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ATC230503: Report of the Standing Committee on Finance on the Oversight Visit to the Financial Advisory and Intermediary Services Ombud, dated 02 May 2023

Finance Standing Committee

Report of the Standing Committee on Finance on the Oversight Visit to the Financial Advisory and Intermediary Services Ombud, dated 02 May 2023

 

  1. INTRODUCTION AND BACKGROUND
    1. The Standing Committee on Finance (SCOF/ the Committee) undertook an oversight visit to the Financial Advisory and Intermediary Services Ombud (FAIS Ombud) on 30 March 2023 in Gauteng. The main purpose of the visit to the FAIS Ombud was to get a briefing on its audit action plan. Although the FAIS Ombud received an unqualified audit opinion with findings on compliance with legislation, it regressed from a clean audit opinion in the prior two years.
    2. FAIS Ombud was established in terms of the Financial Advisory and Intermediary Services Act 37 of 2002 (FAIS Act). The Office investigates and resolves complaints by consumers against financial service providers (FSP). FSP’s are registered persons and entities providing financial advice on products such as insurance and investments. Complaints are resolved by alternative dispute resolution methods such as mediation, conciliation, or recommendation. As a last resort, determinations can be issued, which have the status of a civil court judgment.
    3. The Auditor General of South Africa (AGSA) briefed SCOF on 21 February 2023 on the audit outcomes of the finance portfolio. A decision was taken by the Committee to conduct an oversight visit to the National Treasury and all entities that had negative audit outcomes for 2021/22. The Committee conducted the same exercise last year with regards to the audit outcomes of 2020/21 financial year.
    4. The entities visited on 29 and 30 March 2023 were the National Treasury, Cooperative Banks Development Agency (CBDA), FAIS Ombud, Financial and Fiscal Commission (FFC), Financial Intelligence Centre (FIC), the Office of the Pension Funds Adjudicator (OPFA), Government Technical Advisory Centre (GTAC), Government Pensions Administration Agency (GPAA) and Public Investment Corporation (PIC).

 

  1. DELEGATION

Parliamentary Delegation

  1. The Committee delegation comprised of the following members:  Mr MJ Maswanganyi (Chairperson of the Committee, ANC), Ms P Abraham (ANC), Ms D Mabiletsa (ANC), Mr G Skosana (ANC), Ms W Alexander (DA), Mr F Shivambu (EFF) and Mr W Wessels (FF+). The delegation was accompanied by the following parliamentary officials: Mr A Wicomb (Committee Secretary), Ms Cele-Ntshinka (Committee Assistant), Dr Z Hlophe (Content Advisor), and Ms A Manamela (Researcher).

National Treasury and FAIS Ombud Delegation

  1. The NT delegation comprised of: Mr E Godongwana (Minister of Finance), Ms L Mseme (Acting Chief Operations Officer), Mr L Batwa (Parliamentary Officer), Ms N Mahori (Parliamentary Officer), Mr K Bosoga (IT Support), and Mr M Khan (Director).
  2. The FAIS Ombud delegation comprised of: Mr J Simpson (FAIS Ombud), Ms K Hechter (GRC), and Mr S Maharaj (Chief Finance Officer).

AGSA Delegation

2.3       The Auditor-General delegation comprised of: Ms M Madondo (Senior Manager), Mr L Kuse (Senior Manager), Ms N Matanzima (Business Unit Leader), Ms K Naicker (Deputy Business Unit Leader), Ms A Whitfield (Senior Manager), and Mr M Jimmy (Acting Product Champion).

 

  1. OVERVIEW OF FAIS OMBUD 2021/22 AUDIT OUTCOMES
    1. On procurement and contract management, AGSA found that FAIS Ombud could not provide appropriate audit evidence that some contracts were awarded in accordance with the legislative requirements as documentation for four (4) of the selected awards to the value of R9 203 812 could not be provided for audit purposes.
    2. On internal control deficiencies, AGSA found that the FAIS Ombud management’s monitoring controls over records management were not effective to ensure that complete, relevant, and accurate information is accessible and available to support all compliance with laws and regulations.

 

  1. FAIS OMBUD ACTION PLAN ON 2021/22 AUDIT OUTCOMES
    1. FAIS Ombud reported that it had an unqualified audit opinion with findings, a regression from the previous two years where it achieved clean audits. There were two material findings which affected the audit outcome on procurement and contract management. Four other findings were in respect of internal control deficiencies.
    2. FAIS Ombud reported that all the two findings on procurement and contract management were resolved. Of the four findings on internal control deficiencies, three of the four findings had been resolved and the last one was partially resolved.
    3. On procurement and contact management- the FAIS Ombud reported that the first material finding was resolved through the termination of Consultant whose contract had been extended without following the Supply Chain Management (SCM) policies. Consultant had been paid as an employee.
    4. The second material finding on the appointment of attorneys was resolved through the review of contract register to ensure that all contracts were supported with relevant information. Information relating to the appointment of these attorneys could not be provided to auditors when requested during the auditing process.
      1. On internal control deficiencies, the remuneration policy was amended, and certain policies approved.
      2. The partially resolved finding on internal control deficiencies related to the digital leave system, which did not accurately reflect the leave for certain staff members. This was resolved through the manual calculations to ensure all leave balances are accurate and complete. Engagement was also had with ICT service provider to update the digital leave system.
      3. FAIS Ombud further updated the Committee on consequence management pertaining to two external investigations which were commissioned by the Accounting Authority/ Officer regarding misconduct and an appointment of an employee. Both investigations were completed in July 2021.
      4. On the first one of misconduct, a disciplinary hearing was held against an executive member who was found guilty on 4 counts and recommendation of immediate termination of contract of employment was made. The executive member resigned. The investigation report recommended charges against four other FAIS employees. Two of these employees resigned before charges could be brought and the disciplinary process was initiated against the two-remaining staff in February 2023. The final warnings were issued to both staff members and one of the members had since resigned. PFMA irregular expenditure reports were being finalised and will be submitted to Treasury for condonation.
      5. The second investigation related to the recruitment and appointment of Group Risk and Compliance Officer. The investigation found basis for charges against an executive member and another staff member. The charges were included in the disciplinary process against the executive staff member. The other staff member resigned before any charges could be brought.

 

  1. COMMITTEE OBSERVATIONS AND RECOMMENDATIONS
    1. The Committee notes the audit action plan of the FAIS Ombud. While the Committee regrets the FAIS Ombud’s regression of audit outcomes in the 2021/22 financial year, in notes the actions taken so far and consequence management related to external investigations commissioned by the Accounting Authority/ Officer. The Committee requires an update on the one unresolved finding on internal control deficiencies.

 

The Standing Committee on Finance asks the National Assembly to adopt this Oversight Report.

Report to be considered.

The DA reserves its position.

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