Auditor General on SRSA 2007/08 Audit Report

Meeting report

Introduction by Chairperson
Mr B Khomphela noted that he had come from a Chair of Chairpersons meeting where the Auditor General had clarified the requirements for departments in order to obviate the adverse remarks by the Auditor General which appear in so many audit reports. He was pleased to see Mr Jan Steenkamp from the Office of the Auditor General present as he felt that this could be the basis for a continuation of the development of a more friendly relationship between the Department of Sport and Recreation and the A-G. He expressed the hope that this meeting would be the first of many at which a more collegial working relationship would be founded. He viewed this as a big responsibility.

Addressing the representatives from SA Institute for Drug Free Sport, the Chairperson expressed dismay that they were present but that his Committee had not received the Annual Report from the SA Institute for Drug Free Sport. This disadvantaged the Committee, as they would now be expected to follow the Annual Report, from a power point presentation without having had the opportunity to peruse their Annual Report. He then ruled that the Committee would not accept the briefing from the SA Institute of Drug Free Sport.

The SA Institute of Drug Free Sport was represented by Dr Shuaib Munjra, SAIDS Chairperson, and there was an increasingly heated exchange with Mr Munjra where it became apparent that the Institute had submitted 510 copies of its Annual Report in time but had addressed to a Mr Pama of the Documentation Section and not the Secretary to the Committee. The Committee Secretary explained that it was not an obligation of Mr Pama to distribute annual reports to the respective committees. These reports were made available to the general public on receiving a letter from the secretary of the relevant committee that the report concerned had been released. Mr B Solo (ANC) added that normal practice was for the reports to be submitted to the Committee Secretary who in turn submitted them to Mr Pama.

The Chairperson agreed to schedule a meeting with SAIDS for 15h00 the following day but said that this indulgence was not to be interpreted as a precedent for deviations from accepted practice in future.

Mr D Lee (DA) stated that he wished to have sufficient time to peruse the report, and any others, in advance of the meeting so that he could perform his obligations as a Member of Parliament. Mr Lee then told the Chairperson that he was required to attend a caucus of his party and requested permission to be excused from further participation, which request was granted.

The Chairperson also remarked that he had received a letter from the DA asking that a meeting between the Committee and SASCOC and the DA be arranged but that in the circumstances this could only be arranged in the next parliamentary session.

The Chairperson then noted that both the Auditor General and the Director General had been requested to appear before the Committee, but that both had asked to be excused sending in their stead junior members, Mr Jan Steenkamp and Ms Alison Burchell. The Chairperson stated that he had no objection to the junior members in themselves or representing their seniors but he was not going to countenance or accept such a situation easily. He added that he felt that it was the duty of the persons concerned to appear before Parliament. The Chairperson then invited the Office of the Auditor General to brief them.

Office of the Auditor General briefing on SRSA 2006/7 Audit Report
Mr Jan Steenkamp (Auditor) provided a brief introduction and in turn invited Mr Hlongwa to brief them.

Mr Musa Hlongwa (Auditor) pointed out that the A-G audited the Annual Report which had to be produced by the Accounting Officer who was responsible for the preparation of the Annual Report in line with the requirements of the Public Finance Management Act (PFMA) as amended, the Division of Revenue Act (DORA) and the accounting policy notes issued by the National Treasury (NT) and also in accordance with the International Standards on Auditing and General Notice 616 of 2008. Such standards require that the A-G comply with ethical requirements and plan and perform the audit to obtain reasonable assurance on whether the financial statements were free from material misstatement.

In this regard he directed the attention of the Committee to the transfer of R2 m to Boxing South Africa which had been done without securing approval by the Treasury in advance, as was required by the provisions of the above legislation and practice guides.

The Chairperson asked why this was raised in the comments by the A-G. He emphasised that he wished to assist all the parties and wanted the reason for this being raised, and what the raising signified.

Mr Hlongwa replied that this was one of five items raised and was done so because this payment was a contravention of the law.

The Chairperson replied that the argument advanced by the Department was that they had raised this orally with Treasury and they had received the assurance that their intended actions were approved.

Mr Hlongwa replied that although National Treasury might very well have received an oral explanation and admitted to understanding it, and the reasons for the action, nonetheless the laws required that written approval for the transfer be obtained in advance of the transfer being made. It did not matter that this amount had been budgeted for, Treasury regulations and the laws required that in advance of such transfer, written approval had to obtained. Mr Steenkamp supported his colleague in this explanation of the requirements.

Mr Hlongwa then identified the fact that performance bonuses had been paid without an assessment audit in terms of Public Service Regulations to justify the payment of these, or if the performance assessments had been done, these were not available in support of these payments which accordingly were viewed as irregular. In similar vein there was the question of the payment of 8% bonuses. Such payments had been made without any acceptable supporting documentation or vouchers.

The Chairperson wished to know why such were irregular payments.

Mr Steenkamp explained that without acceptable supporting documentation or vouchers any payments were irregular. In fact such payments had been the subject of the SRSA 2006/7 Audit Report’s qualification and because no remedial action had followed it had been highlighted in the 2007/8 Annual report.

The Chairperson asked how this could be corrected.

Mr Steenkamp answered that it was a simple matter of not making payments, until there were the correct supporting documents or the correct supporting vouchers or the written approval by Treasury.

The Chairperson asked how correct such supporting documentation should be.

Mr Steenkamp replied unambiguously.

The Chairperson stated that although in terms of Public Service Administration Rules, the Internal Audit Committee could not make such payments, the opinion of the Legal Advisor was that the recipients of these payments were not at fault and that these payments could not be remedied post facto.

Mr Steenkamp replied that SCOPA was presently engaged in an investigation into the approvers of all such payments, in this department and others and that the persons who approved these irregular payments would be called upon to personally reimburse the Departments for these irregular payments.

The Chairperson demanded to know who would follow up these irregular payments. He claimed that there was no basis or requirements for such actions. He felt that the A-G was trying to squeeze the last drop of blood out of the persons and that this was not right as the responsibility was that of the Accounting Officer.

Mr Hlongwa replied that it was the responsibility of the Department to regularise or clarify the matters.

The Chairperson reverted to the matter of the 8% bonuses and the investigations thereof. It seemed to him that a request for condonation and simply writing it off the books was not appropriate. He added that he wanted to be clear, robust and clinical for this matter could not go on for two years.

Ms Ntuli said that this matter seemed to be going on for ever as it was merely carried over from year to year and the A-G would not accept it and she wondered what the reason might be.

The Chairperson stated that it seemed that the Department was required to follow the guidelines to the letter and that there should be no deviation by the Department from these guidelines and the legal requirements. He asked how it was going to be handled by the A-G and whether explanations were required.

Mr Steenkamp replied that the guidelines had been set out in practice note 4/2008/9 and if they were followed, application for condonation could be made, and might be approved.

Ms Alison Burchell, Chief Director: Client Services, Liaison, Events and Facilities, SRSA, said that she had taken note of the comments by the Chairperson and the explanations by the representatives of the A-G and would be investigating and reporting back.

Mr Steenkamp reiterated that the requirements were spelt out in the practice note referred to and that all that was required was conformity to it, nothing more, and nothing less.

The Chairperson added that Mr Steenkamp and Mr Hlongwa were spelling out the requirements of the legislation and the Office of the A-G very clearly and that they would revert to the Department.

Mr Steenkamp reiterated that the practice note set out the requirements which were to be met.

The Chairperson asked whether other departments followed the practice note referred to.

Mr Steenkamp replied in the affirmative.

Mr Hlongwa added that without the CORRECT supporting documentation or PRIOR WRITTEN APPROVAL no payments could be made lawfully.

Ms Burchell asked whether this held good even if the relevant staff had left the department or more likely had not taken their leave because their request for leave had been refused because of operational requirements.

The Chairperson asked whether this was a reference to the payment of R150 000 without supporting documents or vouchers and he directed a question to Ms Burchell and wanted to know how it was done.

Ms Burchell replied that personnel requested their leave in June, which was an exceptionally busy time for the Department and these requests were refused by the departmental heads for operational reasons. At the end of the financial year, it was discovered that the staff members concerned had not taken their allotted leave and so they had been paid out for this leave not taken. She added that there was no consistency in the pattern of urgent reports required from the Department.

Mr Steenkamp said that without proof, these payments should not have been made and that unless there was proof that a request for leave had been refused, and further that it had not been taken at any other time within the financial year there was no justifiable reason for making payment and so such payments were regarded as irregular.

Mr Lucas (IFP) said that it seemed very simple to him, that if the Department did not have correct supporting vouchers or written approval any payment was irregular and would be question by the A-G. It was very serious to embark upon payments without the necessary and correct written support.

The Chairperson asked Ms Burchell what steps were in place to cover this requirement.

Ms Burchell added that an Internal Audit Committee had been installed, but later, not at the beginning of the financial year. In terms of the Audit function, the Department was building up capacity and now had a fully staffed section.

The Chairperson asked if the Internal Audit Committee was aware of the practice note and other legislation because he wanted to be sure that this was the last year that the A-G would make adverse notes about the Department.

Ms Burchell said that there were ongoing discussions in this regard.

The Chairperson asked why this was so, pointing out that the Department was 15 years old and the PMFA Act and its requirements was 10 years old. He asked how much longer the Department would take to recognise this and be able to comply with the legislation and obtain a clean Audit report.

Mr Steenkamp added that the Minister and the Chairperson had resigned and that it was difficult to constitute a full committee.

The Chairperson added that this might be so but money was falling through the crack and he could not risk having this and he was getting impatient about the risks.

Ms Burchell replied that she was under the impression that the robust discussions with the A-G were bearing fruit and that the Department was trying to improve so as to comply with the King II Report on corporate governance and with the PMFA Act throughout its dealings.

Mr Hlongwa added that he thought the Department was becoming more user friendly to the A-G and the requirements of good corporate governance.

Ms Ntuli said she wanted to check whether it was the Department failing or the A-G merely being too strict.

The Chairperson sought clarification from Mr Steenkamp.

Mr Hlongwa replied that there were issues about the audit itself. The non-compliance by the Department meant that the costs of the departmental audit were increased unnecessarily and what was required was a report on the activities of the whole year.

Mr Steenkamp commented that the questions and comments by the A-G would not arise if there were no problems arising from the Department’s non-compliance with the legislation and practice notes regarding its expenditure of the funds entrusted to it.

Mr Lucas (IFP) added that if there were problems these must be rectified by the Department.

The Chairperson referred the Committee to the last item: letters of appointment and acceptance of appointment by staff members.

Mr Hlongwa pointed out that the Department’s records do not contain letters of appointment (with job descriptions) or letters from staff members confirming acceptance of the job offers and the job descriptions so that these could be matched with wage and salary payments that the Department made in the period under review.

The Chairperson asked how such a situation was possible and how it had arisen.

Ms Burchell said that she was not aware of the details. However, when the Sports Commission had been dissolved its functions and staff had been absorbed by the Department. She suspected that it was from this inheritance that the situation as outlined by Mr Hlongwa had arisen, but she was not sure.

Mr Steenkamp pointed out that this was not the first time this query by the A-G had appeared and in fact it was a carry over form previous A-G Audits which had not been attended to by the Department. He pointed out that Public Service regulations require that each person appointed must be appointed in terms of a letter of offer, which contains reference to a job description. The person to whom the offer was made was required to confirm in writing acceptance of the offer and that that person understood the job description attached to the post occupied. This, he added, was not rocket science or a new innovation but a long-standing practice. Arising from this was the question of leave and bonuses and he suggested that the Department was required to investigate and rectify the position. He suggested that there must be a thorough investigation.

The Chairperson added that when the Department had absorbed the Sports Commission, the Department said that it was not ready and had suggested that arrangements being made were temporary. The Committee had raised and remarked upon the situation at that time but it now appeared that nothing had been done in this regard. He added that this was how ghost workers crept into the system and he wanted the Department to investigate and explain the situation for it seemed to him that this was a can of worms.

Ms Ntuli added that this was wrong and affected bonuses. She asked how it should be put right.

The Chairperson suggested that the motivation in terms of the labour laws should be put to the National Treasury.

Mr Hlongwa added that the A-G had been asking for this report for some time.

Meeting Break

Mr Hlongwa referred to the A-G comment about tangible assets and said that every year the opening balances were adjusted without evidence. He explained that at the beginning of every financial year, which did not mean only at this time, the Department’s asset register should be examined and a full and proper examination made of all assets within the Department, to ensure that they existed, and what was their condition. The list produced thereby should be compared with the list at the closing balance of the previous audit year. Those items which appeared in both lists, subject to depreciation, could be entered on the asset register and those items missing should be tracked down. If they could not be found at all, an explanation for their disappearance should be made, and also a report as to what efforts had been made to discover the whereabouts of such items. If the explanation was acceptable, that item could be written off. However, if the explanation was not acceptable, the item, or its value, should be recovered from the person who last had had control of it. New items, as acquired, should be entered on the asset register and if this simple system was followed there would be no further queries by the A-G in the future. He suggested that the following of Treasury Guidelines was not rocket science.

Mr Steenkamp pointed out that in 2006/07 the A-G had questioned the opening balances, the disposal and the end balances on the asset register. He suggested that if the Department had studied the Treasury Guidelines and applied, these there should be no problems but until this was applied, the A-G would be unhappy with the Asset Register. There had to be justification for any changes. If, there were real problems, he suggested that National Treasury should be approached, the problems revealed and discussed at length. Thereafter, as guided by National Treasury, reflect the situation in the forthcoming Financial Statements.

The Chairperson summarised the current state of affairs, saying that the Department had known of the situation for two years and done nothing to rectify it.

Mr Steenkamp replied that in a “nut shell” the Chairperson had correctly summarised the position. He added that it was not sufficient to have a word of mouth report, there had to be acceptable written explanations of any loss and the consequent attempts to recover the lost item/s that there had to be an acceptable methodology and a proper reconciliation. This had to be performed on a monthly basis.

The Chairperson recommended that Ms Burchell interact with the A-G on an ongoing basis.

Mr Hlongwa pointed out that the interactions were required to be with National Treasury and the function of the A-G was to determine whether proper and acceptable procedures were followed, not to institute the procedures and perform them.

The Chairperson asked whether this would conform to national guidelines.

Mr Steenkamp reiterated that with proper supporting documentation, it would.

Mr Lucas said that it seemed that proper supporting documentation was the key to solving the problem.

Ms Ntuli asked how the opening balances were going to be verified and signed by the responsible person. She wanted to know why the A-G did not do this as it would, in her opinion strengthen the relationship between the Department and the A-G.

Mr Steenkamp reiterated once more that proper supporting vouchers for all entries, inclusive of the asset register, were required.

The Chairperson said that it seemed simple logic to him that if there was acceptable supporting documentation there would be no queries and comments from the A-G

Mr Hlongwa proceeded to the matter of Goods and Services and the R4 million paid to service providers without supporting documentation to validate such payments.

Mr Steenkamp added that there were no controls implemented and this amount should have been paid directly to the athletes concerned and not through intermediaries.

The Chairperson asked why it was so difficult to go directly and why an intermediary should be used at an agent’s fee.

Ms Burchell replied that it was complicated. Initially the payment had been made to the High Performance Centre at the University of Pretoria which had been able to verify that the athletes were up to standard and were performing. A decision had been made to pay over to the Federation governing the athletes. What concerned the Department was that the A-G required conformation that the athletes actually received the money. She added that this was a nightmare and the Department was seeking corrective measures.

Mr Steenkamp said that what was required was documentation to show that the payment was valid.

The Chairperson summarised the position as the Department giving money to the service provider, be it the University of Pretoria’s High Performance Centre or the Federations who gave it to the individual athletes. He asked what the mandate of the High Performance Centre or the Federations might be, and why the Department was avoiding paying the athletes directly.

Mr Steenkamp pointed out that the University was charging a substantial fee for whatever it did.

Mr Lucas said it seemed a simple matter to change the method of payment.

The Chairperson said that he felt it reflected upon the Department.

Mr L Reid (ANC) said it was clear that the intermediary was receiving a 10% fee and he wanted to now why that was being paid and whether the athletes could not be given a 10% increase if the Department made the payments itself.

The Chairperson said that this was entering into the choice of service providers but that the payment to the intermediary must be recovered.

Ms Burchell in an exculpatory statement explained that the system had been inherited from the Sports Commission and never questioned. She added that there was a feeling that the federations should not be the intermediary for the payment to the athletes as the federations were too controlling and would force the athletes to perform. Additionally if the federations had been paid this would have required approval by Treasury and there was always the question of delinquent federations.

The Chairperson stated that he felt that the last option was unacceptable and that payments should be diverted through the University and that the A-G should get a copy of the agreement with the University.

Mr Hlongwa raised the question of payment of royalties, since 1 August 2005, and that there were no full and proper records.

The Chairperson asked for an explanation, adding that this related to the emblem. He referred to the letter on the use of the emblem by the big three: Rugby, Cricket and Soccer, which he added had fallen through the cracks.

Copies of the letter from the Minister of Sport and Recreation dated 7/11/2008 were distributed.

Mr Steenkamp replied that this was currently with the legal advisors and he could add nothing.

The Chairperson asked whether it could not be picked up.

Mr Steenkamp replied that it had been picked up.

The Chairperson asked what, in the light of the letter from the Minister of Sport and Recreation, was the current position.

Ms Burchell replied that this amount was royalties from the use of the Protea.

The Chairperson said that it needed clarity.

Mr Hlongwa said that there appeared to the A-G to be no approval, no valuation and no tracing of such payments received. This was a weakness which was being followed up.

The Chairperson added that there was a constant question of controls and he wanted answers as to what the Internal Auditors were doing.

Mr Steenkamp replied that subsequent to the amalgamation, there were no properly trained staff and that the staff were experiencing on the job training. It was a question of management and supervision to ensure compliance with the guidelines and legislation.

The Chairperson said that this had been the story for five years and there was still no turn around.

Ms Burchell replied that she was not sure how the problems had arisen and would be drawing it to the attention of the Director General for official attention.

Mr Reid suggested that it arose from the amalgamation with the Sports Commission and that there was in fact a marriage of two different cultures and that the employees did not know on what basis they had been employed and what their capacities were.

The Chairperson stated that the Department could not operate without a vision and systems. These had to be installed and implemented.

Mr Hlongwa pointed out that the Department was required to comply with the legislation which governed supply chain management, the PMFA, Treasury requirements and Practice Notes and that none of this was rocket science. Any donations above R100 000 had to be first approved by Treasury. What was of concern was that cancelled travel expenses were placed in a suspense account and this needed to be properly addressed.

The Chairperson added that this needed to be cleared up and that the Director General was the Accounting Officer who bore the responsibility. He added that there seemed to be no planning and no vision. The Department had not sat down and examined its obligations in terms of the financial legislation, made a check list and set about ensuring that it complied with these by way of quarterly or even monthly interim reports.

Messrs Hlongwa and Steenkamp both agreed in their statements that if these were adopted by the Department and the Department ensured compliance with the relevant financial legislation, there should be no or minimal questions and queries and comments by the A-G in the future but that the answers lay in the Department. Neither the Treasury nor the A-G was empowered to perform the function for the Department which the Accounting Officer was required to do, and for which the Accounting Officer was remunerated.

The Chairperson said that it appeared that if attention were to be given to the detail, the whole would fall into acceptable place. He thanked all concerned for their attendance, participation and assistance.

The meeting adjourned.