National and Provincial Departments of Health and Entities Audit Outcomes: AGSA briefing

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11 November 2020
Chairperson: Dr S Dhlomo (ANC)
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Meeting Summary

Video: Portfolio Committee on Health

In a virtual meeting, the Auditor-General of SA (AGSA) briefed the Committee on the 2019/20 audit outcomes of the health portfolio. The audit outcomes were outstanding for the CCOD and SAHPRA. The outcomes of the other departments in the portfolio were as follows:

  • Medical Research Council: Unqualified with no findings
  • Council for Medical Schemes: Unqualified with findings
  • National Department of Health: Unqualified with findings
  • National Health Laboratory Service: Unqualified with findings
  • Office of Health Standards Compliance: Unqualified with findings

Overall, the portfolio regressed from the previous year, as the OHSC regressed from a clean audit to unqualified with findings. The MRC was commended for maintaining its clean audit outcome, due to effective controls in place and oversight by the assurance providers. Financial statement preparation remains a concern at the NDoH and NHLS as material adjustments had to be made to the financial statements submitted for auditing. The CMS needs to improve its controls over its supply chain management processes to ensure that procurement is in line with Treasury regulation.

Irregular expenditure had increased from the previous financial year and stood at R69 million, 77% of which came from the NDoH

Members were resolute in their comments that improvement in the health portfolio needed to be seen. There were serious concerns about irregular expenditure and procurement processes not followed – Members were firm that consequences needed to be seen and the Department and entities must answer for these challenges. This even more so as it has been found procurement and supply chain management are at the root of most cases of corruption. Members emphasised the same findings could not be made year in and year out. Concern was also raised on internal controls and said where public funds are abused, there should be consequence management. Investigation should not be endless.

Members wanted to know “what is going on” in the Department – this in light of the AGSA finding that Officials who deliberately or negligently ignore duties and contravene legislation are not held accountable for actions”. Members were particularly worried that if this was happening at the national level, it must be much worse in the provinces. They said it is totally unacceptable and worrying. The Department would explain itself to the Committee. This is even more urgent as Members said the country currently faces a fiscal cliff.

Members were disheartened that the recommendations provided by the Committee in their reports on the Department and entities are repeatedly not implemented. They asked if the Department and entity could provide quarterly reports on how they were addressing matters raised by the Committee – this would improve the oversight function of the Committee. It was said currently, there are more failures than successes.

Some Members felt the AGSA report to the Committee could have more information on each entity and so better equip Members to identify the key challenges, how entities can improve and so better assist them in their oversight duty.

The Committee felt the Department was stagnant in its improvement - the Committee is urging the Department to move from an unqualified report to a clean one.

Meeting report

Chairperson’s introductory remarks
The Chairperson welcomed Members to the meeting and apologised to for overlooking the many by-elections taking place which Members would want to be present for and support. He said the meeting would be quick so Members would be released to attend to the activities of the by-elections.
He congratulated the Minister of Health for being appointed as Chairperson of the Southern Africa Development Community Malaria Elimination 8 (SADC E8), a coalition of eight countries working to eliminate Malaria in Southern Africa by 2030. He suspected this was like finger pointing to Minister Mkhize as being one of the countries in the mist, but still doing well. No province other than KwaZulu-Natal, Mpumalanga, and Limpopo, has ever had malaria. South Africa has done well over the years to reduce malaria in these three provinces. The new challenge is now to eliminate malaria altogether.
He said the report to be presented does not have the audit outcome of provinces, as such the meeting would concentrate on the National Department of Health (NDoH), and the entities which report nationally. Sometimes there is a rush to look at provinces doing fairly badly, compared to national, but there are certain issues which need to be interrogated regarding NDoH. This meeting will have more time just to deal with the national department, and deal with the issues in the provinces later. The Auditor-General of SA (AGSA) will clarify when it expects to provide audit outcomes of provinces.  

AGSA Briefing: 2019/20 Audit of the National Department and its entities
The AGSA highlighted the 2019/20 audit outcomes of the health portfolio. The audit outcomes were outstanding for the CCOD and SAHPRA. The outcomes of the other departments in the portfolio were as follows:
-Medical Research Council: Unqualified with no findings
-Council for Medical Schemes: Unqualified with findings
-National Department of Health: Unqualified with findings
-National Health Laboratory Service: Unqualified with findings
-Office of Health Standards Compliance: Unqualified with findings

Overall, the portfolio regressed from the previous year, as the OHSC regressed from a clean audit to unqualified with findings. The MRC was commended for maintaining its clean audit outcome, due to effective controls in place and oversight by the assurance providers. Financial statement preparation remains a concern at the NDoH and NHLS as material adjustments had to be made to the financial statements submitted for auditing. The CMS needs to improve its controls over its supply chain management processes to ensure that procurement is in line with Treasury regulation.

The presentation also touched on credible financial and performance reporting, disregard for compliance with legislation, the status of external controls and assurance provided.

Members were taken through the financial health and management of the portfolio looking at irregular expenditure – it had increased from the previous financial year and stood at R69 million, 77% of which came from the NDoH. Also addressed was supply chain management and recommendations.

(for full presentation, see attached document)

The Chairperson said the Committee Secretary sent a link to a questionnaire to all Members via WhatsApp. This was requested by the Auditor-General South Africa (AGSA).

Mr P Van Staden (FF+) referred to slide 16 and slide 17, and commented on the R69 million in irregular expenditure in 2019/20 because of non-compliance. He said when the Department comes to the Committee there must be serious talk, because procurement processes are not followed. This is an increase of R22 million from 2018/19 to 2019/20.  It is a huge jump in irregular expenditure. The Department needs to explain what is going on - it cannot carry on like this.

He referred to slide 17 and slide 18 of the presentation, and noted the information detailing irregular expenses incurred by entities in the current portfolio. He asked if it is possible for AGSA to give a more specific breakdown of each entity’s irregular expenditure for 2019/20. For example, the NDoH has R54 million, but this was with transactions. It would be very helpful if the breakdown can be given.  He asked if it is correct to say the Department and its entities deviate from a standard supply chain management process.

He referred to slide 20 and slide 21, where the comment, “do not respond with the required urgency to messages about addressing risks and improving internal controls”, is stated.  He said this is totally unacceptable. There must be consequences. The same problem occurred the previous year, when AGSA appeared before the Committee noting the same issue. It appears the problem in the Department is not getting any attention.

He also referred to the comment in the presentation which states: “Officials who deliberately or negligently ignore duties and contravene legislation are not held accountable for actions”. He asked what is going on. If NDoH at national level is carrying on like this, the question which arises is what is happening in each of the nine provinces. This is totally unacceptable and worrisome. The Committee needs to call for the Department as soon as possible to explain on this matter. 
Ms N Chirwa (EFF) thanked the AGSA for the presentation, and said she appreciates the work the team does. It allows room for the Committee to hold the entities in NDoH accountable for its activities. She noted dissatisfaction with the report, and said there ought to be an attempt to go further, because everything in the report looks vague, particularly the information on issues of legislation being disregarded, and management issues too. The report can go further to assist the Committee in doing oversight properly, accurately, and effectively.

She said NDoH and its entities will appear before the Committee and it will be able to work its way out of these, since there are no peculiar incidences noted and pointed out in the report.

She was concerned about the CMS. There was an issue brought to her attention regarding a young black woman who was barred from nomination to the Board of Council because she received a bouquet of flowers. This contributes to issues of management issues of the CMS. This is across the board. She asked if the AGSA can go a step further and outline what the problems are. She asked who is involved, and which office. She also asked when the issue started, and she wanted to know what influenced it. This would make the job of the Committee and AGSA more effective in ensuring issues are resolved. Otherwise, it will remain as something raised, but with no tangible information from the entities, because it is also protecting itself.

The Committee is not getting enough information from AGSA to ensure effective oversight. She asked if in the future, AGSA could consider ways of expanding its reports. She asked if the suggestions which were made are viable, and wanted to know what legislation is referred to when saying legislation was disregarded. She asked which particular incident, in which province, or in which office, was referred to.

The issue of no consequence goes back to nobody taking control or accepting accountability. This happens because there is not enough pressure to take accountability for how things are run, especially at management level.  She asked which ways AGSA can strengthen the report beyond just what was presented, which appears vague and not substantial enough.

Dr K Jacobs (ANC) referred to slide 13, and asked about the status of internal control. Internal control is something the AGSA has control over and can do something about. The Department and its entities seem to be doing very well in effective leadership, but he wondered if it was lacking in financial and performance management and governance.  

Where it is lacking, it is worrisome. The Department and NHLS are mentioned, but other entities do not appear. MRC is recognised as doing very well because it was consistent over the years with daily and monthly control record-keeping, review, and monitor compliance. He agreed with Ms Chirwa about AGSA giving a better insight of where the challenges are within the Department, and in other entities. SAHPRA also regressed to poorer outcomes in the audits.  

Slide 17 shows 77% of irregular expenditure relates to NDoH. It explains the nature of the irregular expenses, such as procurement process not being followed, rates being above National Treasury’s threshold, among other issues. For the Committee to get a better understanding of where the challenges are, next time it will be helpful for the AGSA to give explanations. This way, the Committee can raise the necessary questions to the Department and the entities regarding the outcomes.

Dr P Dyantyi (ANC) said most of the queries were already raised by Members. She referred to slide 16 and slide 17, which deals with irregular expenses. While the Department will appear before the Committee to explain, it is very worrying. It has been a problem since Members joined the Committee.  
Regarding consequences on financial and performance mismanagement, she said it is really worrying to hear AGSA is concerned about the Department. There needs to be a better explanation on what is going on. She asked what happened to the law which gave AGSA teeth to bite when there are problems. For the past three years there were problems and concerns of consequence management.

Dr S Thembekwayo (EFF) asked if it is possible for AGSA to consider mentioning improvements entities can make, especially where there are vacancies which are never filled. For example, it mentioned CMS and other entities which need to improve control on supply chain management processes, to bring it in line with Treasury regulations. She said if the NDoH is leading in irregular expenditure for 2019/20, it raises concern about other entities and provinces.

Ms E Wilson (DA) said as one of the older serving Members of the Committee, she has concerns about the situation because no improvements were seen. Page nine of the report says, “no improvements”. There is one regression, and four entities stayed in the same sorry state.

She was concerned CCOD and SAPHRA are not included in the audit. The Committee is yet to get reports for 2016/17, while going into 2021. This is very concerning because there is no genuine picture of the situation. There was no explanation given for why SAPHA was not included in the presentation. It is disturbing.

She was also concerned about page 13, which deals with CMS, NHLS and NDoH. Every year there is the concern of procurement management and SCM processes not being followed. Considering the current situation in South Africa where corruption is not being proven, it is very concerning. Currently 90% of corruption is from failure of officials to follow, or to deliberately divert around SCM processes, and ignore it. It is concerning to hear AGSA had to go back to some departments and make material adjustments to correct the report. This shows there is probably not the right financial expertise or senior managers in position within NDoH and NHLS. Over the years, anybody at this level should know very clearly how to do statements, and how it is measured. There should be no material misstatements which have to be corrected. It is alarming. With CMS and NHLS, the expenditure management is always concerning. When avoiding doing processes correctly, diverging processes, and making decisions one is not equipped to make, it opens the door to pointing fingers of corruption. She was concerned all the provinces reports are outstanding.  This is a critical time in the face of a fiscal cliff as a country, yet the Committee has no idea what is happening in those reports or in the provincial departments. It is where most of the problems within the Department of Health started. It needs to be finalised quickly.

Regarding the recommendations presented, she said for the four years she is on the Committee, the recommendations are literally unchanged. The Committee writes reports to the Department and asks for information, but it never comes. No improvement was seen through the years.

She asked if it is possible for the Committee to have a quarterly report from NDoH, and each department to find what the Department has addressed, or how it addressed it. This is what the Committee should do to provide oversight on the successes and the failures. Currently, there are more failures than successes. These reports are not presented as a tick box exercise. The Committee cannot just agree to the report and then do nothing to follow it up. It needs to be followed up on a quarterly basis and to ensure improvements are made.

Ms A Gela (ANC) said her questions were covered by Dr Jacobs. Her concern related to slide 16, which deals with irregular expenditure where no proper procedures were followed in procurement. The slide also addresses the previous year’s irregular expenditure reported for investigation. For 2019/20, there was an investigation, but 2018/19 was not investigated. She asked why it was not investigated.
Regarding provinces which did not submit reports, she asked if AGSA gave a timeframe. The provinces are already late for the submissions.  

Mr T Munyai (ANC) said a key issue is there are no old and young Members in the Committee, since everyone was elected in this sixth administration. Every Member is equal and should look at the work of AGSA in the same lens.

He said Members should not forget there was COVID-19. It disrupted a lot of work and access. He confirmed SAHPRA operated from Civitas building, which flooded. There is no access to documents. As advised, all entities and departments should consider digitisation of information. If such a risk happens and papers cannot be found, there is back-up. The problem was not its own making, therefore, this audit is not the end of the process. It is the beginning of a new chapter post COVID-19, since all issues are outstanding. Only where the reasons are not understandable, the Committee should indicate. But rightly, COVID-19 had a negative impact on the work of the audit. Even the auditors were not able to access the Civitas building. Given the dynamics of COVID-19, organisations are trying to work better and the Committee needs to support organisations to improve.

Where public funds are abused, there should be consequence management. Investigation should not be endless.  This gives an opportunity for the Committee to invite the Department to explain the challenges within the entities. He said he was excited about the report because it does not give confusion. It clarifies the state of the audit within the Department, the entities, and the provinces.  

The Chairperson said although three financial years are shown in the report, NDoH seems to be stagnant. It is like a child who reached puberty and is refusing to grow any further. There was no improvement one could see. He said he was not undermining the capacity of Mr Kgatla from the Ministry (the delegate present), but he wished the Chief Financial Officer (CFO) was present to take note of this.

In the presentation, the AGSA said the Department of Health sent in its report. If AGSA did not intervene to submit it back to the Department for corrections, it would have moved from this unqualified report to a qualified report. There is a concern because the Committee is urging the Department to move from an unqualified report to a clean one. This means the Department’s first presentation to AGSA was not putting it at the level of getting a straight and unqualified audit report.

In slides 14 to 16 of the presentation, the report says the AGSA is comfortable and happy with its interaction with the Executive Authority. However, there is a challenge with proper record keeping. It is a major worry not knowing if NDoH would have a challenge to keep its records properly. It probably confirms what Mr Munyai asked about when the Department will go electronic.

The Chairperson asked what kind of records are appearing. This would be expected in the provinces, but if these challenges are at national level, then there is a big problem. A parent who is a smoker cannot correct a child to stop smoking. A parent cannot tell a child to walk properly, if the parent cannot walk properly. It is good this meeting is considering the NDoH report at national level only, without the provinces, since it would have clouded the issue of record keeping.

In slide 15 the report says AGSA does not have a challenge with Executive Authority at the first level, and it is 100% happy with NDoH at the level of the Executive Authority. However, there is a concern where AGSA wants some assurance from the accounting officer and senior management. This is both good and bad. It is good AGSA is taken seriously by the Minister and the Deputy Minister, if this is what the report was referring to. But since AGSA is observing some challenges at senior level, he asked what this means.

It is fortunate for the Department it is leading one of the entities which is doing fairly well for years, the Medical Research Council (MRC). He asked if it would not benefit the Department to sit with people handling issues at the MRC, to learn from those people. It is a resource which can assist.  Since the report observed the Department has quick wins, if it can concentrate on internal controls and other recommendations which can be made, the Department will soon be moving to a better situation.
He asked if AGSA is sharing this report with the Department, as it has been shared with the Committee. The Committee needs to meet with the Department to understand its challenges, because it is at a level where it needs to make a few changes, and it can easily move to having a clean audit.

Mr Eugene de Haan, Deputy Business Executive Manager, AGSA, thanked Members for the questions and said while the team from AGSA would address the questions, some of the questions would need to be directed to the Department and its entities. It would only respond to what is directed at AGSA.

On the question if NDoH is deviating from the process, he said it needs to be clear what irregular expenditure means. In the supply chain management process, one can deviate if it is properly motivated. However, this is not what the report is saying. The report says NDoH did not comply with the specific legislation. This should be noted. It is not about deviating, but it did not comply with the specific legislation as mentioned in slide, 19 and slide 16 where, more specifically, detail is given regarding procurement processes, and the requirements from Treasury. This caused the result in irregular expenditure.

Regarding the request for more detail in the report, he said the Committee can always request management reports from the different entities and departments to get specific detail. In the management report, which is not for public knowledge, there is specific detail on the findings and management's response to it, as well as AGSAs overall auditor’s conclusion.

In future, AGSA can share the slides with the Chairperson and the Committee upfront, so the Committee can indicate if there is need for more clarity. AGSA can always update the slides before the actual presentation, so it can be sure when it comes to the presentation, to provide the necessary detail required by the Committee to fulfil its responsibility.

On the question of AGSA’s authority, regarding where its ‘teeth’ is, he said while the Department was working on the new Public Audit Act Amendments, AGSA reviewed the process. On the irregular expenses reviewed, AGSA could not identify any losses. One of the key requirements in definition for material regularity is not only the non-compliance, but also to link it to a specific loss or a potential loss to the Department. In this case, it did not identify any material irregularities for this cycle. One thing to be noted is this is an ongoing process, AGSA always does this, and it will also audit in the future. This will be looked at.

On the question of why SAHPRA was not included, he said it is not tabled yet.

Regarding the timeframe for the provinces to submit reports, he said one of the Members highlighted the impact of the COVID-19 pandemic, which had a ripple effect not only for the Department executing its responsibilities, but also availability of key staff. This also impacted the audit process - this is why various departments were late finalising audits. It should be noted, AGSA does audits, there are certain key individuals required to finalise management comments in the audit processes.  Some of these key individuals were not available as the individuals were addressing requirements of the pandemic response. As such, many of the provincial departments finalised late. AGSA is keeping a close eye on this in trying to push those provinces to finalise as quickly as possible. It is monitoring throughout. However, it would be premature to give an exact indication of when the audit will finish. It depends on all the processes being followed and ensures a fair process. As highlighted in the presentation, four provinces are still outstanding, while the rest finalised quite late. This is the challenge that AGSA experienced.

One of the Members said the Civitas building was closed. This was a real challenge for AGSA. What happened within NDoH is, it had some flooding within the Department, and it had to close the administrative building where most of the records were kept. This delayed the audit process by approximately six weeks. Some reconstruction had to be done in the building. Further, some of the labour unions engaged with the Department of Labour, and it closed the building for all staff. This delayed all the processes for AGSA and had a ripple effect regarding SAHPRA. SAHPRA was also relying on some of the performance information coming from the Department. AGSA still managed to finalise the audit process by the end of October, which was one month later than the legislative timeframe given. This came with many challenges and AGSA had to intervene and regularly ask for help from management. It was a challenging audit.

On the question of internal control environment and assurance in slide 14 and 15, he said it should be noted, the level of assurance is assessed based on the requirements of the Public Finance Management Act (PFMA). The executive authority has an oversight function in the department. It is mostly the accounting officer and the Director General (DG) who need to account for all the financial performance affairs of the department. It has more responsibility to ensure the Department provides accurate and complete information when reporting. It would also ensure compliance with legislation and annual performance reporting and financials. The law also highlights, if senior management is not providing the necessary assurance to the accounting officer or the DG, there are many implications. This is why the report shows a disjoint between the executive authority and accounting officer, because the executive authority’s responsibilities towards the Department are more than an oversight function, not much of an executive function, according to the DG.

Ms Thabelo Musisinyani, Senior Manager, AGSA, regarding the question on the CCOD, said the CCOD submitted its financial statements, but there were slight consultations which delayed. As of the day of the meeting, audits for 2014/15, 2015/16, and 2016/17 are very close to finalisation. AGSA is receiving a few documents and it should be ready to be signed off. The audit 2017/18 is currently underway and is at the conclusion stage. The management indicated the 2018/19 financial statements are ready for audit. As such, CCOD are catching up. Once this is done and signed by AGSA, it will be able to come to the Committee to present the annual report.

On SAHPRA, she said, AGSA signed off SAHPRA on 1 November, and the understanding was it was tabled. However, there was a delay because some of the documents for its financial statement are kept at NDoH. With the flooding which took place, it impacted some of the line items for the financial statement. As such, the audit was impacted as well. However, AGSA managed to sign on 1 November, and the understanding is, because it was not tabled, it could not be included in the presentation. Once it tabled, and AGSA comes back to present the outstanding audit, the outcomes of SAHPRA will be included.

On investigation of prior irregular expenditure, she said the presentation highlighted investigations were initiated, but the concern is it was not concluded. Because of this, the perpetrators are not held accountable. AGSA requests the Committee to ask for feedback from management so the investigations can be concluded, those responsible be held accountable, and any recoveries which need to be made should take place. AGSA can report investigations are taking place, but the issue is on completing those investigations.

On the question of internal controls, she said, as Mr De Haan mentioned, the entities are very close to getting a clean audit, but there are just a few errors that which need to be addressed. The presentation showed, on the status of internal controls, record keeping in the NDoH impacts its annual performance reports. There is one indicator on NHLS which AGSA reported on around record keeping over the years. If the Department can sort out record keeping for the indicators relating to the NHLS, it can get an unqualified report on the financial statements. This is also linked to the issue highlighted in the presentation of there being no consequence management, because AGSA reported over the years, but still finds the same material misstatements. Management needs to hold the responsible officials accountable. With the financial statements of NDoH, it had material misstatements in the current year relating to commitment. This relates to implementing agents being utilised for the construction work. AGSA recommended to management to strengthen controls around information which comes from the implementing agent fed into its financial statements. NDoH seem to do right with its own internal activities, but needs to strengthen the internal controls of information coming from the implementing agents. If it does this, the Department can get a clean audit.

On the question of supply chain management, she said at CMS and NDoH, AGSA found triggers of irregular expenditure occurs in instances where the end users procure, and are not involved in the Supply Chain Management Unit. A specific entity enters a procurement process and appoints a service provider. The Supply Chain Management Unit usually picks it up too late in the process, unfortunately there has been non-compliance. What AGSA recommended in its discussions is, it needs to send a strong message to end users, it cannot procure without involving the Supply Chain Management Unit. The Supply Chain Management Unit would know Treasury’s laws and regulations with which it needs to comply, whereas entities may not know the requirements. This is what AGSA identified as a root cause for irregular expenditure coming through the non-compliance for both CMS and NDoH.

Closing remarks
The Chairperson said he felt the queries raised by Members were addressed. He said he would write to the Minister to ask if the Minister is aware the Department is just about to jump off a bridge, but there are few things holding back. While AGSA is commending the Minister for effective leadership and the availability to engage, it does not look like it gets translated down. He wondered if it has to do with change of leadership at the management level, since there is a new DG from about four or five months ago, who might have come in the middle of the audit process by AGSA. The Chairperson will raise the concern of the Department’s stagnancy and lack of movement with the Minister.  

He said he was glad the meeting only focused on NDoH nationally, without looking at the provinces. He hoped SAHPRA and CCOD would be addressed together with the provinces, where the Committee can have a detailed discussion.

He will indicate the Committee’s concerns to the Minister, which needs to be sorted out, since it may be very difficult to advise provinces if there are similar challenges within the Ministry and NDoH. This might help the Minister to quickly deal with the issues. Going forward, the Committee may make the decision it was good to separate the discussions, since currently, the focus is on NDoH. Whenever the audits for provinces are ready, it can be dealt with.

He thanked AGSA for the presentation, while acknowledging the responsibility is now with the Committee to separately engage with the Department. The Committee is committed to do this.
He thanked members for attending the meeting and acknowledged Ms S Gwarube who joined the meeting later. He wished Members well as Members offer support during the by-elections.
The meeting was adjourned.

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