ATC110316: Report on Annual Report & Financial Statements of Road Traffic Management Corporation, & report of Auditor-General on Financial Statements of Road Traffic Management Corporation

Public Accounts (SCOPA)

Report of the Standing Committee on Public Accounts on the annual report and financial statements of the Road Traffic Management Corporation, and the report of the Auditor-General on the financial statements of the Road Traffic Management Corporation, dated 16 March 2011

 

1. Introduction

 

The Standing Committee on Public Accounts (SCOPA) heard evidence on and considered the contents of the Annual Report and the Report of the Auditor-General on the 2009/10 financial statements of the Road Traffic Management Corporation (RTMC). The Committee noted the adverse opinion, highlighted areas which required the urgent attention of the Accounting Authority, and reports as follows:

 

2. Road Traffic Infringement Agency (RTIA)

 

The Auditor-General identified the following:

 

a)       The RTIA was not listed or scheduled as a public entity as required by section 47(2) of the Public Finance Management Act (No.1 of 1999) (PFMA), and the expenditure and revenue relating to the administrative functions of RTIA have been included in the financial statements of the RTMC.     

b)       The RTIA did not submit separate financial statements as required by section 14(3) of the Administrative Adjudication of Road Traffic Offences Act (No. 46 of 1998) (AARTO). The failure to submit separate financial statements resulted in the RTMC’s financial statements being materially overstated by the following amounts:

·         Trade and other receivables                     R109 513 475

·         Cash and cash equivalents                     R45 471 678

·         Trade and other payables                        R41 963 957

·         Income                                      R92 554 274

·         Operating expenditure                R95 937 946

 

 

 

 

The Committee recommends that the Accounting Authority ensures that:

 

The RTIA submits its own financial statements for audit. The Agency should be fully operational with its own financial systems and its financial transactions should be excluded from the financial statements of the RTMC.

 

The Committee notes that the RTIA was listed as a Schedule 3A public entity on 31 December 2010.

 

3. Road Traffic Management Corporation (RTMC)

 

3.1 Fiscal sustainability

 

The Auditor-General identified the following:

 

a)       The RTMC incurred a net loss of R84 773 110 (excluding RTIA) during the year under review. The entity’s current liabilities (excluding RTIA) exceeded its total liabilities (excluding RTIA) by R134 017 644. These conditions indicate the existence of a material uncertainty and significant as to the entity’s ability to operate as a going concern.

b)       The RTMC budgeted for a deficit for the 2009/10 financial year, contrary to the requirements of section 53(3) of the PFMA. 

 

The Committee recommends that the Accounting Authority ensures that:

 

a)       The RTMC does not budget for a deficit and the entity implements proper budgetary controls.

b)       The Department of Transport requests additional funding from the National Treasury.

 

 

 

 

 

3.2   Irregular expenditure

 

The Auditor-General identified the following:

 

a)       Irregular expenditure amounting to R360 879 704 was incurred as proper tender processes had not been followed and a transaction fee owed to the Department of Transport was utilised irregularly by the RTMC.

b)       The amount previously declared as irregular expenditure was adjusted by R12 108 470 in the current financial year as additional irregular expenditure relating to the 2008/09 financial year was discovered in the current year.

 

The Committee recommends that the Accounting Authority ensures that:

 

a)       The Corporation’s Supply Chain Management (SCM) policy is updated, encompassing all the elements of the PFMA, Treasury Regulations, Preferential Procurement Policy Framework Act (No. 5 of 2000), Preferential Procurement Regulations and Supply Chain Management practice notes issued by the National Treasury. This will ensure an appropriate procurement and provisioning system which is fair, equitable, transparent, competitive and cost effective.

b)       Appropriate disciplinary measures are taken against officials who do not comply with Supply Chain Management requirements.

c)       Supply chain personnel are trained in all Supply Chain Management policies and procedures.

 

3.3   Fruitless and wasteful expenditure

 

The Auditor-General identified the following:

 

a)       The RTMC incurred fruitless and wasteful expenditure amounting to R17 520 706 as employees were paid after resignation dates, interest was charged on late payments, and costs were incurred on a discontinued system.

b)       The amount previously declared as fruitless and wasteful expenditure was adjusted by R45 960 in the current year as additional fruitless and wasteful expenditure relating to the 2008/09 financial year was discovered in the current year.

 

The Committee recommends that the Accounting Authority ensures that:

 

a)       Appropriate disciplinary measures are taken against employees who were responsible for incurring fruitless and wasteful expenditure in terms of section 51 (e) (iii) of the PFMA.

b)       The RTMC strengthens its internal control systems in order to avoid incurring further fruitless and wasteful expenditure.

 

4 . Predetermined objectives

 

The Auditor-General identified the following:

 

a)       The RTMC’s objectives and targets were not specific in clearly identifying the nature and the required level of performance.

b)       The entity’s objectives were not measurable in identifying the required performance.

c)       The entity’s objectives did not specify the time period or deadline for delivery.

 

The Committee recommends that the Accounting Authority ensures that:

 

The planned and reported performance targets and objectives are specific, measurable and time-bound.

 

5 . Planned and reported indicators and measures

 

The Auditor-General identified that:

 

Some of the planned and reported indicators and measures were not clear, with ambiguous definitions.

 

 

The Committee recommends that the Accounting Authority ensures that:

 

The planned and reported indicators are clearly defined and understandable.

 

6 . Non-compliance with laws and regulations

 

The Auditor-General identified the following:

 

a)       Contrary to the requirements of section 53(3) of the PFMA, the RTMC budgeted for a deficit in the 2009/10 financial year.

b)       The budget and monthly cash flow forecast and cash flow performance reports were not prepared on a monthly basis, contrary to the requirements of Treasury Regulation 31.1.3.

c)       The Audit Committee of the RTMC did not function properly during the year under review and did not completely fulfil its required responsibilities, contrary to the requirements of Treasury Regulation 27.1 and sections 76(4)(d) and 77 of the PFMA.

d)       The RTMC’s strategic plan for 2009-2012 did not include a materiality and significance framework, contrary to the requirements of Treasury Regulation 30.1.3. 

e)       The Shareholders Committee only met once during the year under review, and as a result did not completely fulfil its required responsibilities as per the requirements of section 11(2) of the Road Traffic Management Corporation Act (No.20 of 1999).

 

The Committee recommends that the Accounting Authority ensures that:

 

a)       The entity adheres to the applicable laws and regulations, including the PFMA, Treasury Regulations, the AARTO Act and the RTMC Act. Disciplinary measures must be taken against officials who do not comply with laws and regulations.

b)       There is an effective audit committee that promotes independence, accountability and effective risk assessment.

c)       The Shareholders Committee meets at least four times a year as required by section 11(2) of the RTMC Act.

 

7 . Leadership

 

The Auditor-General identified the following:

 

a)       The Accounting Authority did not exercise oversight responsibility over financial reporting and internal control.

b)       The Accounting Authority did not implement an evaluation process to determine whether management had implemented effective internal controls.

c)       The Accounting Authority did not take actions to implement corrective measures to address the risks relating to the financial transactions.

 

The Committee recommends that the Accounting Authority ensures that:

 

a)        There is oversight responsibility over financial reporting and internal control and disciplinary measures are taken against individuals who fail to exercise their oversight responsibility.

b)       An evaluation process is implemented to determine whether management has implemented effective internal controls.

c) Steps are taken to implement corrective measures to address the risks relating to financial transactions.

 

8. Financial and performance management

 

The Auditor-General identified the following:

 

a)       The financial statements were subject to material amendments resulting from the audit, indicating that the financial statements and other information included in the annual report were not reviewed for completeness and accuracy prior to submission for audit.

b)       The systems used to collect and collate information on predetermined objectives did not facilitate the preparation of complete and adequate reports.

 

 

 

The Committee recommends that the Accounting Authority ensures that:

 

a) The financial statements and other information included in the annual report are checked and reviewed for completeness and accuracy prior to audit. All amendments to financial statements and information are effected before the annual audit commences.

b) The systems used to collect and collate information on predetermined objectives facilitate the preparation of reports.

 

9. Governance

 

The Auditor-General identified that:

        

Risks were not managed by selecting and developing internal controls to prevent, detect and correct material misstatements in financial reporting.

 

The Committee recommends that the Accounting Authority ensures that:

 

The entity has a risk management policy and internal controls systems to prevent, detect and correct material misstatements in financial reporting.

 

10. Other reports – Investigations

 

An investigation, arising out of alleged irregularities regarding procurement practices at the RTMC was conducted by an independent consulting firm at the request of the Minister of Transport. A Ministerial Task Team was appointed to make recommendations based on the investigation. The Committee will, in due course, consider the report and recommendations of the Ministerial Task Team.

 

 

 

 

 

11. Conclusion

 

The Committee further recommends that the Executive Authority submits a progress report on the implementation of the above recommendations to the National Assembly within 60 days after the adoption of this report by the House.

 

 

Report to be considered.