ATC170816: Second Report of the Standing Committee on Public Accounts on the irregular, fruitless and wasteful expenditure of the Departments of International Relation and Co-operation (DIRCO), Basic Education (DBE) and Cooperative Governance and Traditional Affairs (COGTA), dated 16 August 2017

Public Accounts (SCOPA)

Second Report of the Standing Committee on Public Accounts on the irregular, fruitless and wasteful expenditure of the Departments of International Relation and Co-operation (DIRCO), Basic Education (DBE) and Cooperative Governance and Traditional Affairs (COGTA), dated 16 August 2017.


The General Report on the national and provincial audit outcomes (2015/16) showed that an amount of R46,4 billion was incurred by various departments and entities in the current financial year. This figure excludes departments such as Home Affairs, Public Works and Environmental Affairs that submitted annual reports after the due date for submissions.


Financial statements of the below-mentioned departments showed significant amounts of expenditure incurred as irregular; fruitless and wasteful expenditure. Section 38 (1) (c ) (ii) of the Public Finance Management Act (PFMA) prohibits improper expenditure such as irregular expenditure, unauthorized expenditure as well as fruitless and wasteful expenditure and gives guidelines on how to deal with such expenditure.




The Standing Committee on Public Accounts (the Committee) heard evidence and considered the contents of the annual reports with regards to irregular, fruitless and wasteful expenditure of selected national departments, and reports as follows:



The Committee had hearings with the following departments:

a.       International Relation and Co-operation (DIRCO);

b.       Department of Basic Education (DBE); and

c.       Department of Cooperative Governance and Traditional Affairs (COGTA).


  1. Department of International Relations and Cooperation


The Committee noted the Department of International Relations and Cooperation (DIRCO) incurred irregular expenditure of R416,7 million as stated in the 2015/16 financial year because of the following:


1.1   BT Communications: R170 million


In terms of the Bid Evaluation Committee (BEC) recommendations, none of the awarded companies met the criteria. The Bid Adjudication Committee (BAC) which is chaired by the CFO and other senior executives overrode the recommendations of the BEC to cancel the tender Companies which were disapproved by the BEC were awarded the tender.



1.2   Price Waterhouse Coopers (PWC): R21 million


The BAC did not consider the recommendations of the BEC and suppliers who scored the highest points were disqualified based on requirements that were not in the original terms of reference.


1.3   VW SA: R788 000


Quotations were obtained from five companies in accordance with the Transversal Contract RT57.


The BAC did not consider the recommendations of the BEC and approved the award to VW (SA) and to Hyundai (SA) due to the high profile of the people using the vehicles.


1.4   Dimension Data: R142 million


The contract was extended without inviting competitive bidding. Processes were generally not started on time, resulting in delays or challenges to conclude the awarding of the contract i.e. challenges encountered during the bid evaluation processes could have been avoided if the competitive bidding process was started on time. This was mainly due to poor planning and poor contract management.




1.5 Renting of office space in Ghana- R2,4 million


Fruitless and wasteful expenditure of R2, 4 million was incurred due to rent paid for an unoccupied building in Ghana. Officials were moved to a new building and DIRCO still paid for the upkeep of the old building.


The Committee recommends that the Accounting Officer ensures that:-


  1. The Department concludes its investigation into the conduct of the suspended CFO and take appropriate action, and submit to the Committee a progress report within 2 weeks of adoption of this report;
  2. The report of the investigation into the conduct of the CFO is submitted to Parliament through SCOPA upon conclusion of the process;
  3. All officials co-operate with law enforcement agencies in giving information;
  4. If found guilty, all members of the BAC must be prohibited from participating in the BAC and BEC;
  5. Investigation into the conduct of the BAC is conducted;
  6. Disciplinary action is taken against employees who are responsible for incurring irregular, fruitless and wasteful expenditure, as required by section 38 (1) (h) of the PFMA;
  7. Steps are taken to recover the amount incurred due to negligence by officials;
  8. The internal audit unit is fully capacitated and all existing vacancies are filled immediately;
  9. The audit committee is fully functioning as stipulated in section 38 (1)(a)(ii)  of the PFMA;
  10. The contract management unit is established and capacitated immediately to guarantee compliance with SCM requirements;
  11. The Department strengthens its internal control systems in order to avoid incurring further irregular expenditure; and
  12. Reasonable care is exercised to prevent and detect irregular, fruitless and wasteful expenditure and that effective, efficient and transparent processes of financial and risk management, as provided for in Treasury Regulations 9.1.1, are implemented;
  13. In cases where criminality has been found, those cases are referred to law enforcement agencies.


  1. Department of Basic Education


The Committee noted the accumulated irregular expenditure of R2,2 billion incurred by the Department of Basic Education (the Department) incurred as stated in the 2015/16 financial year related to the following:


  1. Accelerated Schools Infrastructure Delivery Initiative (ASIDI) (R1 358 968 000.00)


During the 2011 Estimate of National Expenditure, the Department was allocated R8.2 billion for the above purpose. In 2011/12 financial year, the Department appointed the Development Bank of South Africa (DBSA) as an implementing agent. Due to the slow progress made during the financial year, the Department went out on tender to establish a framework agreement with pre-qualified implementing agents, professional service providers and contractors to accelerate the Accelerated Schools Infrastructure Delivery Initiative (ASIDI) project.


In order to avoid compromising the project and litigation by non-governmental organisations (NGOs), the Department appointed a number of implementing agents whilst the tender process was in progress. State owned entities such as Independent Development Trust (IDT), Mvula Trust, Coega Development Cooperation (CDC), Council for Scientific and Industrial Research (CSIR) and Mhlathuze Water were identified based on previous work and capabilities in infrastructure implementation. . The entities were given projects to implement relating to construction of new schools or providing basic services such as water and sanitation. The contracts expired but service providers continued doing work, resulting in irregular expenditure.


Based on the appointment of the above implementing agents, the expenditure incurred was regarded as irregular. The Department requested condonation in respect of the expenditure incurred between 2010/11 and 2014/15 financial years disclosed in the annual financial statements.


The breakdown of expenditure incurred in appointing the implementing agents is as follows:

Implementing Agent

Irregular Expenditure

Total as at 31 March










Coega: Eastern Cape

52 591

234 632

106 917

394 140

Coega: KZN


25 829

38 979

64 808

IDT: Eastern Cape

12 471

201 551

176 430

390 452

IDT: Free State

17 746

112 889

163 669

294 304



29 997

41 774

71 771

IDT: Limpopo


39 746

14 880

54 626



21 732

18 846

40 578

Mhlathuze water


8 961

39 328

48 289


82 808

675 337

600 823

1 358 968


2.2     Mvula Trust (R125 870 000.00)


During 2011, the Department appointed Mvula Trust based on the memorandum of agreement (MoA) signed on 14 October 2011 on the basis of an existing memorandum of agreement between the Department of Human Settlements and Mvula Trust, dated 13 December 2010. However, the appointment was not in accordance with the PFMA and Treasury Regulation 16A6.6.


Based on the audit of 2013/14 financial year, the expenditure incurred from Mvula Trust contract was deemed irregular. The expenditure incurred on this matter amounts to R59.504 million in 2012/13, R55.107 million in 2013/14 and R11.259 million in the 2014/15 financial years.


In the MOA with Mvula Trust, the Department allowed Mvula Trust to use their own procurement systems. Despite the fact that the MOA allows Mvula Trust to use its own system, the Department should have satisfied itself that the processes followed are fair, equitable, transparent, competitive and cost effective.


It should further be noted that Mvula Trust did advertise for the compilation of a list of potential suppliers for smaller construction work, and a list of potential suppliers was established based on the relative advertisement.


The construction of the different water and sanitation facilities at different schools in the Limpopo Province was part of the accelerated school infrastructure development strategy. Mvula Trust decided to obtain quotations from the suppliers captured on their list of suppliers established by means of the public tender procedure.


Mvula Trust obtained prices from suppliers on their established list. According to the prescripts of the Preferential Procurement Regulation 2011, the bids should have been evaluated on a point system, taking into account the points scored based on their submitted prices and the points for their individual BEE rating. However, all the suppliers were black owned, with a financial turnover of less than R5 million per annum, which automatically qualified them all as level four BEE contributors.


  1. DBSA and COEGA (R496 604 000.00)


The Auditor-General raised findings on the appointment of contractors by implementing agencies without following supply chain management processes in ensuring that contactors submit BBBEE certificates, verifying whether Construction Industry Development Board (CIDB) certificates are valid and VAT certificates are certified. All expenditure incurred on the construction of schools affected by the transgression was disclosed as irregular expenditure restated from 2014/15 financial year. For 2014/15 financial year, the irregular expenditure amounted to R182.482 million, and for 2015/16 amounted to R292.925 million for DBSA. The irregular expenditure incurred by COEGA on the same matter amounted to R19.327 million for 2014/15 and R1.870 million for 2015/16.


  1. Adopt-A-School (R21 028 000.00)


On 19 August 2013, the Department appointed Adopt-A-School Foundation as an implementing agent to build 3 schools in KwaZulu-Natal. The appointment of the implementing agent to build the schools was based on cost effectiveness of the project as well as on the consideration of empowering the local community in terms of skilled and unskilled labour. The executive authority gave the directive to the accounting officer to appoint the implementing agent. The deviation on procurement requirements resulted in irregular expenditure being declared in the financial statements since 2013/14 financial year. The total expenditure incurred to date amounted to R13.995 million in 2014/15 and R7.033 million for 2015/16.


  1. The tender on Grade R workbooks (R32 223 000.00)


On 30 August 2013, the Department went out on tender for the procurement of a service provider or consortium of service providers for printing, packaging and distribution of Grade R Workbooks for all public schools, district offices and provincial offices of the Department for a three year period.


The tender was advertised for 13 days instead of 21 days. In order to rectify this error and comply with Treasury Regulation 16A6.3(c), the Department issued an addendum in the Government bulletin extending the closing date but did not mention this in the advert.


During the audit of the 2013/14 financial year, the A-G indicated that due to the compulsory briefing session being held on 5 September 2013, and the initial closing date being 6 September 2013, other bidders may have been disadvantaged and may not have bidden or attended the compulsory briefing session due to the initial shorter period of the first advert. Therefore, the expenditure incurred on this tender amounting to R32.223 million must be declared as irregular.


  1. Kha Ri Gude project (R44 million)


The Department paid for deceased learners who were part of the ABET project. Service providers claimed for deceased learners, and this led to fruitless and wasteful expenditure of R44 million.


The Committee recommends that the Accounting Officer ensures that:


  1. Effective and regular oversight is performed on all work done by implementing agents;
  2. All ongoing internal and external investigations are expedited;
  3. Appropriate disciplinary action  is taken against employees who were responsible for incurring irregular; fruitless and wasteful expenditure as required by section 38 (h) of the PFMA;
  4. The Department refers this to law enforcement agencies;
  5. The department co-operates with law enforcement agencies where criminality has been established;
  6. The departmental SCM policy is updated, encompassing all the elements of the PFMA, Treasury Regulations, Preferential Procurement Framework Act, Preferential Procurement Regulations and SCM practice notes issued by the National Treasury that will ensure an appropriate procurement and provisioning system which is fair, equitable, transparent, competitive and cost effective;
  7. A proper filing system for all information supporting SCM related transactions is kept;
  8. All directives from the executive authority must comply with the PFMA; and
  9. Early warning systems listing contracts that will soon expire be compiled and further that new tender processes be entered into timeously.


  1. Department of Cooperative Governance and Traditional Affairs (COGTA)


The Committee noted that the irregular expenditure of R1 billion incurred by the Department as stated in the 2015/16 annual financial statements is accumulative figures flowing from the previous financial years.


3.1 Community Works Programme (CDW)


The bulk of irregular expenditure incurred by this Programme arose because implementing agents for the CWP procured tools and materials as part of the execution of the CWP at community level.

The remaining irregular expenditure was incurred mainly as a result of payments done without prior approvals of deviations and / or obtaining the minimum number of quotations. Other expenditure was incurred due to contravention of supply chain management requirements.


The Committee recommends that the Accounting Officer ensures that:


  1. Proper monitoring on work  done by implementing agents is conducted;
  2. All defaulting implementing agents are blacklisted and are not given work in the future;
  3. Implementing agents with work of poor quality are prosecuted for breach of contract;
  4. All internal investigations are completed and progress reports are submitted to Parliament through SCOPA as soon as these are concluded;
  5. Proper planning and budgeting is done for the CWP Programme;
  6. Disciplinary action is taken against employees who were responsible for incurring irregular, fruitless and wasteful expenditure, as required by section 38 (h) of the PFMA, and a progress report is submitted to SCOPA within 2 weeks of publication of this report;
  1. Reasonable steps are taken to recover debts from individuals responsible for the losses before these are written off;  and
  2. Criminal charges are laid against individuals who have committed financial misconduct.



The Committee has serious concerns regarding the high level of irregular; fruitless and wasteful expenditure.The Committee is concerned about gross disregard for procedures, rules and regulations such as the PFMA, Treasury Regulations and other relevant legislation.

The Committee has observed instances where the Executive Authority has given directives. In such instances, due processes must still be observed.

Section 38 (1)(g) of the PFMA states that on discovery of any unauthorised, irregular or fruitless and wasteful expenditure, the accounting officer must report I immediately in writing, particulars of the expenditure to the relevant treasury. Section 86 (1) states that an accounting officer is guilty of an offence and liable on conviction to a fine, or to imprisonment for a period not exceeding five years, if that accounting officer wilfully or in a gross negligent way fails to comply with a provision of section 38, 39 or 40.


The Committee notes that there is a need for oversight, governance and law enforcement agencies to fight against the scourge of financial mismanagement and lack of service delivery.


Report to be considered.




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