Sector Education and Training Authorities: Health, Local Government, Construction Education and Energy: Financial Statements

Meeting report

Interrogation of financial statements:
Health and Welfare Sector Education Training Authority
Adv M Stephens (DA) noted that the Health and Welfare Sector Education Training Authority (HWSETA) had received a qualified Audit Report from the Auditor-General (AG) for the first time and this indicated that there was some deterioration in the SETA’s performance. The AG had said that management lacked responsibility to establish and maintain internal controls and reconciliation on an ongoing basis. He asked what the HWSETA had done to rectify the situation.

Ms Sharon Slabbert, Chairperson of the Board, HWSETA, stated that corrective action was taken. The Chief Executive Officer (CEO) and Chief Financial Officer (CFO) were both dismissed at the same time, which resulted in a leadership crisis within the SETA. The leadership crisis then resulted in a breakdown of many of the management systems. Both the CEO and the CFO had been replaced; the new CFO started in December 2007 and the CEO started in May 2008. Different internal control mechanisms were implemented and various practices such as risk workshops for risk assessment and an internal coverage plan were re-established. New internal auditors were appointed, a new audit committee was put in place and a new audit charter was approved. All the finance vacancies were filled.

Adv Stephens wondered why the HWSETA had taken so long to do all those things because for the year under review there was no internal audit. Under matters of concern in the AG’s report, he stated that when the CEO and CFO were suspended in June 2006 and resigned in August 2006, a new CEO was appointed in December 2006. This CEO was then suspended in June 2007. This made the Committee think that there was a problem at the Board level, as they kept on appointing people that had to be suspended.

Ms Slabbert stated that the HWSETA appointed a company with a three-year rolling strategic internal audit plan and the CFO forwarded all the internal reports to the AG on time. Although planning started late, there was a rolling plan in place and the internal audits were completed by the end of March 2008.

In terms of the problems with the CEO’s, there was a leadership crisis. The CEO and CFO were suspended in July and August 2006 following problems related to supply chain management and procurement, particularly with tender processes.

The Chairperson stated that the point was that since 2001, the HWSETA had about five or six CEO’s. The Chairperson asked if they could assure the Committee that the new CEO would still be there in six months.

Ms Slabbert answered that the Board had now appointed a CEO with experience in the HWSETA and who had seven years of experience as a Chief Operating Officer (COO) in the Mining SETA. The Board believed that they had appointed a CEO with the correct credentials and experience and they were confident that he would be the CEO for a number of years.

The Chairperson asked why the CEO left the Mining SETA.

Ms Slabbert replied that he wanted to be a CEO.

The Chairperson explained that he had asked the question because it was a concern that some people who had not performed properly in one SETA just moved on to work in another SETA.

Adv Stephens stated that instability in terms of the CEOs and CFOs was the reason that the HWSETA had not performed. The Board was not doing their job correctly if the people they appointed always got suspended. He asked if any financial accommodation had been reached with the CFO and CEO.

Ms Slabbert stated that a financial agreement was reached. During the disciplinary hearing, the CFO and CEO approached the SETA for a settlement. The HWSETA’s lawyers advised the SETA to settle and so they did not incur more legal expenses in a protracted disciplinary hearing.     

Adv Stephens asked what the cost of the settlement was to the SETA.

Ms Slabbert replied that she did not have the exact cost, however, the CEO and CFO agreed to settle for the cost of their salaries until the end of their term.

Adv Stephens clarified that the settlement was the same as paying somebody and not having their services.

Ms Slabbert reminded the Committee that she had just become the Chairperson of the Board at the end of January and that the current board was a relatively new Board.

The Chairperson stated that Ms Slabbert had enough time to familiarise herself with the institution. It did not make sense to pay the CEO and CFO their salaries for work that was not done. Either the HWSETA did not have grounds on which to dismiss the CFO and CEO or, they were not getting proper legal advice.

Adv Stephens stated that the AG had said that the Skills Development Levy could not be fully reconciled with the supporting evidence and management could not explain the difference. He asked the HWSETA to explain the discrepancy.

Ms Slabbert explained that there was a mistake in the method of accounting in the disclosure. There was a problem in the accounting process; although the money was not accounted for on paper it was still there. The policy on recognition of revenue was interpreted further and there was a correction of the error in the 2007/08 Annual Financial Statements. Mistakes from previous years had been listed and the corrective actions taken were enumerated.

Adv Stephens noted that the HWSETA had a dismal record as far as prior years’ errors were concerned. He wanted to know how they were going to solve the issue.

Ms Slabbert answered that in terms of revenue allocation, they took the decision with the Department of Labour (DoL) and the National Treasury (NT) on how revenue for SETAs would be allocated. The HWSETA received a directive and from this year they recalculated their revenue and would be able to clarify how they obtained their revenue. 

Adv Stephens stated that another concern from the AG was that the HWSETA placed a lot of significance on levies, which were voluntarily contributed. He asked what actions the HWSETA had taken to make itself less reliant on voluntary contributions. 

Ms Slabbert stated that they had reduced dependence on voluntary contributions. The contributions were generally from government departments such as Health and Social Development. One of the CEO’s tasks was to sign a Memorandum of Agreement with the government departments saying that they would continue to provide the SETA with the levies.

Adv Stephens asked if the SETA was in the process of bringing their operating expenses in to line with their entitlement income.

Ms Slabbert answered that they had started doing it this year. The SETA already reduced its dependence on the government income.

Adv Stephens asked what the cause was for their expenses being so high that the SETA had to rely on other contributions. The HWSETA suffered from a shortage of skills, yet their running costs were greater than the levies that they received.

Ms Slabbert explained that their running costs were based on ten percent of the SETAs income. They did not exceed the ten percent administration fee. The SETA realised that they could not rely on the government income without having an agreement in place.

Adv Stephens asked how many board meetings were held in the current financial year.

Ms Slabbert answered that the HWSETA constitution stated that two meetings had to be held per year, but because of the leadership crisis, seven board meetings were held. Some of those meetings were special board meetings specifically related to issues such as suspension of the CEO and CFO, their settlements and legal matters that had to be dealt with. There were more crisis management meetings held in the financial year.

Adv Stephens commented that they did not have to have board meetings to have these discussions. The SETA had a Human Resources Policy that dealt with these matters; they only needed board meetings to appoint a new CEO. Board meetings were costly and should be kept to a minimum.

Ms Slabbert agreed that the meetings were costly and explained that the extra board meetings were needed to handle the management crisis. The acting CEO that the board appointed needed a lot of support from the board and the chairperson.

Adv Stephens commented that, in general, when a CEO was appointed, he/she was supposed to be capable and competent.

Ms Slabbert stated that the Board appointed the person that they thought was best for the position at the time. Someone else was appointed before, but he was based in the Free State and could only act as the CEO for a short period.

Adv Stephens noted that one of the Board Members was appointed as the CEO at a point. He asked what the salary was and what other benefits the board member was given.

Ms Slabbert stated that this particular board member was appointed as the CEO from July to November. There was an agreement in place with the board member’s current employer that the SETA would pay the board member’s salary as the cost to the employer. The Board Member’s employer at the time received R60 000 per month and the Board Member received R40 000 per month as the Acting CEO. 

Adv Stephens was concerned that the SETA paid this to someone who was not qualified for the position. He noted that the HWSETA had no perception of how to save money. The money should have spent on educating people.

Ms Slabbert stated that despite the payment to the acting CEO, the SETA did not exceed their salary budget for the year. The HWSETA had not used any of the money allocated for skills development on the salary.       

The Chairperson asked if the acting CEO received any other benefits.

Ms Slabbert replied that the acting CEO received a cell phone allowance and a travelling allowance.

Adv Stephens asked if the acting CEO received money as a board member when she attended board meetings.

Ms Slabbert replied that she did.

Adv Stephens asked how the HWSETA could justify these expenses.

Ms Slabbert stated that the previous chairperson had approved the expenses.

Ms L Mashiane (ANC) stated that there was to be full disclosure of the total package given to the acting CEO. She commented that it seemed as if the members of the SETA were using the institution as a “get rich scheme”.

Ms Slabbert stated that the information would be disclosed in the current financial statements.

The Chairperson asked Ms Slabbert to send a letter to the Committee within the next two weeks disclosing the information about the salary.

Mr E Trent (DA) asked if the Chairperson of the board regarded this expenditure as wasteful and fruitless.

Ms Slabbert stated that she did not regard the expenditure as fruitless and wasteful because the board and the previous chairperson approved it. However, the board would look into the expenditure again.

Mr Trent stated that the expenditure seemed to be totally irregular.

The Chairperson stated that the payment was not irregular if the previous chairperson of the board approved it. The point was that the processes within the SETA and the board were abused.

Adv Stephens suggested that a legal opinion be sought concerning the decision taken by the previous Chairperson, as it may well have been that he was the person who caused the wasteful expenditure. Action needed to be taken against somebody for the wasteful expenditure.

The Chairperson stated that the Committee wanted a report at the end of the month detailing the investigation in to the matter. He was worried that the expenditure could not be justified.

Mr V Smith (ANC) asked if the previous Chairperson of the board or if the board itself had the authority to approve the salary payment.
           
Ms Slabbert stated that the board had the authority to approve the salary.

Mr Smith explained that he did not think that a legal opinion was needed. The law stated that the accounting authority was responsible for the effective, efficient, economic and transparent use of resources. If the chairperson single-handedly approved the salary, then the irregularity and transparency of the payment would have to be questioned. His opinion was that the payment was not transparent and that the accounting authority, which was the board, was in default of the PFMA. The board had a responsibility, as the accounting authority, to recover those payments.

Mr Smith wanted to know exactly what the CFO and CEO did to transgress the supply chain management.

Ms Slabbert said that a forensic audit was conducted into concerns raised by staff that related to the CEO and CFO. After the forensic audit, the board decided to continue with disciplinary action. She stated that she would make the report on the audit available to the Committee. The terms of the settlements for the termination of the CEO’s and CFO’s employment were confidential and she was unable to tell the Committee what the agreement was.

Ms Smith stated that the Committee expected more than a dismissal when somebody broke the law. Assuming that the person broke the law, it was not enough that the person was only dismissed; the funds were to be recovered. The Committee was to be given the forensic audit report so that Members could see if the disciplinary action was appropriate.

Ms Slabbert stated that the person did not steal any money. There was no corruption in the sense that he pocketed money, however, the processes that were followed were incorrect. Matters of fraud were reported to the police.

Mr Smith stated that he was satisfied that there were steps taken to solve the problem.    

The Chairperson was disturbed by the fact that a person who was guilty of misconduct was able to negotiate a confidential settlement. A person who was guilty of misconduct should be dismissed.

Adv Stephens asked what the situation was with the second CFO that was dismissed.

Ms Slabbert stated that the second CFO was found guilty at a disciplinary hearing and dismissed. He then took the HWSETA to the Commission for Conciliation, Mediation and Arbitration (CCMA) and the case was still ongoing.

Adv Stephens noted that the ongoing case meant that there would be more costs involved.

Ms Slabbert stated that the board had made a firm decision not to settle.

Adv Stephens asked why they made that decision when they had settled with the other CFO a few months earlier.

Ms Slabbert stated that they had made the decision not to settle when the CFO approached the SETA with a settlement offer. Because of the situation, the board decided they would not settle.

Adv Stephens asked if they had sought a legal opinion.

Ms Slabbert said that they did and the SETA decided not to settle even though they were advised to.

Adv Stephens noted that the previous CFO resigned in November 2006 and a new CFO was only appointed in 2007. He wondered why it took so long to appoint a new CFO.

Ms Slabbert answered that there was a CFO in place during that time; however, he had resigned.

Adv Stephens wondered why there was such a turnover of senior management. 

Ms Slabbert stated that this particular CFO resigned because there was too much work pressure.

Mr H Bekker (IFP) stated that his impression was that the board was shielding behind the decisions made by the previous chairperson of the board concerning the salary payment to the acting CEO. No decision was binding unless the board took it. He wanted to hear from members who had served on the previous board.

Ms Slabbert served on the previous board. She stated that the board at the time had mandated the chairperson to speak to the employer of the previous CEO to talk about the payments. The agreement was reached between the chairperson of the board, the employer and the acting CEO.

Mr Bekker clarified that the board ratified the decision. 

Ms Slabbert added that the decision to ratify the payment was taken at an Executive Committee (Exco) meeting; however, she was not sure when exactly the decision was ratified. As a board member at the time, she was not aware of the full amount that was paid to the acting CEO; she was only aware of the R40 000 salary payment.

Ms Nomsa Dlamini, the current Vice-Chairperson of the board,  who had also served as a board member on the previous board, added that this was the agreement in principle. The Chairperson of the board was supposed to negotiate a salary payment with the acting CEO’s current employer at the time. The board was not aware of the full salary payment.

Mr Bekker commented that there had to be a board meeting where all of this was ratified. The amount of money had to be stipulated in the minutes of the meeting. All the members that were part of that board meeting were part of that decision. He requested that the Committee be provided with a full disclosure all monies paid to board members for the 2008 financial year. He also asked for the details of the confidential agreement made between the HWSETA and the previous CEO that resigned. The SETA had to provide the Committee with this information and it could not be withheld from Members. He suggested that the HWSETA submit the information to the Committee confidentially.

Ms Slabbert informed the Committee that the board allowances and payments were disclosed in the annual financial statements every year. They would be disclosed this year as well. Board members’ allowances were based on the average allowances at the HWSETA. In terms of the confidential agreement, she could give Members the forensic audit report. She could also provide the Committee with the confidential agreement in a less public forum.

Mr T Mofokeng (ANC) wanted to hear the Department of Labour’s (DoL) comments on matters that were discussed.

Mr Trent asked if there were minutes of the decision to pay the Acting CEO a board member’s salary as well. If there were no minutes available of the board making the decision on the salary payment, then the decision could have been made by the Chairperson of the board himself. He asked to be provided with the minutes for the board meeting so that Members could see if the board took the decision and who was present at the meeting. He also wanted to know how much board members were paid to attend meetings.

Ms Slabbert answered that the chairperson and the vice-chairperson were paid R1500 per meeting and board members received R1100 per meeting. Board members were paid R650 per sub-committee meeting.

Ms Mashiane noted that it seemed as if the chairperson of the board, Ms Slabbert, was “running things” at the HWSETA. She was worried that the SETA had such a high turnover of CFOs and that they were not able to retain one. The Committee needed more information on what was actually happening at the institution. She was of the view that the SETA was being used for “looting of some sort”. Because the HWSETA board was unable to retain CEOs and CFOs, a recommendation should be made to the Minister to find a new board.

Mr Les Kettledas, Acting Director-General, Department of Labour, stated that the high turnover of senior staff was a concern. The Department submitted a report to the National Skills Authority (NSA) in November 2007 raising this problem. There was a concern about the lack of experienced personnel in the SETA to deal with the finances. The Department then recommended that the NSA consider recommending to the Minister, in terms of Section 14A of the Skills Development Act, that the Minister issue a written instruction to the SETA regarding its functions and the managing of its finances. The HWSETA then had to respond to the Minister based on those instructions. The NSA however, had considered this response, in light of the appointments that were then made regarding the CEO and CFO and decided to monitor the situation before it made the recommendation to the Minister.

Mr Vusi Mabena, Board member, NSA, stated that the recommendation was deliberated at length and the biggest concern at the time was the HWSETA’s welfare and stability. NSA were concerned that calling on the Minister when new management had just been employed would further destabilise the SETA. The NSA was monitoring the HWSETA.

The Chairperson added that the HWSETA had been unstable for quite some time. He asked if the NSA had been monitoring it all along.

Mr Mabena stated that the NSA could not take immediate action, as they did not have direct access to the SETAs. The HWSETA was brought to the NSA’s attention towards the end of last year.

Mr Smith asked what the time frames were in which the HWSETA would be monitored, as the HWSETA was supposed to be facilitating training. At some point in time, a decision would have to be made that the HWSETA was unable to do the work that it was supposed to do. He asked how much longer the Committee would have to wait for the NSA to make a decision as to whether the HWSETA was capable or incapable of fulfilling its duties.

Mr Mabena answered that the NSA did not have much time left to monitor the HWSETA. A report would be presented at the next NSA meeting.

The Chairperson stated that he was not sure that there were clearly defined mechanisms of intervention within the SETA.

Ms Slabbert stated that the board had written a letter of undertaking to the Chairperson, promising to improve the situation.

The Chairperson stated that the letter was of no comfort to the Committee. The HWSETA’s financial arrangements could not be justified at all.

Mr Trent stated that the AG’s report was not very complimentary of the HWSETAs performance information. There was inconsistency between the SETA’s Strategic Plan and Annual Report. The Committee needed to know that the information in the Reports were credible.

Ms Slabbert informed the Committee that the board took a strategic decision to improve the SETA. A turnaround plan was in place. She stated that the HWSETA would not have a qualified Audit Report again.

Local Government Sector Education Training Authority (LGSETA) Annual financial statements
Mr G Madikiza (UDM) noted that there were nine vacancies within the Local Government Sector Education Training Authority (LGSETA). He asked what effect the vacancies had on the service delivery mandate.

Mr Sam Maloka, Chairperson of the LGSETA Board, stated that the vacancies had been filled. People had been appointed by contract between the time of this hearing and the time that the report was written.

Mr Madikiza asked how many times per year the board was to meet in terms of their policy.

Mr Maloka replied that the LGSETA’s constitution stipulated that the board was to meet twice a year. The executive committee was to meet four times a year. The board had met the minimum requirements.

Mr Madikiza stated that according to the Annual Report, the Audit Committee responsibilities said that the Audit Committee adopted the appropriate terms of reference in its Audit Committee Charter and it regulated its affairs in compliance with the Charter. The Annual Report then also stated that due to certain challenges the internal audit function and the Audit Committee did not operate efficiently and effectively. He asked if the Audit Committee performed its duties efficiently and effectively.

Mr Maloka explained that by the time the Report was compiled, the LGSETA was in the process of appointing a new Audit Committee. Between then and now, the new Audit Committee had operated effectively and efficiently. The LGSETA had not experienced any problems with the new Audit Committee.

Mr Madikiza focused on the previous Audit Committee and its audit function in the past financial year. It seemed that there were conflicting statements in the Annual Report. They did not operate efficiently and effectively.

Mr Maloka answered that there had been problems towards the end of the Audit Committee’s term. Certain members of the committee were not attending meetings regularly. However, the committee was operating efficiently before non-attendance issues arose.

The Chairperson stated that the Report showed the number of meetings that were held and the attendance at the meetings. Only the chairperson of the Audit Committee at the time attended all the meetings. This meant that there were problems before the end of the Audit Committee’s term.

Mr Madikiza added that there was only one meeting where the Audit Committee had met the quorum requirements. He was not sure that the LGSETA discharged its duties efficiently and effectively.

Mr Sidwell Mofokeng, CEO, LGSETA, explained that the previous Audit Committee experienced difficulties in that the Chairperson resigned and there was a member that was not attending board meetings regularly. The board then decided to fill the vacancies and for the latter part of the financial year, the Audit Committee started to function effectively. There was an attempt to ensure that there was compliance with the way it was constituted and whether it exercised its oversight function.

The Chairperson stated that there was a clear contradiction in terms of what was said in the Report. The Audit Committee had not performed its duties effectively and therefore had not functioned properly.

Mr Madikiza asked what the challenges were that the LGSETA faced that hindered them from performing their duties.

Mr Maloka stated that the biggest challenges regarding the Audit Committee were issues around the quorum, and the Audit Committee not being able to discharge their duties effectively because of poor attendance at meetings.

Mr Madikiza asked if they had taken care of this problem.

Mr Maloka assured the Committee that the new Audit Committee was functioning effectively. The next Annual Report would show that this particular weakness was addressed.

Mr Madikiza stated that the AG had observed a lack of adequate explanation and documentation for the levy income. This was due to a lack of established controls and assigned responsibilities. He asked the LGSETA what they thought the root cause of the problems was and how the shortfall was being addressed.

Mr Maloka hoped that the Committee would receive a positive result from the LGSETA’s Annual Report for the current financial year. The root cause of the problem was an issue between the LGSETA, the Department of Labour and the National Treasury (NT). The problem was being resolved.

Mr Madikiza asked for more clarity on the issue between the LGSETA, the Department of Labour (DoL) and the NT.

Mr Maloka explained that the dispute involved the accounting policy on the recognition of revenue. The LGSETA explained to the AG that there was a lack of clarity on the interpretation on policy from the NT, the DoL and the AG itself. The basis of increasing the levy was the same basis as was used in previous years. This explanation was acceptable to the AG. The AG explained that the LGSETA was to provide a high-level trend analysis in the Annual Report; however the LGSETA was not able to do this. This was a finding that some SETAs received a qualification for, but others did not; it was more related to interpretation of legislation.

The Chairperson asked if Mr Maloka was saying that the AG gave different opinions on the same problem to different SETAs.

Mr Maloka explained that his statement was based on an analysis made on other SETAs’ reports.

Mr Paul Serote, Corporate Executive, AG’s Office, stated that completeness of revenue was an issue for the LGSETA. The AG’s Office held a workshop a month previously where they focused on the SETAs’ policies, which resulted in a change in some of the policies. 

Ms Macy Nkau, Business Executive, AG’s office, explained that the SETAs were asked to do a high level analysis as a result of the policy that was in place at the time. The high level analysis involved verifying completeness and accuracy of revenue. The SETAs that performed the analysis were audited and found to be fine and they only received an emphasis of matter paragraph in their reports. Those that did not do the analysis received a qualification.

Mr Madikiza noted that the accounts and receivables table was understated. This was due to a lack of monitoring procedures and internal controls as well as capacity. He asked if internal controls were in place and if suitably qualified personnel were appointed.

Mr Maloka assured Members that a CFO was appointed and that some of the approved policies were implemented to address concerns raised by the AG.

Mr Madikiza stated that the LGSETA had irregular expenditure relating to the Mandatory Grant. He wondered why some expenditure was not recorded and why some payments were not monitored.

Mr Maloka explained that the board’s understanding of this matter was that there was an issue around municipalities not meeting their deadlines. Some of the municipalities made requests on the date of the deadline or days after the deadline. They then claimed that they submitted requests before the closing date at the provincial offices. The LGSETA then paid the municipalities the money, but the AG stated that they should not have. This was seen as an irregular expenditure.

Mr Madikiza addressed non-compliance issues. There seemed to be challenges with capacity in terms of training and evaluation. He wondered if this was why the accounting officer could not properly account to the Committee.

Mr Maloka stated that the SETA was trying to improve on issues that were raised by the Audit Committee and the AG. New policies were approved and implemented within the LGSETA.

Mr Madikiza noted that objectives within the Strategic Plan were not specific enough to address overall targets as set by the National Skills Development Strategy (NSDS). Also, performance indicators were inconsistent between the Strategic Plan and the Annual Report. He asked how the LGSETA hoped to fulfil their service delivery mandate when these problems existed.

Mr Maloka stated that the LGSETA looked seriously at whether they were or were not meeting their targets and what the reasons were for not meeting certain targets. The SETA had a protracted debate with the AG on this matter, on how they interpreted the performance information and the objectives, and on how the achievements were recorded. The second issue regarded the AG not placing reliance on the assessment of the performance. If the objectives were not clear or specific, those objectives were not the ones determined by the SETA. They needed to sort this out with the DoL and the NSA.

The Chairperson clarified that Mr Maloka was saying that the DoL determined the objectives. It did not matter if the issue was debated because at the end of the day the LGSETA would receive an opinion and the AG’s decision would be final. There was no need to debate matters; the LGSETA had to comply with what was said.

A Senior Manager in the AG’s Office stated that the findings were raised because they were struggling with the interpretation and the understanding of the NSDS targets. They met with the SETAs and the DoL to address this issue to ensure that the reporting was specific and addressed the NSDS targets. Going forward, this issue was addressed from higher level SETA perspective.

Mr Kettledas added that the NSDS was very clear and the objectives and indicators were set out. This was not a problem to other SETAs; they were implementing the objectives of the NSDS and reporting against the indicators of the NSDS.

Mr Madikiza addressed the LGSETA, saying that the observation from the AG said that objectives disclosed in the Strategic Plan were not specific enough to address the overall targets set by the NSDS. Secondly, performance indicators were inconsistent between the Strategic Plan and the Annual Report. He asked how then could the LGSETA fulfil its mandate in terms of service delivery and skills development.

Mr Maloka acknowledged that there was a problem generally. It was a given that SETAs had to work with the indicators set out by the NSDS. These indicators were not always specific. This was an issue that the LGSETA was struggling with and they were trying to solve the problem with the DoL.

Mr Smith asked the Board to explain to the Committee why the LGSETA had invested R1 million on the life of a financial manager. He wanted to know who made the decision to make the investment.

Mr Maloka explained that this was a problem that was inherited from the previous board; however, the current board was monitoring the situation. The previous manager had signed the contract and when she retired, the SETA started an investigation in to the investment. There were certain issues that were being revealed and a report would be submitted once the investigation was complete. The NT was already informed of the investigation in to the issue.

Mr Smith stated that the Committee wanted to deal with the individual who made the decision to invest the money in the manager.

Mr Mofokeng, the CEO for the LGSETA, stated that they did not know who made the decision. The investment policy predated the SETA.

Mr Smith stated that an investment was a contract between a financial institution and an individual. He stated that the accounting authority was to go to the financial institution and find out who authorised the investment. The LGSETA was to get the source documents from the financial institution and give them to the Committee.

Mr Mofokeng answered that the SETA had all the source documents and they were at the final stage of the investigation. They would provide the Committee with a report detailing the specifics of the investigation.

Mr Smith recommended that the institution fix the problem sooner rather than later, as they had already identified the problems eighteen months earlier.

The Chairperson was concerned that the SETA could not justify the expenditure. He hoped that the LGSETA presented a better report in September.

Construction Education Training Authority (CETA)
Mr P Gerber (ANC) noted that the Annual Report and the AG’s Report for the Construction Education Training Authority (CETA) were very different. There were disclaimers in Learnership Accruals, Levy Income, Property Plant and equipment, Mandatory Grant expenditure and payments, Irregular Grant expenditure and in Financial Liabilities. He also noted that the Chairperson of the CETA Board was paid R2500 per meeting. He asked why the Chairperson of the CETA was paid double the average amount for attendance fees.

Mr Narius Moloto, the Chairperson of the CETA Board, stated that the Board had decided on the fee payments.

Mr Gerber asked how many board meetings the CETA held.

Mr Moloto stated four council meetings were held per year and there was an executive committee meeting every month.

Mr Gerber stated that the AG had said that the committee had met seven times during the year and the committee consisted of 25 board members and 15 alternative members. He asked if this was correct.

Mr Moloto answered that the total should have included three special council meetings that were necessary. Three of the seven meetings that the AG spoke of were special council meetings.

Mr Gerber asked why the chairperson was paid R55 000 for attendance at meetings for that financial year. The amount indicated that Mr Moloto was paid for twenty-two meetings.

Mr Moloto stated that money for attendance at meetings was never issued for him and he did not calculate how much he was supposed to receive.

Mr Saul Nkosi, CFO for the CETA, stated that they did not have the specifics of the R55 000 payment at hand, however, they could analyse the figure and send the information to the Committee.

Mr Gerber asked for clarity on the R39 000 that was paid to a certain individual, Mr Holmes.

Mr Moloto stated that Mr Holmes was the Deputy Chairperson of the CETA Board but that he had left the board.

Mr Gerber stated that there were also transactions worth R42 million that were given to the three board members. He asked for clarity on the expenditure.

Mr Moloto stated that most of the stakeholders in the CETA were providers to CETA in one form or another. Those board members were actually members of organisations that were doing business with CETA. They were stakeholders who were providers in the industry.

The Chairperson clarified that the disclosure indicated money allocated to individuals and not the organisations to which they belonged. This meant that the contracts were given to them as individuals.

Mr Moloto stated that this was not so. Contracts were not being given to individuals.

The Chairperson asked why the disclosures were made in the names of individuals.

Mr Moloto stated that this was not something that they paid much attention to, however, if Members looked at the report it showed the nature of the individuals’ relationship with the CETA.

Mr Gerber asked why there was an increase in the consultancy fees and what the consultants were doing.

Mr Moloto stated that the CETA had experienced serious challenges that related to forensic matters. The CETA was also trying to correct problems that were identified by the AG previously. The increase in the use of consultants had improved the CETA’s service delivery.

Mr Gerber noted that the former CFO resigned in February 2006 and that a new CFO was appointed less than sixty days later. He asked how long the interview process was and if the person appointed was already working in the organisation. 

Mr Moloto stated that the CETA advertised the position of the CFO from the time that the former CFO gave them notice that he was leaving. Another CFO was appointed following due process.

Mr Gerber stated that the CETA was technically insolvent the previous year, however, this year they seemed to be solvent. He asked where the CETA was investing their money.

Mr Nkosi stated that the CETA had investments with the Standard Bank and Sanlam that had grown. There was an approved investment policy that guided them on how to invest the money. The amount of money in investments amounted to over R209 million.

Mr Gerber noted that the Audit Report from the CETA Audit Committee was one of the better reports that the Committee had seen from all the SETAs. The AG commented that the Audit Committee had met five times during the year, had functioned for the period under review and concurred with what the AG had said. However, the AG also mentioned that the board had not evaluated the effectiveness of the Audit Committee. He asked the CETA why an evaluation was not completed for the financial year.

Mr Moloto admitted that this was an oversight and the board should have completed an evaluation.

Mr Gerber wanted to know what assets the CETA disposed of during the financial year.

Mr Nkosi replied that the CETA had sold an old telephone system when a new one was acquired.

Mr Gerber asked why the remuneration payment to members of the accounting authority had doubled.

Mr Nkosi answered that the increase was due primarily to the increase in the number of meetings that were held and the increase in members’ fees that were approved by the board. 

Mr Gerber addressed the cost of employment. He noted that if one compared the 2006/07 salary payment to the 2005/06 salary payment, there was a decrease. He asked why there was a decrease in salary payments.

Mr Nkosi explained that there were executives who were earning much more before. If Members compared the salary that was earned by the previous CEO to the salary earned by the current CEO, they would see that it was much less.

Mr Gerber did not understand how one person’s salary could have such a great decrease on the overall salary payment.

Mr Nkosi answered that the current CEO’s and CFO’s salaries were less than their predecessors.

Mr Gerber still did not understand how it affected the average basic salary to such a great degree. He suggested that the CETA send a written response to the Committee explaining what happened.

The Chairperson instructed the CETA to send the written response within two weeks.

Mr Gerber addressed the Extended Public Works Programme (EPWP). He wanted to know how much of the R87 million that was allocated to this was spent.

Mr Moloto stated that all the money was spent. 

Mr Gerber noted that special investigations were conducted on prior years’ learnerships that were commissioned by the board. The investigations were in the process of being followed up and significant findings from the investigation was that there were double payments to service providers, accruals without supporting documentation and other control weaknesses. He asked what effort was made to recover the double payments and if action was taken against individuals and entities involved.

Mr Moloto explained that close to R17 million was recovered from service providers. The matter was still to be concluded.

Ms A Dreyer (DA), Portfolio Committee on Labour, stated that as the Chairman of the Board, Mr Moloto was at the head of the CETA. However, there were instances where he was not complying with the CETA’s constitution. Mr Moloto was elected for a third term of office, however, some of the councillors objected to that appointment, as it was against the constitution. These objections were not allowed to be recorded.

Mr Moloto stated that this was not correct.

Ms Dreyer stated that she had evidence to justify the statement that she made. She also complained that the chairperson of the board, along with his members, were the highest paid members in all the SETAs. When meetings were held, members were supposed to be given fourteen days notice and the agenda was supposed to be sent to them so that items could be studied and considered properly before the meeting. Often, this did not happen and agendas were only handed to members on the day of the meeting. This meant that members were unable to study the items fully. These meetings could be considered fruitful and wasteful expenditure.

Mr Moloto stated that the CETA complied with the constitution and there was only one occasion when the board members’ pack arrived late. The board meeting was then duly adjourned.

Ms Dreyer asked if the Africa Forensic Audit Report was tabled at the CETA’s council meeting and if the council had the opportunity to discuss the findings of the report.

Mr Moloto stated that the report was tabled and operationalised.

Ms Dreyer asked if Mr Moloto signed a submission saying that the report should not be considered and accepted by the council.

Mr Moloto stated that this was correct. He added that the board did not accept the submission.

The Chairperson asked Mr Moloto why he did not want the report to be accepted by the council.

Mr Moloto answered that the references of the report were not complied with. There were double payments and other fraudulent payments that were shown and forensic investigators were expected to tell the CETA how much it amounted to and who was responsible for it.

Ms Dreyer recommended that the Committee receive the report.

Ms Dreyer addressed the issue of the appointment of the new CEO. She had a letter signed by Mr Moloto, which informed his council members and CETA stakeholders that EXCO had taken the decision to appoint Mr Petrus Mawuku as the new CEO. She asked if Mr Moloto or EXCO had the power to appoint the new CEO or if a high level senior appointment was to be done by the whole board.

Mr Moloto explained that the board members gave the delegated authority to EXCO. All the CEO’s and the senior management in the CETA were appointed by EXCO, who would submit a report to the council to be ratified. The board duly ratified the current CEO’s appointment.

Ms Dreyer commented that there was great inconsistency in the CETA’s performance. The Department of Labour gave an overview of the performance of all the SETAs and the CETA was seen as being in serious decline. NSDS indicators showed that they were under-performing and that conditions at the CETA had worsened. There was huge discontentment with the current CETA board.

Mr Moloto stated that the CETA made tremendous progress given the challenges it faced.

Mr Trent asked Mr Moloto how many terms the CETA’s constitution allowed them to serve.

Mr Moloto answered that the CETAs constitution was not descriptive. The constitution stated that a chairperson might be eligible for a second term.

Mr Trent wanted to know how many terms the chairperson had served. He wondered if a third term could be served.

Mr Moloto explained that the CETA constitution did not refer to a third term. Therefore, questions around whether one could serve a third term were confusing. The CETA’s constitution did not prescribe nor limit the amount of terms that one could serve as chairperson. This was an issue that could be resolved by the council itself.

Mr Trent commented that the CETA’s constitution needed to be looked at. It appeared to him that there was a difference in opinion in the interpretation of the constitution’s requirements on board terms. He asked if the constitution prescribed that any delegation from the board should be in writing.

Mr Moloto stated that the CETA constitution was silent on this issue.

Mr Trent commented that he had raised some issues because the AG had raised issues of corporate governance within the CETA. Problems with corporate governance started in the CETA constitution.

The Chairperson asked the DoL if they had written to the NSA to request assistance for the CETA.

Mr Kettledas replied that the Department had written a letter to the NSA recommending certain instructions for the CETA. The next NSA meeting would show proposed terms of reference and investigations to be conducted into the affairs of the CETA.

The Chairperson commented that there was too much money sitting in their accounts. The Committee wanted the CETA to use the money. They wanted the CETA to improve their internal controls and to decrease the remuneration for members of the board. There was no cap on the amount that could be paid to members, however they should be paid the general average. This was an area that needed to be reviewed.          

Energy Sector Education Training Authority (ESETA) 
Mr H Bekker (IFP) observed that there was an ineffective and under-capacitated management, and that capacity constraints resulted in weaknesses being identified by the Auditor-General (AG). One of the weaknesses was that effective controls were not implemented to ensure that the financial statements submitted were in line with the Generally Accepted Accounting Principles (GAAP). In some instances, the Energy Sector Education Training Authority (ESETA) confused one year’s grants with another year’s grants. The Statement of the Financial Performance did not agree with the levy income disclosure notes. Mr Bekker complained that material adjustments had to be made by the auditors, which was not their job. Adjustments also had to be made to accounts receivable, the Mandatory Grants and intangible assets. These elementary bookkeeping errors would not have been made if there were proper accounting systems in place. He asked what the ESETA was doing to rectify the situation.

Mr Johnny Olivier, Chairperson of the Board for ESETA, answered that Mr Bekker’s summary of the situation was absolutely correct. The current board and EXCO were appointed in October 2007. After their appointment, Board Members realised that there were problems in the ESETA and they promptly submitted a report to the AG on 30 October 2007 explaining the situation. The Board felt that a forensic audit was necessary and an internal audit was to be conducted, however, EXCO felt that they should also be using independent auditors. A forensic audit was conducted and there was a finalised version of the report if the Committee wanted to see it.

The Chairperson stated that the Committee wanted copies of the report.

Mr Olivier informed the Committee that the report showed that there were irregularities that involved the former CEO and CFO of ESETA. The CEO was overpaid by R55 000. On 12 May 2008, EXCO suspended the CEO and the CFO resigned before the audit was complete.

The Board and EXCO created a Turnaround Strategy to improve the situation in the ESETA and much had been achieved in the past seven months. Mr Olivier requested that the Committee allow the Board six more months to show what the ESETA was capable of.

Mr Bekker stated that he was encouraged by the comments made by Mr Olivier regarding the ESETAs performance in the future. He asked for more information about the Turnaround Strategy. He wanted to know if they had appointed a new CEO and CFO and how they planned to improve the accounting systems. 

Mr Olivier replied that it was unfortunate that the events with the CEO and CFO happened at the year-end. The Board approached the Department of Labour and they were given a team of consultants who assisted them with their year-end financial statements. All the ESETA’s documents were handed in on time.

Mr Funamna Mankaye was appointed as the Acting CEO. Given that Mr Mankaye did not have any experience as a CEO, the Board decided that he would be assisted by a sub-committee consisting of two members from the Labour component and two members from EXCO.

The Chairperson asked if there was an extra cost in providing the sub-committee.

Mr Olivier answered that there was no cost involved. According to ESETA’s constitution, even the board members did not receive any remuneration.

Mr Bekker commented that he had prepared at least twenty questions for the ESETA, however, in view of what was said before the Committee, it seemed as if there had been a complete break from the past. His questions could then be considered to be superfluous. Dwelling on the past would not benefit the SETA. He thought that it would be better to concentrate on the future.

Mr E Trent (DA) stated that it seemed there was a problem, generally, with CEO’s in the SETAs. There was something fundamentally wrong with corporate governance in the SETAs. He asked how many members there were in the ESETA.

Mr Olivier stated that there were twenty-three Board Members, ten members from the labour component, ten from EXCO and three from various government departments.

Mr Trent asked for the amount of people employed by ESETA.

Mr Olivier replied that there were variances in figures in the Report. There seemed to be twenty-two, although the salary structure in the Report showed a total of nineteen members. The Report also showed pictures of twenty-two members.

Mr Trent asked Mr Olivier to comment on the fact that the Board was bigger than the staff component in the institution.

Mr Olivier stated that his personal view was that the Board was too big and that it should be reduced. He added that the staff component should consist of twenty-five members, however, the Committee had to remember that temporary staff were used for certain situations.

Mr Trent focused on the AG’s Report. The AG commented on the ESETA;s performance, saying that the ESETA’s budget was not aligned to its performance indicators. The objectives and strategic plan were not specific enough to address the overall targets. The ESETA had nineteen predetermined targets. of which nine had not been met. This meant that there was a problem somewhere in the ESETA. He asked if the South African Qualifications Authority (SAQA) assessed ESETA.

Mr Olivier stated that as a result of the Turnaround Strategy that was put in place, there were only three instances where the targets could not be met. In fact, ESETA had actually exceeded some of their targets. He also stated that the ESETA was assessed by SAQA and that Members could be provided with the report.

Mr V Smith (ANC) stated that it was clear that, in general, there were problems with CEOs and CFOs in the SETAs. He suggested that the National Skills Authority (NSA) and the Department of Labour (DoL) report to the Committee on what the SETAs’ positions were by the end of May. The report should show who the members were in acting positions, how many vacancies there were and what the SETAs’ capacities were. The Committee could not wait another eighteen months to apply corrective action within the SETAs.

Mr T Mofokeng (ANC) was concerned that the CFO was able to resign during an investigation into his misconduct.

Mr Olivier answered that the investigation was ongoing and that the former CFO would be held fully accountable for his actions.

The Chairperson wanted the Department of Labour’s opinion as to whether the ESETA was “out of the woods”.

Mr Les Kettledas, the Acting Director-General for the Department of Labour, stated that the Department could not say this for certain. NSA was going to request a meeting with the ESETA, specifically to discuss matters pertaining to their performance and governance. The request was in the process of being submitted to the ESETA. The ESETA would be assessed by the NSA to determine if there was any improvement.

The Chairperson addressed all the SETAs saying that the Committee was interested in clarifying their issues and seeing how they dealt with matters. He stated that the departments needed to be a little more assertive in terms of the interests of the public. He warned that the SETAs and the Committee had to have public cautiousness at the fore of everything that they did.

The meeting was adjourned.