether resignation justified withdrawal of charges, whether prosecutions were appropriate and possible, and
Further questions were raised on current risk assessments, other matters raised in the forensic report but not tabled here, the lease agreement, the terms of the renewed employment contract and who had authorised it, the role and functions of the legal advisors, the intended new structure and the necessity to seek additional funding. The relationship with and apparent lack of assistance from the Department of Home Affairs was questioned, the context and scope of the forensic report were clarified and the under expenditure explained. The Committee asked that the forensic report, and a report on engagement with the prosecutor must be provided, and that the organogram must be discussed with the Minister. It commented favourably on the work being done by the CEO. The Annual Report was adopted.
Government Printing Works had been investigated by a forensic audit in 2005, following disclaimers in the previous three Auditor General's reports. The forensic audit covered April 2003 to December 2004. There were a number of irregularities identified, the tailor-made accounting system had been violated, and as a result the investigation was extended to senior management, who had apparently been responsible for signing off on certain amounts. The irregularities in two tender procedures were described, and it was noted that one resulted in irregular expenditure of R21 million, and the other inflation of R40 million. Treasury regulations and the Public Finance Management Act had been violated. There were also stock problems and the accounting system had been violated. The Special Investigating Unit confirmed the findings of the auditors on the systemic problems. Disciplinary investigations and actions were under way.
Members noted that full details of the civil and criminal actions could not at this stage be given, and asked the steps taken to avoid recurrence, who had taken the decision to extend the investigation, what had happened to the surplus stocks, whether there were problems with security, whether any ID paper was involved. Further questions were raised on the new coat of arms and security paper, the IT systems that would be used, the status of added security and e-passport initiatives, reasons why the Works were not so dependent on the Department for their income, and the structure of the Works. The Annual Report was adopted.
The Chairperson informed the Committee that the purpose of this meeting was to discus the 2005 forensic audit reports for the Film and Publication Board (FPB) and the Government Printing Works (GPW), as also to deal with adoption of their annual reports.
Film and Publication Board (FPB) Briefing
Ms Shokie Bopapa-Dlomo, CEO, Film and Publication Board (FPB) indicated that as soon as she was appointed to the FPB she requested MMM Consulting to undertake an investigation into the former mismanagement and the irregularities in the management and administration of the affairs of the board. This stemmed from the audit queries and the qualified report received from the Auditor General (AG). Key findings and recommendations that were submitted by MMM Consulting.
One of the key findings was that there had been a write-off of R339 000 paid in error to the South African Revenue Service. There were irregularities regarding the furnishings and fittings for the FPB Offices, and this was mainly related to the move to Johannesburg. The third finding (which she noted was incorrectly stated on the slide presentation) related to the appointment of service providers for the launch of the anti child-pornography hotline. The fourth finding was that a problematic lease agreement was entered into. Further issues related to the purchase of a photocopier machine, and what she termed control weaknesses, which would include the issues surrounding travel and the cellular phone account. In addition there were weaknesses requiring attention in governance and management, organisational culture, budget management and overall structure and organisation of FPB.
Due to time constraints the only investigations MMM Consulting conducted dealt with the staff and whatever information they could provide, so that there was no rigorous method of verifying the information they had gathered. MMM made four key recommendations. The first was that FPB needed to institute disciplinary proceedings against members of staff implicated in the irregularities, being Mr Iyavar Chetty and Ms Jean Westmore, who were acting as executives at a time when there was no CEO. The second recommendation was that FPB should institute action against the FPB staff and other persons implicated in the irregularities, both to prosecute and to attempt to recover losses, including overpayments to service providers. The conduct of the landlord in regard to the lease should be investigated. In this regard she reminded the Committee that this was a major and recurring issue.
FPB had launched disciplinary action, focusing at first on Mr Chetty and Ms Westmore. Ms Westmore resigned and the matter was not pursued. Mr Chetty offered to resign, and proceedings were halted. Later he raised technical issues, such as the lack of disciplinary policies. The lapse of time presented a problem. FPB had sent reports to the Ministry for further action against its staff, and similarly to the Department of Public Works (DPW) in relation to its staff. No response was received from either.
In regard to the lease, a follow up was made to DPW, which paid half the rent for the lease, as FPB hoped to try to escape from the lease. Unfortunately, despite the unfavourable terms, the lease was quite stringent. There was originally a five-year lease, renewable for a further five years. A penalty clause for non-renewal was included, prescribing payment of R600 000 in the event that the lease would not be renewed. FPB had invested about R1.4 million in the building, although only around R400 000 was budgeted. This made the position precarious, and FPB took the decision to stay and renovate.
FPB has since developed various policies and procedures on a range of issues, including travel and subsistence, cell-phone, detailed procurement processes, disciplinary hearing matters and all other policies required for daily operations.
In regard to recovery of funds, FPB did what it could. It had difficulty around the mismanagement and the requirements of the Public Finance Management Act (PFMA). Expert advice was needed in order to assess recovery prospects. The service provider for the anti child-pornography project had initially quoted R300 000 but the fee then rose to R500 000. It had proved difficult to recover these funds from the external provider, and a prosecution had been instituted. The matter had initially been reported to the police, who were of the view that it was a purely civil matter, but the Deputy Private Prosecutor had promised to assist.
Mr F Beukman (ANC) asked how FPB managed operations in terms of risks, and whether these were discussed or evaluated on a regular basis at management level.
Ms Bopape-Dlomo replied that FPB had recently conducted a risk management assessment. In addition there was a risk prevention plan and a fraud prevention plan, which was reported on in the monthly management committee meetings, as part of the CFO's report. However, she felt that as the FPB expanded it was not maintaining its efficiency and that risk was not being managed as efficiently as possible. A compliance officer was being appointed. Previously an internal person attended to this work and the running of audit queries, internal control asset management and all high risk issues. She noted that FPB had to put in place a disaster recovery scheme.
Mr Beukman suggested that the Committee would be able to organise high-level meetings with the prosecution services to establish a direct link.
Ms Bopape-Dlomo welcomed the suggestion since it was proven that high-level intervention would speed up the process.
Kgoshi K Morwamoche (ANC) was happy that FPB had managed to address some of the concerns raised by the AG, but he indicated that he was surprised that not every issue highlighted by the AG had been raised and discussed. There were other issues also such as job evaluations, internal controls, disciplinary measures and unfilled posts. He added that the entire Department of Home Affairs (DHA) seemed to have problems with disciplinary steps.
Ms S Kalyan (DA) asked where she could find more detail of the key findings listed in their presentation, and the amounts involved.
Ms Bopape-Dlomo replied that her presentation was the summarised version of the MMM Consulting report. Two reports had been submitted to Members a while ago, which had included the key findings of the AG.
The Chairperson confirmed that this report had been made available and was used in discussing the forensic audit. Some members seemed to be unsure whether they had received it.
Mr Ngqunqu, CFO, FPB added that in 2003 and 2004 FPB had received a qualified report and it was this report that informed the forensic audit. The forensic audit had dealt with the tendering issues, and it fully addressed the AG’s concerns.
Ms Kalyan asked for confirmation that the Ministry had not yet responded to the report from 2005, and also asked the identify of the person entering the lease agreement. i
Ms Bopape–Dlomo replied that the lease agreement was very problematic. Firstly, the amount spent had not been budgeted for and there were problems in the contract. The process for contracting the service provider was questionable. Problems were compounded by the move from Cape Town to Pretoria. FPB had an agreement with the National Video Foundation (NVF). Senior members of FPB confirmed that NVF had followed due process and they piggy-backed on to this process. The intentions were good, but they did not appreciate that NVF and FPB were two different entities, each of which had to follow due process. DPW paid half the lease and was the lessor which in turn sublet to FPB.
Ms Kalyan asked for clarity which matter had been reported to the police on 9 May 2007.
Ms N Mathibela (ANC) remarked that she did not fully understand what was going on with the disciplinary and criminal measures. She asked if the fact that a staff member resigned automatically meant that disciplinary processes would cease, as that seemed to have happened here.
Ms Bopape-Dlomo replied that FPB could have done more but had placed too much reliance on the intended prosecution and not followed up. The fact that the parties had resigned did not relieve FPB of its responsibilities, and this point had been raised with the prosecutors. FPB was trying to ensure that the matter did not reach the Labour Court.
Ms I Mars (IFP) asked if Mr Chetty’s resignation was accepted.
Ms S Bopape-Dlomo replied that Mr Chetty’s resignation was not accepted because the offer was informal. There were no clear policies, and the contract had been renewed. Mr Chetty had demanded to have a lawyer to assist him, and, although FPB did not agree that he should in principle have one, the procedures were insufficiently clear to deny him this request.
Ms M Maunye (ANC) asked for clarity whether the disciplinary steps were halted because there were no proper policies to deal with disciplinary actions.
Ms Bopape-Dlomo replied that FPB simply did not have the processes and policies in place at the time. That was why, in her turnaround policy, a host of these issues had been highlighted and dealt with.
Mr W Skhosana (ANC) asked if Ms Westmore, on resignation, had received benefits.
Ms Bopape-Dlomo replied that the executives' matters were heavily intertwined with labour related issues. She had been suspended on full salary.
The Chairperson asked who had renewed the contract when Mr Chetty was supposed to retire.
Ms Bopape-Dlomo replied that when she joined in 2005 she was not at first aware that he was of retirement age. In 2003 the contract had been renewed for a further five years. In terms of the Act he would have had to be reappointed by the Minister.
The Chairperson asked if she had, since becoming CEO, seen the contract.
Ms Bopape-Dlomo replied she had not seen the contract as there were no written contracts. This was an issue she was trying to rectify.
The Chairperson asked how Mr Chetty was able to renew his "contract" if this never existed in the first place.
Ms Bopape-Dlomo replied that there was a letter of appointment to this effect.
The Chairperson asked who had written that letter.
Ms Bopape-Dlomo replied that she was going to check on the matter because she did not want to give any false information.
The Chairperson asked for the job description of the senior legal advisor. He was concerned that this person was not doing his job properly.
Ms Bopape-Dlomo replied that she supposed that the legal advisor should probably give legal advice to the Board but because of the complex matters being handled most of his work related to classification issues. In restructuring the job FPB did not see this person as playing a more active role at the level the Committee was suggesting.
The Chairperson asked how FPB would structure the legal department in the new structure if were proposing, for which it had requested R9 million from government. In particular he enquired what would be Mr Chetty's role, as he apparently had performed most functions at some time or other, and he was still employed. Currently the Committee was not sure that the FPB knew where it was going.
Mr Skhosana asked whether FPB had even suspended Mr Chetty until finalisation of the matter.
Ms Bopape-Dlomo replied that FPB could not suspend Mr Chetty and Ms Westmore further, as they had already been suspended, with full pay, pending finalisation of the investigations into their conduct. This had been done to avoid any labour disputes. No further suspensions were possible, and FPB did not wish to enter into constructive dismissal; in any event the contract had been renewed and he would have had to have been reinstated if he had won a labour case.
Ms Kalyan noted that FPB was apparently out of time for any labour disputes, and asked whether there was any assurance that a prosecution would succeed.
Ms Bopape-Dlomo replied that the matter had been handed over to legal advisors because of the difficult issues of prescription, the legislative framework and the criminal matters. Other matters concerned the application of the PFMA, and the issues that would need to be proven in a prosecution. FPB needed to have an informed recommendation from its legal advisors with a list of options.
The Chairperson asked about the relationship between FPB and DHA, as there did not appear to be proper legal assistance, nor was proper assistance given, as evidenced by the lapse of two years before the issues were dealt with, and even now there seemed to be immense difficulties. He was not convinced that the turnaround had worked. He enquired what time had been put into dealing with the problems, whether management engaged with these on a monthly basis, how the Board functioned and why DHA had not contained and dealt with these issues. The strategic plan for 2005/06 had laid out how issues would be dealt with, but the question was whether this had been done.
Ms Bopape-Dlomo replied that FPB did send a report to the Ministry for noting and further action.
The Chair asked when the report was sent.
Ms Bopape-Dlomo replied that this had been done in June 2005. At that time FPB was trying to find a person to chair the disciplinary matter who was more senior than Mr Chetty. The Ministry had also put a lot pressure on the Ministry person implicated in obtaining service providers irregularly.
Mr Morwamoche remarked that he was surprised that the CEO had not been aware of the prescription and time frame provisions. He knew that discussions had been held with the prosecuting authorities, but noted that a complainant could not reach agreement with a prosecutor. The Department and its legal advisors should be reporting back.
The Chairperson remarked that the fact that FPB had sought help itself seemed to be a clear indication that it was not getting assistance from DHA. It also showed lack of direction.
Mr Skhosana asked if the findings conducted had indicated that anyone else might have been involved.
Ms Bopape-Dlomo replied that only these two were implicated as the processes had been quite complex, and it seemed that Mr Chetty had been running everything in the FPB on his own, which was the reason why the CFO was not implicated as well. The CFO did not appear to have done anything other than sign where he was told to. Mr Chetty did not realise the implications of his actions and the meaning of co-operative governance. As the incoming CEO she had tried to ensure that the staff were aware of and understood this concept. This was proving difficult; an example was that staff were unhappy that they could not simply receive bonuses without having to prove how they had worked. Mr Chetty had a wealth of information and experience at his disposal. The best way to deal with him was to manage him properly, and give him the correct focus. In addition there must be proper succession planning and passing on of his knowledge as it would be a pity if his acknowledged skills were lost.
Mr Ngqunqu added that the forensic audit had covered the 2003/04 financial year. The CFO position was filled only on 1 May 2004, the year after the forensic report. Moreover the context of that report included the fact that there was no culture of co-operative systems and processes. He said that FPB had indeed made significant progress in trying to address some of the findings in the audit report. He cited as examples the risk management framework, which was reported on monthly, development of processes and procedures, revision of procurement policies, development of subsistence and travelling and cellphone policies and appointment of an independent audit firm and an audit committee to perform oversight over the Board.
Ms Bopape-Dlomo said that in relation to cellphones and travel Mr Chetty had abused the resources of the FPB, but that most of this money had been recovered. He could have refused to pay, as there was nothing in place to require him to do so, but he had accepted the findings and had been cooperative.
Kgoshi Morwamoche asked how FPB would address the issue of under expenditure
Mr Ngqunqu replied that there was a deficit in 2005/06, and the challenges resulted in the over expenditure, as more fully explained in the report of the CEO. Some of the items related to the unforeseen circumstances of the forensic report and the appointment of three compliance officers. It was difficult to budget exactly on income because of the nature of the work, as income was solely reliant on the distributors.
The Chairperson asked that the forensic report must be made available and the Committee expected a report on the engagement with the public prosecutor. FPB must also engage with the new organogram, which currently was not funded and would be difficult to implement. He suggested that FPB should engage with the Minister and get parliament's help in establishing the new structure. FPB currently did not have capacity. If the new organogram could not be funded it would revert back to its previous problems. The Chairperson commented favourably on the work that the CFO had done. He was worried about the state of the Board. The roles and interaction of the Chairperson and CEO were so fluid that they apparently did not cause problems. The Chairperson and the Board seemed to work well together. He could not understand what was wrong with the FPB, and believed that it was necessary to discuss this with the Minister and try to weed out those issues that were making FPB non-functional. The Chairperson also commended the CEO on her work, and appreciated that it was difficult for her having been newly appointed and being faced with a huge forensic investigation on which she could not move because of lack of systems, a functioning Board and funding.
Kgoshi Morwamoche remarked that the Committee must do something about Limpopo and Mpumalanga where the current system was not functional.
The Chairperson thought this issue would be covered in the new organogram, which would be worked on.
The Committee having proposed and seconded the adoption of the Annual Report, the Chairperson declared it duly adopted.
Government Printing Works: Forensic report 2005: Briefing
Mr Tom Moyane, CEO, Government Printing Works, presented the forensic report for GPW, which had been requested by the Minister in 2005. It was coincidental that it ran concurrently with the forensic report on FPB. The background to the forensic audit was based on financial mismanagement and on non-compliance with the tender process of the GPW. Both issues stemmed from the weak leadership and poor financial performance. The decision to have the audit was further underpinned by disclaimers by the Auditor General for the financial years 2002/03, 2003/04 and 2004/05. When he had taken over in 2005 GPW appeared to be on a roller coaster towards its own destruction. The Minister required a turnaround strategy that identified issues and addressed problems.
The period under review in the forensic audit was fixed as 1 April 2003 to 31 December 2004. Gobodo Forensic & Investigative Accounting was awarded the tender on 20 April 2005. This firm was to undertake interrogation of data , forensic accounting & financial investigation and information security.
Mr Moyane said the forensic investigation was difficult because it canvassed a period which was very sensitive in the organisation. This was a period of perceived irregularities, which the Minister wanted cleared before DHA reverted back to the process of corporate tendering. She wanted to take the organisation to a higher level of dispensation of turning government entities into corporates. She did not want to have a corporate entity still bedeviled by problems, and was not sure whether GPW was a viable entity or whether there were undue process contrary to normal ethics. There was also a finding that the tailor-made accounting system PECAS had been constantly violated.
Two tenders were key to the investigation, named alpha and beta. Random samples were taken between April 2003 and December 2004. Alpha had excessive procurement, and there was shown to have been irregular expenditure of R21 million, violation of delegated authority by the people in position at the time and contraventions of Sections 45(b) and (c) of PFMA. The beta tender was supposed to have applied to printing. Those holding positions at the time decided to include distribution, which did not form part of the tender requirements, and thus inflated the tender. The tender also was not in accordance with standard acquisition policy and procedures. The inflation amounted to R40 million. There was violation of delegated authority, and contraventions of Sections 45(b) and (c) of PFMA.
There had been over-stocking, redundant stock and mismanagement of stores. Reasons given were that there were latent defects in the PECAS system, improper calculation of stocks needed, human wastage, consistent errors, lack of communication between operations and procurement, late outsourcing of jobs, and urgent jobs not reflected on PECAS, thus circumventing the system. Procurement was not in line with supply chain management principles, and there were huge discrepancies between what was shown in the accounting system and the annual reports.
GPW, on becoming aware of this, had called for independent confirmation by the Special Investigating Unit, who confirmed that the report by Gobodo was a correct reflection of the systems status but could not confirm the accuracy and validity of inventory amounts because some of the documents could not be found. Treasury Regulations had been contravened.
The result was that staff had been suspended, and the investigations were under way. The investigation also encompassed previous leadership. The disciplinary measures included charges for gross mismanagement, dereliction of duty, violation of tender procedures, lack of duly delegated authority for procurement, and acting contrary to Treasury regulations and PFMA. Civil and criminal charges were being considered. A legal team was investigating all matters, and although there was not yet conclusion it was important to resolve all matters expeditiously.
Mr Beukman asked if there were civil or criminal actions underway against any former management staff, and the status of these.
Mr Moyane replied that the matter was still under investigation.
Mr Beukman asked what was being done to ensure that there would not be repetition of the problems.
Mr Moyane replied that several steps had been taken to mitigate risk. A risk management assessment had been done and was ongoing through the internal audit team.
Kgoshi Morwamoche accepted that since the matter was still under adjudication limited information could be divulged. He asked who had taken the decision to extend the investigation.
Mr Moyane replied that because of the magnitude of the problem the decisions were taken by him, the Minister and the Deputy Minister. It had been decided to extend the investigation to former senior management as someone had had to sign off on these large amounts. The lines of accountability on procurement were being investigated.
Ms Kalyan asked whether GPW, in referring to "security records" had meant internal records or security documents. Furthermore she asked whether the useless stocks of paper would be burnt or shredded. She asked if it had included any ID document paper.
Mr Moyane replied that about 90% of the paper was not high security, so there had not been any violation of the security of the GPW. Most was for general printing, and had been sold, albeit at a loss because of its age. None of the paper was ID-document paper.
The Chair asked about the new coat of arms and security paper.
Mr Moyane replied that GPW was working with its strategic partners for the advancement of the technology in the country to procure and produce paper that would be used to print South African passports and IDs and indeed passports for the continent. The Cluster of Ministers had agreed to this venture, which would showcase the GPW capabilities.
The new coat of arms complied and met the government's identity needs, and the project was proceeding. GPW would be printing the new coat of arms in the new passports with effect from this year. The Minister had signed off on this. The old coat continued to be used up to a point until there had been an announcement on it, and approval by parliament.
Ms Kalyan asked if the report had been presented to the Minister and Deputy Minister and what their reaction had been.
Mr Skhosana asked why there was reference made to something "not counting".
Mr Moyane replied that he did not understand why these words were used. Everything was relevant and did indeed count, which was the whole reason for the investigation. He assured Mr Mr Skhosana that all issues were being treated as important.
Mr Skhosana asked if the situation described in regard to the paper was reflected in other storage points.
Ms Mathibela asked what IT systems would be used.
Mr Moyane replied GPW had been struggling in regard to IT as the PECAS system had been unique and specially designed. This system had been put in place in 1995, but unfortunately it did not even apply to the whole organisation. The State information technology agency SITA were presently looking at the problem.
Kgoshi Morwamoche asked whether GPW were still storing petrol, diesel and gas in the same building.
Mr Moyane replied that this was not being done. Having identified the problem, it was corrected.
Mr Beukman asked whether, in light of the new ID, added security features and the e-passport, GPW should not be focusing more on long term strategic plans that would encompass new developments.
Mr Moyane replied that colleagues in DHA and National Intelligence were dealing with the security issues and features. The question of whether to move to the e-passport was a policy decision that the Minister must inform the country about. GPW believed that in principle there was no reason why an ID document should not be able to be produced in a much shorter time, and all involved were aiming for this possibility.
The Chairperson replied that this, as well as the smart card, were issues that should be flagged for discussions with the Minister. He remarked that he was aware that some of the issues could not be discussed in public, but would be discussed instead in closed sessions. He would like to be assured who would be dealing with security documents.
The Chair asked why GPW asked for less support from DHA than had FPB.
Mr Moyane replied that this was perhaps a question to be answered by FPB, but he drew a distinction in that FPB were dependent upon the fiscus and DHA for its income, whereas GPW was a cost-recovering entity and was thus able to generate own income.
The Chairperson asked about the structure of GPW.
Mr Moyane replied that GPW was a centralised entity at which all the printing of the security needs of government was done. Legislation that needed to be promulgated or published was printed in Cape Town.
Members having proposed and seconded the adoption of the Report, it was duly adopted.
The meeting was adjourned.