Department of Transport Audit & Auditor-General Report on eNATIS

Public Accounts (SCOPA)

11 June 2008
Chairperson: Mr T Godi (APC)
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Meeting Summary

The discussion interrogated pertinent issues arising from the Auditor-General's Audit of the Department of Transport. These were: the refunding of repealed levies, lack of distinction between debts and staff debtors, poor reporting by municipalities, vacancies in middle management, performance bonuses, periodic payments, equipment procurement, unauthorised expenditure, non-compliance with procurement procedures and irregular expenditure were queried. There were several procedural matters raised which included inadequate authorisation and documentation of travel by officials, non-compliance with supply chain management procedure and salary reports not approved by the line managers.

The eNATIS system was questioned on much the same basis. The Committee expressed disappointment at the limited scope of the
Auditor-General's special report. They also sought various opinions from the Office of the Auditor General on general impressions of eNATIS. The project manager was asked about the payment of contract workers, security standards, the observed steady increases in the amount of the tender, an error of R 2.8 million, the involvement of technical experts, the disaster recovery plan and the service level agreements.  A core query was that of the cost implication of changing the implementation of eNATIS from a phased approach to a once-off data conversion. The Committee wanted to know how it negatively impacted on milestones and costs. The Committee said that they hoped that the outstanding information would be available to the Auditor General for the regularity audit as the lack of substantiating documents was an impediment to the reporting.

Meeting report

The Department of Transport (DoT) was represented by Ms M Mpofu (Director General:DoT), Mr D Pretorius (Chief Financial Officer:DoT), Mr W Koekemoer (ENATIS Project Manager:DoT), Mr R Jock (DDG: Management Services: DoT), Mr R Rakgoale (CEO: Road Traffic Management Corporation), Mr C Letsoalo (DDG: Financial Services: DoT) and Mr S Manamela (CFO: Road Traffic Management Corporation). The Auditor -General's office was represented by Mr P Bhana. The National Treasury was represented by Ms Marissa Moore (Director: Transport and Housing, Urban Development and Infrastructure).

Department of Transport Audited Financial Statements
Mr G Madikiza (UDM) opened the meeting by addressing the A-G report on the Department of Transport. He recalled that the previous year’s report had been qualified and this year the DoT received no qualification. Even though this was an improvement, he said that there were still grave pertinent issues. The reason for this meeting was that these issues had arisen several times in consecutive years and have not been remedied by the DoT. He referred to the turnaround strategy promised at the last meeting.

He referred to impediments to service delivery and the resolutions the Committee had sent to the DoT. He asked what percentage of these resolutions had been resolved and how many recommendations were fulfilled.

Ms Mpofu acknowledged the commitment that had previously made. She pointed out the achievement of an unqualified report. She said the issues that remained were a reflection of the complexity of the challenges. An action plan had been submitted to the Committee. She reported that most of the matter had been resolved. Vacancies were still a problem and she would elaborate on that.

Mr Madikiza asked about the levies that should have been refunded. He asked why this had not happened and what corrective action would be taken.

Ms Mpofu reported that the DoT had refunded all outstanding levies. The DoT had established a further intervention with the Drivers Licence Testing Centres

Mr Madikiza asked if this was post audit.

Ms Mpofu responded in the affirmative.

Mr Madikiza said that the A-G noted that levies were not recorded in the register and wanted to know why.

Ms Mpofu replied that the DoT had not received any levies in that period as they were refunded.

Mr Madikiza stated that he was at a loss as it was just confirmed that the refunds occurred post audit, therefore they were not recorded in that period and there was also no record in the previous financial year.

Ms Mpofu responded that the A-G could not confirm the completeness of the record and that was the contentious issue.

Mr Madikiza asked why it was not possible for the A-G to confirm.

Ms Mpofu replied that some information was not supplied by the Drivers Licence Testing Centres  therefore the A-G could not confirm it. The DoT has strengthened the relationship with Drivers Licence Testing Centres in this regard.

Mr Madikiza referred to the item of debts including fraudulent and wasteful expenses and staff debtors. He asked if there was no distinction made between these items.
Mr Pretorius replied that the A-G found in 2004/5 that a tender had been duplicated and transferred the amount to debtors to the amount of R 1.7 million with a view to recover the fruitless and wasteful expenditure. In 2007, the auditor insisted that the DoT reverse the amount back to fruitless and wasteful expenditure, which had been done. The implicated tenders were investigated and the finding was that the tenders were not duplicated.
Mr Madikiza pointed out that there was no due follow up, regarding the law of due debtors and asked why.

Ms Mpofu replied that the legal and financial sections had followed up and concluded those matters

Mr Madikiza asked why the Department was unable to differentiate between actual revenue received and revenue payable prior to 2004 and referred to the reason offered by the A-G, that it was due to poor record keeping.

Ms Mpofu replied that the challenge was in the Drivers Licence Testing Centres ’s ability to keep records as well as in the legislative framework. The powers over the Drivers Licence Testing Centres  lay with the provincial MECs. This created a constraint at the national level to make demands of the Drivers Licence Testing Centres . She referred to a legislative amendment which would make it possible for the DoT to penalize Drivers Licence Testing Centres  which do not comply. She also pointed to problems municipalities were having reporting in terms of the Division of Revenue Act (DoRA).

The Chairperson said that the issue was that they were not getting the reports from the municipalities. SCOPA wanted to know the progress in reporting. Where were they now in terms of the punctuality and quality of reports and did they live up to expectation.

Ms Mpofu responded that the Department was now receiving full reports from municipalities. They also had a special task team to retrieve information on time.

Mr Madikiza said that municipalities must report but there was no evidence of this from the A-G’s report

Ms Mpofu responded that this referred specifically to the Gautrain project. She said that this challenge needed assistance from the National Treasury to support in this regard. The National Treasury had established a co-ordinating mechanism to this end.

The Chairperson asked what the area of challenge was.

Ms Mpofu replied that it was not the norm to have this kind of collaboration but it looked like a more direct relationship was needed.
The Chairperson asked if there was any resistance

Ms Mpofu replied that the DoT had to enforce this unprecedented arrangement.

Mr Madikazi pointed out the comment that proper supply chain management was not followed and asked what was being done from junior to senior management.

Ms Mpofu responded that they had taken the appropriate disciplinary measures against officials. She highlighted the dismissal of a chief director. The matter had been resolved but at the time of the report there were emerging circumstances which had prevented action.

Mr Madikiza referred to traveling forms that had not been provided to the A-G and wanted to know what the DoT had done about employees who were not submitting these forms.

Ms Mpofu responded that those forms were for travel in emergency circumstances, for instance, after hours. Due to this the official was unable to obtain the proper authorization. The Department now had a special arrangement where the official was sent an e-mail on the following morning to request the form. There were penalties for non-compliance such as salary deductions.

The Chairperson wanted to know why the forms were not there and what had been done.

Mr Madikiza pointed out that there was no policy for the late clearance of travel. He asked what the reason was and what the position was now.

Ms Mpofu replied that this related to international travel. They were penalizing officials by halting subsequent trips and salary deductions. The Department was making its best effort to ensure compliance but was finding this difficult. She said that a change in culture and penalties would stop the problem.

Mr Madikiza said that 2 salary reports had not been approved by the line manager. He asked that disciplinary measures were taken and what was done to see if it was a fraud attempt by junior officials.

Mr Pretoria responded that he was not aware of these instances. He said that what had happened was that those employees did not belong to that particular responsibility. There was the problem of the salary register not being signed off. There was no a control measure ensure that there were no ghost employees. The manager now made a note to Finance and the Human Resources department. The CFO then followed up where that employee belonged and the employee was shifted to the correct responsibility. The query was corrected. He reported that payrolls were signed off monthly and had all been signed off lately.

Mr Madikiza asked if this was done before or after the salary payment.

Mr Pretorius responded that it was done after the payment had been made.

Mr Madikiza asked how people appeared in the wrong sections.

Mr Pretorius replied that this did happen when new appointees started. It could also arise from incorrect data capture as well as when people move internally and this movement was not captured.

Mr Madikiza asked how the Department ensure that it was not a fraud attempt.

Mr Pretorius responded that the sign off was aimed at detecting fraud. The financial manager was supposed to take that up with human resources to detect if a fraud was possible. When the correction was made, sign off would occur.

Mr Madikiza asked why the department did not stick to the payroll allocation.

Mr Pretorius replied that a month’s payroll could not be signed off if all the signatures were not all present. This was difficult and lead to the payrolls being signed off late as they needed to physically go around to obtain the signatures.

Mr Madikiza referred to the vacancies (± 140) in middle and senior management and asked how service delivery could effective and efficient in these circumstances.

The Chairperson asked if there had been movement on the figures.

Ms Mpofu replied that the challenge related to the DoT’s expansion plan. They aimed to add 99 new posts and had thereby increased the vacancy rate. They had agreed to this on a phased basis so that new posts were added annually. This meant that the vacancy rate fluctuated in a financial year. They DoT had a retention strategy and counter offer policy that should stabilise the vacancy rate at ± 29%.

Mr Madikiza pointed out the A-G’s comment that there was some proof that positions were no appropriately remunerated.

Mr Mpofu responded that there was an element of truth to this but it was not prevalent. It was concentrated in areas such as IT, Aviation and Maritime Services.  The Department was not able to attract skills due to their salary constraints. In response to this, they had created flexibility by offering the upper level of posts to scarce skills candidates. There was a serious skills crunch which saw people moving away from the public sector to the private sector.

The Chairperson remarked that he was not sure how strategic it was for the DoT to constantly be expanding. He said that it created its own capacity challenges and there must be a way around this.

Mr V Smith (ANC) asked what the reason was for the gap between performance bonuses from R1 mil to R 8 mil.

On periodic payment, he requested an explanation for the jump from R 1 million to R 4 million
He pointed out that the equipment worth less than R 5 000 amounted to R 2 million. He feared that this was trick of unbundling – buying lots of small equipment to circumvent tenders. He asked how this would affect the Department’s ability to get discounts on bulk purchases.

There were 17 cases of unauthorized expenditure amounting to R 1.7 million due to procurement procedures not being followed. He commented that it was disturbing that no disciplinary steps were taken in any of these cases and asked why this was so.

Regarding irregular expenditure of almost R 2 million, he noted that this seemed to come mostly from the previous year. The DoT had authorized an insurance fund to utilize a surplus that belonged to the state. He stated that the legal opinion was that no-one could be held liable and asked why this was so. He asked when this expenditure would be regularized.

Ms Mpofu replied that this was the backlog of performance bonuses from the previous year (2006). They were dealing with three year’s worth of backlog, cleaning up the system and making sure that people were rewarded.

The Chairperson asked what the amount of the backlog was and what the process was.

Ms Mpofu responded that it was a backlog of 2-3 years and the amount included delayed payments.

The Chairperson asked why these payments were not affected in the previous year.

Ms Mpofu responded that the performance appraisal had not been concluded in that year. It was resolved by clearing the backlog. The Department had established a committee for performance appraisal. The appraisal had also included employees who had left the DoT. Retrospective performance bonuses had been awarded.

The Chairperson asked why it had been done that way.

Ms Mpofu responded that at her appointment in 2005, it was her opinion that it was necessary. Therefore, a strategy had been adopted to ensure that the DoT was up to date on performance appraisals.

Mr Smith commented that it sounded like a compliance requirement. He agreed with the Chair on the difficulty of retrospective appraisals and payments. He stated that SCOPA did not approve this action. Some money must have been used somewhere else. He said that this practice should be fixed as they could not budget for this.

The Chairperson did not think that this was the most appropriate approach to the situation. He requested a response to the periodic payments question.

Ms Mpofu replied that this related to acting appointments. The Minister had approved a staff expansion to  10 DDGs . The appointees had the responsibilities of Chief Director as the DDG posts were being filled.

The Chairperson asked why it was called a periodic payment. This term did not give an impression of the explanation given.

Ms Mpofu responded that this was the prescribed format for reporting, set by the National Treasury. She added that other parts of this amount also consisted of leave payments and extraordinary expenses, but it was mostly due to new appointments.

The Chairperson requested a detailed breakdown in writing.

Mr Pretorius responded that the equipment was mainly computers, furniture and fittings to refurbish offices. Anything less than R 5000 was not classified as capital but was recorded in the asset register.

The Chairperson wanted to know what the reason for the big jump was.

Mr Pretorius responded that he could provide a detailed breakdown. The jump was mainly due to the expansion, not due to the tender process. There was no transgression here.

The Chairperson asked about entertainment.

Ms Mpofu responded that there were various contributions. Among these were allowances for senior managers, conferences, meeting and their participation in Minmec. This accounted for the increase.

Mr Smith queried the refurbishment. He asked if there was a policy on the replaced items and wanted to know where the old equipment had gone. He requested a written response to this.

Mr Pretorius replied that he had no details at present on the unauthorized expenditure and could provide a written response.

Mr Pretorius responded that in all cases there were investigations. The department had either received a legal opinion or taken disciplinary step. Detail on that could be provided to the Committee.

Mr Pretorius responded that the single biggest component of the R 19.6 million was due to an engineer appointed in 1993 and to maintain the new contract.

The Chairperson requested a response to the insurance fund the DoT had utilized.

Mr Pretorius replied that the Eastern Cape DoT requested assistance and the then acting DG wrote a note for them to be funded out of a motor vehicle insurance fund. The surplus did accrue to the state. This transaction was not properly reported and did not appear in the DoT records. The DoT had asked the A-G to do a forensic investigation. The legal opinion said that there a serious inconsistency as officials simply acted on a direct instruction from the acting DG.

Mr Smith asked if these officials were still in the employ of the government. On of the official had since passed away but the surviving official was no longer employed by the state.

Auditor=General Report on ENATIS
The Chairperson made an opening comment to introduce the discussion on ENATIS. He stressed ENATIS’ strategic importance to the country.

Mr P Gerber remarked that he was disappointed in the A-G report and the limited scope of the audit. He queried the 11 bids for this contract and found that the bid accepted was the incorrect choice.

Mr P Bhana, A-G’s office, responded that the report was purely a follow up of the technical evaluation of ENATIS. The A-G had not excluded a more detailed investigation in the form of a regularity audit. He said there would be a need to probe deeper. He acknowledged that the background could have been made clearer. The A-G was committed to an application audit. This would be a very specific review of the system but they firstly needed to review everything around the system. A more detailed audit was the logical next step.

Mr Gerber referred to the amount in the background. He added up and came up with a difference of R 11.3 million. He wanted to know why there was this difference.

Mr Bhana responded that these were the costs as indicated by the Department but the A-G could not verify these amounts and could not reconcile the figures. This was an issue in the financial audit. The amounts were some examples of cost overrun and did not represent a complete list.
Mr Gerber asked what teething problems emerged from the report.

Mr Bhana replied that it was difficult to speculate on that.

Mr Gerber asked the DG if she had asked questions on the inconsistencies when she joined the DoT in 2005.

Ms Mpofu replied that the ENATIS file was one of the first on her desk – the planning for the migration from ENATIS. The core issue was whether the tender was awarded correctly. She said it had been adjudicated by the then State Tender Board. The board did not find anything untoward. The variance in the amounts related to the lack of understanding of needs. The courts dealt with that and had ruled in favour of the bidder.

Mr Gerber asked about the employees contract basis and how payment was made.

Ms Mpofu replied that this was for maintenance and enhancements. The maintenance costs amounted to an estimated R 17 million. They had an agreement with State Information Technology Agency who would take over this matter on their behalf and transfer the system to the Road Traffic Management Corporation.

Mr Gerber pointed out that the names of the companies the contract was awarded to differ in the report. Specifically, Face Technologies

Ms Mpofu responded that Arivia was the primary owner of the contract and that Face Technologies was a subsidiary of Arivia. The name was used for the contract but there were the same company.

Mr Gerber referred to the report section on the stringent security standards. It was reported that ENATIS met the most stringent security standards yet the special report of the A-G stated that a security officer was not appointed or involved for a considerable period. He said that this seemed to be two different stories and wanted to know why.

Ms Mpofu replied that there had been lessons learnt from the experience. She acknowledged that it was not in place from the initial stages. The department had subsequently taken a number of measures and the necessary arrangements were now in place.

Mr Gerber queried the steady increase in the amount of the tender, regarding the servers on loan from the vendor. He asked what the servers cost, what the term would be and how it came to be that a loan was necessary.

Ms Mpofu recounted the crisis ENATIS had in 2007. She said they had underestimated the capacity needs. The additional server was necessary due to a hardware crash. It was purely to resolve the crisis. No servers were currently on loan. The added capacity needed had been bought and installed.

Mr W Koekemoer (ENATIS Project Manager:DoT) spoke the cost question. He replied that the vendor, Hewlett Packard, had stepped in and provided the loan. This covered all the instances of the loaned servers. They had identified the areas of need in the crisis and the vendor then assisted to alleviated the performance problem. A server of this nature would cost approximately R 3.5 million at purchase. There were loaned at no cost due to their maintenance arrangement with Hewlett Packard.

Ms Mpofu replied that the escalated cost and difference between the amount of R 410 million and the R 594 million mentioned in the report. That difference arose from additional requirements of the provinces. Amounts were paid for by provinces and the additional sites, equipment, software and hardware was supplied to provinces. There was an amount shared, which was 30% to provinces and 70% carried by the DoT. This resulted in the additional cost of ENATIS. The DoT was responsible to oblige if provinces needed additional funds.

Mr Gerber pointed out an difference of R 2,8 million between the A-G report and the DG's letter pertaining to the value of the contract.

Ms Mpofu responded that this discrepancy was an error of rounding off.

Mr M Stephens (DA) commended the DoT on their willingness toward improvement. He highlighted the A-G's inability to find substantiating information and asked if additional information had been found that would help the A-G to determine the additional cost.

Ms Mpofu responded that the A-G was auditing a system under construction and that the finding would be different from the findings of the operational system. The department wase convinced that all the information needed to be tested during the implementation phase. The regularity audit now needed to occur to find the detail relating to financial transactions.

Mr Stephens said that he needed comfort that the DG had all the information for the audit to reach a final conclusion with no grey areas.

Ms Mpofu replied that she could confirm that they have all the information to submit to the A-G.

M Stephens referred to the cost overlap, due to the change in direction of ENATIS. He asked how this negatively impacted the milestones and what the extra cost was. He also asked when the change was decided upon.

Mr Koekemoer responded that the phased approach created difficulty. The technical experts suggested a once off data conversion process instead. He said that the old plan was too risky. This change happened about 12 months into the project. They had been able to make up some but not all of the time.

Mr Stephens remarked that surely the technical experts should have been involved from the beginning

Mr Koekemoer replied that they had underestimated the complexity of NATIS and its non-standard nature

The Chairperson noted the perhaps the DoT had not been sufficiently careful.

Mr Koekemoer responded that the State Tender Board had been responsible for the initial approach. The tender specification was prepared for the DoT by the consultants and it was probably at that point that the architectural error was made.

Mr Stephens inferred that it was the fault of  outside advisors. He asked if the DoT had taken any action against these parties due to costs incurred by faulty advice.

Mr Koekemoer responded that the parties could not be held accountable as they could have argued for the phased approach, but the DoT felt that this approach was the right one.

Mr Stephens asked about the cost determination and added that it should have been obvious that there would have been impact. He asked if the DoT had tried to obtain a legal opinion on any possible action against the faulty advisors.

Mr Koekemoer replied that the initial milestones had to be shifted back. Once the figures were checked in the regulatory audit that information would be available. The information the DoT had indicated that it did not have a negative impact.

Ms Mpofu asked if the DoT could provide this information to the Committee in writing. The indirect costs would have to be calculated and could be provided to the members.

Mr Stephens asked what the implications were of the removal of the workflow process. He referred to the scheduled implementation in future ENATIS releases.

Mr Koekemoer replied that they had started with the workflow items in the software and users found it difficult to use. For this reason, it had been removed from the application to be more familiar to the users and control the initial change. This had proved to be successful and the DoT was introducing the workflow module by module.

Mr Stephens referred to the disaster recovery site. From the report he read that the recovery plan had not been stress tested and asked if this had been done.

Mr Koekemoer responded that this had not been done as the capacity was insufficient. It had since been beefed up with the data centre which had additional servers. This was not done for the disaster site and they could not operate them both at the same level. He said the equipment would be delivered and installed by the end of July to give the disaster centre the same capacity to be able to switch and stress test disaster recovery.

Mr Gerber queried the current configuration of the security system had not been done and other pertinent sections were outdated. He also asked if Mr Koekemoer had to perform all the functions mentioned in the report. Did he have assistance as the project manager.

Mr Koekemoer replied that the governance model of various committees that dealt with the national user group from all 9 provinces on software requirements. There were many more committees and he had support from provincial.

Mr Gerber commented on his personal experience of ENATIS in his constituency. He said that the staff were overworked and asked how they were supposed to promote the system under these conditions. He thought the comment on attitudes in the A-G report was unfortunate.

Mr Smith said that he assumed that the buck stopped with the department as far as ENATIS was concerned. He asked if there was a service level agreement with local government as they were the ultimate service providers. He also asked what the sales agreement with the consortium was. Was the system still their responsibility after implementation.?

Ms Mpofu replied that the governance structure provided an operations management agreement with provinces. The National Steering Committee was the mechanism that regulated the services level agreements.

Mr Koekemoer replied that all components were under service level agreements. He added that they did not have an agreement with the consortium but they had such agreements with Telkom and the software vendor.

The Chairperson referred to finding by the A-G as to excessive access arrangements. He asked why this was so and had it been corrected.

Mr Koekemoer replied that this related to the use, by the DoT, of multiple user Ids. They provided extensive comments to the A-G on this matter. The nature of the problem was that more than on user ID needed to wok at several sites. This was not normal practice but the DoT's business required it.

The Chairperson thanked everyone for their attendance and participation.

The meeting was adjourned.


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