The Department of Home Affairs’ Financial Statements for 2007/08 were interrogated. This Department had received a disclaimer from the Auditor-General. The major problem was that there was no supporting documentation made available to the Auditor-General (AG). Members asked for an explanation, what system was now being put in place, and noted the serious consequences of an inability to verify transactions, particularly when case was being handled. Members then queried the controls, whether the departments were in contact with each other, whether their systems were compatible, whether there was still the power of certain officials to void transactions, what technological systems were being put into place, and what was being done about money collected on the last day of the financial year. Other questions related to the moneys collected from penalties, whether any time limits had been or should be imposed on the turnaround, how the Department was tracking documents, the steps taken to rectify problems with capital assets, and the various issues of non-compliance. Members were concerned at the statement that 50% of director-level staff had failed their competency tests, and commented that the quality of personnel was absolutely relevant to the jobs. They queried the length of time that the Turnaround Team had been in place, the reasons for the Acting appointments, whether issues of finance and financial management had not received priority, and the vacancy rate. Further questions related to the Lindela Centre, the renegotiated contract, the costs of keeping people at that centre, and the need to have the information of the actual average monthly levels forwarded to the Committee.
Members then questioned certain aspects of the report in relation to the Government Printing Works, in particular the cost of the Acting Chief Financial Officer and the reasons why a permanent appointment could not be made. It was noted that the contract was due to expire in December 2008, but the Auditor-General’s report on his performance would only appear months later and it was suggested that the contract be reconsidered. The proposed corporatisation of the Printing Works was also questioned.
The Committee then proceeded to a report on the Land Bank. All the current representatives present at the meeting were newly appointed, and were essentially attending to the turnaround strategy for the Bank. Questions from Members related to the medical certificates of senior officials, that had been interrogated in 2007, the numbers and costs of suspensions of staff, and the outcomes of the hearings, the amounts for which repossessed land was being sold and how the valuations were done, and the transfers to companies that had taken place on Christmas Day in a previous financial year. Members also enquired whether anything was being done to try to retain or attract back those large customers of the Land Bank, who had moved to commercial banks. They expressed concern about the vacancy rate, what was being done to recover the moneys owed to the Bank, why senior staff with the Bank had been able to acquire loans with the Bank, the sequence of events as far as the Board was concerned, and prescription of claims. The Committee observed that the role of the Bank was important, and it seemed that the current Team had a good idea of what the focus areas should be. The Interim Chairperson and Minister of Agriculture and Land Affairs addressed the Committee briefly on the current improvements. The proceedings were adjourned until early 2009.
Department of Home Affairs (DHA): Interrogation of Financial Statements 2007/8
Mr V Smith (ANC) said the major problem reported upon by the Auditor-General (AG) was that there was no supporting documentation made available to his office. The Department had said they had provided an indication of where the documents had been stored. The AG had confirmed that either documents had not been provided or they had been inadequate.
Mr Sagaren Naidoo, Acting CFO, DHA, replied that documentation for expenditure sat with their head office, whereas the documentation for revenue sat with the region. There were no supporting documents for many of their services because there were no application forms, hence no audit trail. There were initiatives to get the administrative portion of the work done within the region, and at head office, supporting documents had been recreated.
Mr Smith asked what system was being put into place to satisfy the Auditor-General with regard to future audits.
Mr Naidoo said controls had been put into place, and that 317 officials had been appointed for Government Garage to manage the smaller pieces of paper. There was discussion around what their officials kept as evidence and what the Auditor-General regarded as evidence for an audit, as there seemed to be a misunderstanding as to what documentation was required.
Mr Smith felt that there was a need to consider the consequences. A major problem for SCOPA was that the Auditor-General had no way of verifying what had been collected. When people were working with cash this was probably the biggest temptation for fraud. He asked what the Department was doing to satisfy Parliament that this urgent problem was being addressed.
Mr Naidoo said to date the Department was relying only on manual controls, which would continue in the majority of their offices. Since October 2009 the Department had established a receipting solution and had brought in a point of sales system. There were so far only five sites operating under this pilot project, but the aim was to have 60 such sites by March 2009. This made up 80% of the revenue generated within the country.
Mr Smith wondered whether government departments acted in isolation or whether they were speaking to each other as monies deposited in one department were accounted for elsewhere.
Mr Naidoo replied that their system was based on what was being done at South African Revenue Services (SARS) and was an in-house system that catered for Home Affairs.
Mr Smith noted that certain officials had the power to void certain transactions. He asked whether Home Affairs was aware that this was happening and what was being done to remedy this.
Mr Naidoo replied that this was a matter of financial discipline within an office. The system whereby it was possible for a cashier to void a transaction was being discontinued. The monitoring of the controls was being addressed and detailed rules were being given as to what an office manager, together with staff, needed to look at.
Mr Smith hoped that technological systems were being put into place
Mr Naidoo stated that the present system had a four-tier responsibility level. Individuals could not bypass the system and behind the scenes there was a full audit trail of who had done what.
Mr Smith asked what happened to monies collected in the last week of the financial year – and enquired whether it would be recorded in that year. The Department’s response had been that those monies would be recorded in the next financial year.
Mr Naidoo said this was an issue of cut-off. The Department worked until 3pm and the banks closed at 4pm in the afternoons. As an example, at the end of March 2008, R11 million in revenue received on 31 March was banked on the following day, at 10h00. In terms of the system and the banking configuration, the sweeping occurred once daily. The Department backdated transactions done on the previous day and the receipting of this money was shown as a reconciling item. The DHA worked on the cash basis not the accrual basis.
Mr K Latchman, Office of the Auditor-General, said that, for recording purposes, the transactions should be recorded for the period in which they actually occurred. If Treasury had a different view, they would make it known.
The Chairperson thought the need to bank money timeously was an important area of concern.
Mr Smith asked what the Department of Home Affairs’ policies were for recording monies collected from immigrants’ penalties. There had been disclaimers year after year, and a turnaround team had been working for two years. He wondered if perhaps there was a need to put time frames on the turnaround team.
Mr Naidoo explained that after an individual transgressed, he or she had the right to appeal, and he noted that a fine was paid only once the appeal was unsuccessful.
Mr Smith confirmed that the Department raised the debt only once the individual came back into the country. He asked what documentation was obtained to prove an unsuccessful appeal and what happened to such documentation, since the Auditor-General had claimed that he had not been given sight of this.
The Chairperson interrupted to note that the issue was one of implementation or lack thereof and he asked what the Department was doing to ensure that the documentation was being kept.
Mr Naidoo replied that in each case a file was being documented and each page was being labelled so the pages could be tracked. In the future, those documents would be scanned. He said that the problems had been sorted out. He referred to page 134 (iii) of the Annual Report. In the absence of documentation, Treasury allowed for a valuation exercise.
Mr Smith expressed regret that National Treasury was not present. To use an example, the BAS and MCS systems could not interface in the future. Department of Home Affairs said they could not solve the problem because Treasury was delaying. He thought that either National Treasury needed to explain why they were delaying, or Parliament had to find a solution.
Mr Naidoo replied that MCS was not an accounting system, hence the interface to BAS was not allowed. BAS was going to be discontinued.
Mr Patrick Chauke (Chairperson, Portfolio Committee on Home Affairs) suggested that perhaps an amendment was required.
Mr G Lekgetho (ANC) asked what measures had been taken by the Department to rectify certain problems around capital assets, including those with the Government Garage.
Mr Naidoo responded to Mr Smith that the asset register was now up to date as at 31 March 2008. He said that the corrections had been given to the auditors after they had been dealt with.
The Chairperson noted that an area of challenge raised by the Auditor-General was around non compliance. There were six non compliance issues. Six areas of the PFMA had been violated in the Department. Sixteen National Treasury Regulations and two sections of the Public Service Act had also been violated. He asked how the Department was dealing with this and what the root cause of the problem was.
Mr Naidoo said he viewed non compliance very seriously. The root cause was a basic lack of knowledge and understanding and skills, as well as discipline.
The Chairperson asked how it was that people without knowledge and skills were employed. He asked if the Department was suggesting that in its people were incompetent.
Mr Mavuso Msimang, Director General, DHA, said a number of staff had failed their competency tests.
The Chairperson asked what percentage of employees had failed their competency tests.
Mr Msimang replied that, at the level of directors, more than 50 percent did not meet the requirements of these tests.
The Chairperson observed that if managers were not competent, junior staff led by incompetent people would not be productive. If human capital was not sufficiently competent, all the latest technological gadgets in the office would come to naught. The key area of focus was the quality of personnel. If management was not effective, there would undoubtedly be non compliance.
Mr Msimang agreed that the biggest element of the challenge at DHA revolved around getting people with sufficient management skills. The top management team were looking at the competencies of staff as the Labour Relations Act was clear on what to do to get a person to perform well. The Department was redefining jobs and putting in place programmes to train staff where they fell short, so they could fulfil their tasks.
The Chairperson observed that the key area of focus was the quality of personnel. Tied to this was the turnaround team. He asked again if there were time frames, and what would the situation have been had the turnaround team not been in place.
Mr Msimang explained that the turnaround team had been in place since June 2007. The cost to date was R146 million, plus R196 million for the current year.
Mr Naidoo confirmed that the contract had commenced in May 2007, and that the present contract was for two years, from December 2007 to December 2009. R300 million had been set aside for each year.
The Chairperson was concerned about the expenditure of R196 million, in light of the fact that this report by the AG was a disclaimer, and in view of the fact that the vacancy rate of the department was 29.1%.
Mr Msimang replied that the turnaround team had not been brought in specifically to train people, but to do a wide range of things, including the training of people, which could not be achieved overnight. In some areas there had been visible changes and significant improvements, as far as the public was concerned, in terms of service delivery.
The Chairperson asked whether issues of finance and financial management had not received priority.
Mr Msimang responded that the issues of financial management and controls had really begun in October 2007, when the Acting CFO had been hired. The turnaround process had started with the Directorate of Special Operations / Scorpions from June to October.
Mr P Gerber (ANC) asked for more details on the Turnaround Team.
Mr Naidoo explained that the turnaround team consisted of Fever Tree (the local branch) and consultants, who varied from 10 to 170 in number.
Mr G Lekgetho (ANC) asked for a breakdown of the number of Chief Financial Officers, Deputy Directors General and directors..
Mr Msimang explained that the Acting CFO was acting, because the appointed incumbent had been involved in a disciplinary hearing for more than a year. There was only one Deputy Director General who was not acting at that moment, but three acting appointments in the current structure.
The Chairperson asked at what levels the 29.1% vacancy rate was the highest, and whether the turnaround team was fulfilling management responsibilities.
Mr Msimang replied that the highest vacancy rate was to be found in critical key positions in management. The Department had arranged for short term management leadership support teams. The turnaround team had been involved in a number of matters. This team included a specialist in logistics, a person looking at and reviewing contracts, and putting in service delivery contracts. They had studied why there were such long queues. It had been proposed that places be created where information could be obtained, hence the implementation of call centres. There were 53 projects in which the turnaround team was involved. Page 127 of the Annual Report contained a list of areas in which the turnaround team was involved.
The Chairperson commented he was not getting a sense that issues of finance had been elevated to a very high priority. SCOPA’S concern was that things were going to collapse. They did not want to undermine the work that had been done, but they wished to work as a team and wanted to make recommendations to the Department. He asked for feedback on the renegotiated contract applicable to Lindela Detention Centre.
Mr Naidoo said that the DHA had renegotiated the contract, but it contained an amendment that had come into effect in February 2008. The 10 year contract had begun in 2005, the outcome of the amended contract was a saving of R7.2 million per annum over the life of the contract for the next seven years.
Mr Msimang added that the costing for inmates at Lindela was based on R95.37 per day, at a fixed number of 2 500 inmates per day. The provision of medical facilities would be subject to a separate agreement.
The Chairperson recalled this Committee’s dissatisfaction with the way in which the contract had been structured. He wanted to see where the savings would come from, and asked if Mr Msimang would forward information of the actual average monthly levels.
Mr Gerber raised the cost of office refurbishments (seating, signage, furniture) for many of the offices, as contained in a tender the Department had put out dated 14 November 2008.
Mr Naidoo replied that these had gone out to tender because the refurbishments in all these offices amounted to more than R500 000, which was the minimum level in terms of the Procurement Act. There was sufficient in the budget to cover these costs. The first step was to create a panel of vendors, and then there would be orders per vendor, which would be done on a case by case basis as the need arose. The terminal seating would cost approximately R20 million, and the front office redesign would cost in the region of R15 to R20 million.
Mr R Mofokeng (ANC) observed that Home Affairs dealt with the important matters of birth, marriage, and the identification of every person in our country, so it was an important department. He enquired what the position had been from 2006 to May 2007 regarding the Director General.
Mr Msimang replied that he had been appointed in 2006, after the former Director General had resigned in the same year.
Mr R Mofokeng observed that the Acting Chief Financial Officer in the Government Printing Works earned R1 398.00 per hour, or R246 000 per month, which came to approximately R3 million a year and said that this sounded ridiculous.
The Chairperson asked what this six-month contract of more than R1 million was supposed to achieve, whether a replacement had been found and whether the contract would be renewed.
Mr Msimang said it was not easy to attract a person who was willing to do this job. A Chief Financial Officer (CFO) was at the level of Chief Director. A replacement had not been found, and if the Department could not replace the person, he hoped they would continue with a short term arrangement. In response to Mr Smith’s question about Mr Barnard’s qualifications and whether or not his contract spelt out deliverables, he replied that the CEO would be able to answer those questions. Some of this money went to the sourcing company.
Mr Smith reiterated his question as to what was being bought for R1.5 million for six months. This contract expired in December 2008, yet only the Auditor-General’s report, which would come out in August 2009, could say whether Mr Barnard, the contractor, had indeed delivered. He asked what recourse there was and suggested that some funds be kept back in retention, and that the Department renegotiate this contract.
The Chairperson also asked what specifically was supposed to be delivered, and commented that the absence of the CEO of the Government Printing Works was a handicap.
The Chairperson explained that the CEO was very unwell.
Mr R Mofokeng reminded the members of the 2005/2006 and 2006/2007 disclaimers. There was a need to reconcile the budget with who was actually employed. SCOPA really needed three-monthly progress reports.
Mr Gerber saw no reason for the corporatisation of the, Government Printing Works, as he commented that this was not meant to make money. He was not convinced that the Department could not get someone to fill the post or work for the amount of money mentioned.
The Chairperson said SCOPA remained hopeful that the Government Printing Works and the Turnaround Team would interface to manage the resources of the State better.
Land Bank: Hearing on the audited financial statements 2007/08
Mr Gerber enquired who had been at the Land Bank previously.
Mr Phakamani Hadebe, Interim CEO, Land Bank, replied that all the current representatives of the Bank present today were newly appointed, and that they worked as a team.
Mr Gerber referred to page 38 of the Minutes of the SCOPA 2007 hearing. He asked whether the medical certificates of senior officials were filed.
Mr Hadebe said these were difficult to obtain.
Mr Gerber asked how many people under suspension were being paid salaries, and what positions they had occupied.
Mr Hadebe replied that 16 had been suspended. 10 had been dismissed, 5 reinstated and one was in progress. They had all occupied senior positions. The total cost of the payments during the suspension was R6 million.
The Chairperson suggested that perhaps the outcome should have come after the date of finalisation.
Mr Gerber asked whether repossessed land was sold only to the Department of Agriculture. He asked why the properties were valuated down, noting that none of the valuations had gone up.
Mr Hadebe replied that after all the legal processes had taken place, and as a last resort, the properties attached would be sold on auction and anyone could purchase. By the time that people were defaulting, the real value was far less because the property would not have been maintained.
Ms Delanie Lamprecht, Head of the Clean-up Team, Land Bank, explained that, from an accounting viewpoint, the Land Bank valued properties independently.
Mr Gerber asked whether anyone was in State departments on Christmas Eve, since he saw that on Christmas Day, three amounts of money amounting to R4.08 million and 2 amounts of R9 million had been transferred via the Land Bank to BEE companies.
Mr Hadebe replied this was being investigated by the police.
Mr Gerber asked whether anything was being done to get back those large customers of the Land Bank, who had moved to commercial banks.
Mr Hadebe replied that the only solution was to tell these institutions that the Land Bank was being turned around, using forensics, the Scorpions, and other methods. Just that week the Land Bank officials had met with ten customers who had indicated that they were coming back because the Land Bank was sustainable.
Mr Gerber referred to the Annual Report and asked why so many forensic investigations had taken place. He asked why 50% of senior management posts were vacant, and asked what was being done to curb the payment of salaries while people were in acting positions.
Mr Hadebe stated that it had been decided to bring in private investigators outside of the South African Police Service (SAPS). People had left because there were different opportunities outside, and the Land Bank was under pressure. They had retained the team that had audited the Land Bank over the last five years.
Mr Gerber asked what was being done to recover the amount of R8.7 million.
A Land Bank team member responded that the Bank was looking for potential financiers.
Mr Hadebe explained that the flat in Greenpoint,
Mr Gerber asked for an explanation of the comparative figures for 2007 and 2008 relating to Office 3865, and he asked how it was possible for the land valuation to jump when the building valuation had gone down.
The Chairperson suggested the Committee should return to this issue.
Mr Gerber observed that the declaration of the interests of senior staff was not up to standard, as two non-executive directors had loans with the Land Bank.
Mr Hadebe replied that the Clean-up team would give them a clear direction. If the money (paid by the Board as severance fees, without permission from the Minister) was not recovered, it would be written off.
Mr Smith asked for a brief history of the sequence of events.
Mr Hadebe responded that there had been no Board in place between September 2007 and March 2008, hence controls at the Land Bank had been weaker. The new Board was fully constituted by March 2008 and then began to work on challenges.
Mr Smith referred to Page 113 of the Annual Report, and expressed his concern about the prescription of claims. He enquired about the number of staff involved.
Mr Jaco du Plessis, Interim CFO, Land Bank, replied that the valuation was done by an actuary. There were 428 members. The Bank complied with international financial recording standards and the Team would see what could be done within these standards.
Mr Gerber noted the decline in clients and asked what could be done to reduce the risks, since presently the Bank had five clients.
Mr Hadebe said there was an increase in presentations to target the market. Clients who had left were steadily coming back to the Bank.
The Chairperson observed this was the first time the interim CEO had come to SCOPA, which was a good sign, because commitments were being made by people who had the authority to implement them. SCOPA wanted the Bank to play the important role it was supposed to play, which was difficult if there was not continuity and stability at leadership level. SCOPA believed the Land Bank Team now present had a sense of what the focus areas were.
Mr Hadebe wished to highlight they had already put a monitoring system in place, and wanted to be judged by the next Annual Report.
Prof HD Van Schalkwyk, Acting Chairperson, Land Bank explained there were three different phases: the Clean-up, the establishment of sustainability, and the turnaround of Bank ownership. There was a new vibe of excitement and loyalty, HR capacity was being improved, more and more qualified people were willing to join the bank, shareholders were all buying into the system, the cost to income was decreasing, and the Land Bank was seeing improved liquidity. A strategy was being developed to stabilise the Bank. This was the third time the Land Bank had adopted such a strategy since the promulgation of the Land Bank Act in 2002.
Ms Lulu Zingwana, Minister of Agriculture and Land Affairs said that her Ministry, the Minister of Finance, the Cabinet and the Presidency had had numerous consultations. The Interim CEO and the board at the Land Bank had done a great deal of work. At least since 1995, if not earlier, there had been huge corruption at the Land Bank, with large amounts of money not being accounted for. Most of these people had been found guilty. She agreed with the Interim CEO and the Board that all these monies had to be demanded back and repaid.
The Chairperson noted that the Committee had run out of time.
He suspended proceedings until 2009.
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