Financial and Fiscal Commission Annual Report briefing

SELECT COMMITTEE ON FINANCE
11 October 2007
FINANCIAL AND FISCAL COMMISSION ANNUAL REPORT BRIEFING

Chairperson: Mr T Ralane (ANC, Free State)

Documents Handed Out
Financial and Fiscal Commission Annual Report 2006/2007 [available at www.ffc.co.za]
Financial and Fiscal Commission Annual Report 2006/2007 presentation

Audio recording of meeting

SUMMARY
The Financial and Fiscal Commission presented its Annual Report.  to parliament by way of a glossy hard copy and a summary of the report with reference to slides shown. The Chairperson tabled the strategic objectives, key performance areas, targets and performance results and noted that examination of performance by the Commission as against its objectives, the adoption and implementation of a Supply Chain Management system, and the implementation of internal controls was work in progress. He added that he felt that the work and function of the Commission should not be viewed in isolation, but against the supply of services to its stakeholders. He then noted the challenges faced, and the problems as he saw them.
It was noted that the Commission was trying to in source, and certain expenditure was highlighted and explained. This included a change in policy by Department of Public Works in relation to paying accommodation costs. There was an attempt to insist upon proper financial practices. Remarks were made about the personnel, and the attempts to strengthen the internal capacity of the Commission.

Members had interrupted at several points during the presentation to note that the glossy report and the slides did not comply with the report required by the Public Finance Management Act (PFMA) and to comment that there was little value in what had been presented, as it could not be related back to plans or objectives. Specific questions were asked about the staff bonuses, the lack of compliance with the reporting required by legislation, the fact that there was an overdraft, that the audit committee members were serving members of Council, the vision and mission, and the apparent lack of planning. The Commission was asked to explain its references to a culture of authoritarianism. Although the report looked impressive, most Members were dissatisfied with the information it conveyed, and were further concerned that the obligation to report properly to Parliament was apparently not being taken seriously enough. Several questions raised in previous years had not received attention. The Committee went into caucus for a while, and on reconvening announced that the Committee was unhappy with the report. The Commission was requested to produce a report within seven working days that attended to all the problems raised by the Committee and to satisfy this Committee about its activities. 
 
MINUTES
Financial and Fiscal Commission (FFC) Annual Report 2006/7 Briefing
Dr Bethuel Setai, Chairperson and CEO, FFC, tabled a glossy copy and summarised version of the Annual Report of the FFC. He noted the founding and authorising legislation. He tabled the strategic objectives, key performance areas, targets and performance results and noted that examination of performance by the FFC as against its objectives, the adoption and implementation of a Supply Chain Management system, and the implementation of internal controls was work in progress. He added that he felt that the work and function of the FFC should not be viewed in isolation, but against the supply of services to its stakeholders. Therefore the work in relation to HIV-AIDS and Broad based Black economic empowerment (BBBEE) were also to be viewed as work in progress.

Dr Setai said it was necessary to adopt a forward looking strategy and an evaluation of the culture of the FFC. He felt that this, based on reports by the internal and external auditors, was currently too authoritarian or autocratic. He noted that there were certain challenges faced by the FFC,  and he would think it necessary to place more emphasis on the corporate identity and persona of the FFC,  which was currently outsourcing far too much of its research and activities. He felt that the FFC was reactive and not pro active, and that this was “an accident waiting to happen”. The corporate and research roles must be combined, so that they produced solid research. Heads of Departments had been appointed for both Macroeconomics and Intergovernmental Fiscal Review (IGFR) research, and he believed that performance in these areas would improve.  Data analysis was another area which could be improved upon, and two strong appointments had been made, which not only improved the capability but also the employment equity profile of the FFC. In respect of two aspects, Macroeconomics and Data, the IGFR was not working properly. However, he sounded a note of caution that any new appointments would also require additional and improved library services with appointment of more librarians. There was also the possibility of using existing departments to provide a broader range of services, and doing more internal training.

Mr D Botha (ANC, Limpopo) interrupted the report at this point. He noted that the glossy report and the slides accompanying Dr Setai’s “verbal perambulations through the Report” in fact did not comply with the report required by the Public Finance Management Act (PFMA) and he commented that there had been little value in what had been said so far.

Ms D Robinson (DA, Western Cape) tended to agree with Mr Botha.

Mr E Sogoni (ANC, Gauteng) pointed out the differences between the written report and the oral presentation, and requested a copy of the notes from which Dr Setai was reading.

Mr Mavuso Vokwana, Chief Financial Officer, FFC, noted that the FFC was trying to save expenditure by in sourcing so that there would be a workmanlike businesslike atmosphere created. He cited as an example the fact that there had been no provision for guarding of the offices nightly and over weekends and public holidays, and although the budget had been increased by R270 000 he felt that there was a potential saving. Additionally the FFC had budgeted for increases for services at the published inflation rate but some service providers were increasing their fees at above-inflation rates, which affected the FFC budget. Executive  remuneration was in line with the inflation rate and amounted to R1 6 million.

Mr Sogoni wanted to know whether these service providers who had increased their rates at above inflation levels had been paid.

Mr Vokwana conceded that they had been paid.

He added that he was endeavouring to impress upon all concerned that whatever was entered into the general ledger must have supporting documentation. National Treasury knew of some of the problems being encountered by FFC and was awaiting its responses. In the meantime all discretionary spending had been stopped and the Finance Department was being re organised, and certain structures were being re-arranged.

Mr Vokwana apologised that the presentation was not in line with the requirements of the PFMA.  He noted that pages 95 and 110 of the Annual Report contained important detail, and said that the personnel cost analysis also confirmed that those leaving the FFC were being replaced by new recruits. These included budget analysts and IT specialists, and an Executive Manager and the Knowledge Management Library Centre (KMLC) was being upgraded.

Mr Botha again interposed and said that although the slides and accompanying figures were impressive he considered them meaningless as what was being conveyed was not related to anything.

Mr Sogoni pointed out the presentation was difficult to follow as it was not drawing clear parallels and was disjointed. 

Ms Robinson noted that it also appeared to be rather repetitive.

Mr Vokwana continued by pointing out that additional expenditure in the report was occasioned as a result of the announcement by the Department of Public Works that it would no longer continue to pay for FFC’s rent and repairs and maintenance of buildings.

Mr Mashumi Mzaidume, General Manager, FFC, then addressed himself to the compliance aspect. He said that the Auditor General (AG) had been aware of constraints, but had nonetheless provided an unqualified audit report for the FFC. The staff turnover was being addressed by the internal Human Resources Department,  which was working on a retention strategy so as to address all these issues. The apparently-excessive change of senior management was occasioned by the Manager concerned moving internally to another post, rather than leaving the FFC, which created an opportunity for the gender imbalance to be rectified by appointment of another female. He was of the opinion that the FFC was carrying out its mandate by producing good quality reports and that there was a concerted effort to rely less on outsourcing and more on an internal strengthening of the FFC

Dr Setai added that FFC had had a problem with training and he had an appointment with the Director General of Treasury to raise and discuss these very issues.

The Chairperson interposed and said that he was concerned that there were still questions to be asked, but that due to lack of clarity many issues could not be properly addressed.

Discussion
Mr Botha said that it seemed to him that bonuses were paid to the staff irrespective of their performance,  merely as a routine. He asked whether the Executive Chairman and the Chief Financial Officer had been accorded bonuses, and if so, for what effort, especially as the Chairman was the head of the Audit Committee.

Mr Botha noted that page 93 of the Annual Report appeared to indicate that members of the Audit Committee were in fact Council Members,  and that this is not in accordance with the PFMA or good governance principles.

Mr Botha was concerned that the Internal Auditors,  far from doing their job,  were not in fact doing any job. FFC was not allowed to operate with an overdraft,  yet had an overdraft with the bank.

Dr Setai said that the internal auditors were in fact an external firm hired to perform the internal audit function, whilst the main audit was done by another firm. This was being reexamined with a view to saving costs. The question of the Council Members being members of the Audit Committee had not been questioned before but would be looked at.

Mr Botha was unable to see from the Report what the Charter of the FFC was.

A Member asked about the vision of the FFC. It was said to be world class in a global market, but he enquired what standards were used as a measurement. He further asked what the FFC was doing to comply with the requirements of Supply Chain Management principles (SCM), and whether all assets were reflected in the Asset Register.

Mr Sogoni commended the FFC on an impressive looking report, but expressed his severe reservations with the contents.

Mr Sogoni was concerned that there seemed to be lack of planning, and no adherence to PFMA principles. He was concerned about the apparently sudden decision by Department of Public Works. He enquired what were the goals of the FFC and whether any goals were set. He wanted to know what the vision was. He asked for an explanation of the core function, and whether this had been decided upon by the FFC itself. 

Dr Setai said that describing the core function of the FFC was problematic as the FFC was dependent upon their stakeholders and other interested parties and serve as required.

Mr Sogoni asked, with regard to the staff members who had departed, why they had left.

Dr Setai stated that the HR Department was being expanded and skilled so as to give savings on personnel costs, and the same applied to the IT specialists. Dr Setai said that retention of staff was regarded as a major challenge as the staff were professionals, who were much sought after and in limited supply. It was hoped that on going training would counteract this loss of staff. Restructuring as mainly of the finance department

Mr Sogoni added that he had many other questions arising from the report and reserved the right to further raise them. He reminded Members that the Committee had previously expressed more than several reservations about the quality and content of the reports tendered, and it seemed to him that these previous concerns had not received any attention in the current report. He asked if this was because Parliament was not taken seriously the reporting institutions and the FFC itself. He noted that originally the FFC had been mandated in terms of the Interim Constitution,  but it seemed to him that the values,  as expanded and solidified by the Constitution, had not been espoused by the FFC. If there had not been external donations to the FFC its financial position would be worse then reflected in the report.

Ms Robinson agreed that the report was beautifully and expensively produced, but that the contents left much to be desired and the Committee needed greater detail.

The Chairperson said that several questions had been raised in previous years and yet had not received attention. He was particularly interested in the reference to a culture of authoritarianism or autocracy, and enquired when this had begun. He noted that FFC had been set up post 1994 when the values were opposed to authoritarianism or autocracy.

Dr Setai  noted that the authoritarianism was not a management style within the FFC, but had been cited in relation to the research. He came from the university environment,  where the researchers were free to take up whatever interested them or whatever they were mandated or hired to do. However, the researchers at FFC were not free to embark upon research in this way. They responded reactively in their research. He was attempting to change this so that in addition to their tasks the researchers produced their own research. This research would have to compare favourably with, if not set the standards for, research worldwide. Seminars might be the way to go. 

Mr Botha noted that he required an answer to the overdraft, which was contrary to legislation, the lack of administration in terms of the PFMA and the councilors serving on the audit committee.

Mr Sogoni asked about the retention strategy, stating that he considered the FFC to be “bleeding” personnel. He believed that the FFC should be put to terms to respond to these serious questions.

Mr Sogoni said he was not happy with the answers provided and asked himself what would be the position in twenty years time when all the current FFC Council Members would have probably disappeared. If any questions were asked then, the documents and reports could not explain what was the function of the FFC.

Dr Setai then said that he agreed with all the observations, comments and questions and he would be re orienteering the FFC so that in future these questions would not need to be asked. He noted that the vision of FFC was to produce research which would match the standard of that of any other research institution in the world, not that they were trying to re-invent matters. The FFC enjoyed a good relationship with the AG, and felt that the  FFC were on the right track.

Mr Mzaidume added that he noted the concerns raised by the members but felt that as the Treasury Rules and Regulations were ambiguous, the FFC did not know exactly what was required of them. FFC believed it was satisfactorily attending to its mandate.

Mr Sogoni disagreed. Basic principles, and lessons could be learned very easily from legislation like the PFMA. This Act and its regulations very clearly set out what was required. It seemed that the Chairperson and employees had not taken the elementary step of reading the PFMA Act, let alone understanding it.

Mr Mzaidume noted that one of the challenges facing the FFC was the PFMA and the reporting strategy required.

Mr Vokwana said that the FFC now understood the importance of PFMA. In answer to the question of bonuses, he said that the decision to pay bonuses was taken by the FFC Board. He added that supply chain management compliance was a work in progress. The assets were listed in the asset register and the Auditor General’s remarks related to the fact that proper depreciation of the assets, in accordance with Generally Accepted Accounting Principles (GAAP). was not done. The personnel costs and the associated bonuses were paid because it was felt that value was added to the FFC. Additionally there was a procedure for watching the income and expenditure quarterly or monthly so as to be able to pick up on excessive or unwarranted expenditure, but it was late in the financial year that Department of Public Works announced their change of policy with regard to rent and associated expenses, and so these were unforeseen expenses that had distorted the books of account.

Mr Mzaidume added that the overdraft was run with the concurrence of National Treasury.

Mr Sogoni asked that the Audit Committee be changed to comply with the PFMA Act and good governance principles.

The Chairperson asked if the organogram set out in the report was correct.

Mr Botha again noted that the organogarm showed that the Council Members were members of the Audit committee and asked whether this was illegal or merely undesirable.

The Chairperson said that clearly membership of the Audit Committee was a problem and he wanted it rectified.

Messrs Botha, Sogoni and Robinson all expressed further unhappiness with the report.

The Committee went into caucus. On reconvening, it announced that the Committee was unhappy with the report presented, which did not do justice to the respect that should be accorded to the Committee by reporting institutions. The FFC was given  seven working days within which to produce a report which attended to all the problems raised by the Committee this afternoon and to satisfy this Committee about the activities of the FFC.

The meeting was adjourned.