"Who am I Online" project & Department of Home Affairs Annual Report 2007/8: Office of Auditor General report

Home Affairs

21 October 2008
Chairperson: Mr P Chauke (ANC)
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Meeting Summary

The Deputy Auditor General briefed the Committee on the progress made by his Office with the investigations that the Minister of Home Affairs had asked it to make into the “Who Am I Online” project, following the Committee’s disquiet around various aspects of that project. He noted that the Specialised Audit Services Unit had commenced the investigation, and, in the process of this work had called for various documents to enable it to verify and test documentation and procedures. Most had not been forthcoming from the Department of Home Affairs, although certain information had been accessed from the State Information Technology Agency. The person responsible for overseeing the tender process had left the Department and documents supposedly could not be found. Without these, it was impossible for the Auditor General to complete the investigation. Members expressed their concern that the project had in fact been signed into operation and had commenced only a few days after the investigation had been ordered, and was now running and had experienced a sharp rise in costs. They wondered if the documentation was available when the contract was signed. They were adamant that this matter must be finalised and that the escalation and certain other matters, which they specified in the meeting, must also be interrogated. The Committee resolved to raise this matter on the following day, when it would meet with the Department. The Committee also resolved to recommend to Parliament that this project be halted immediately, until the outcome of the investigation, and that the Department must, within seven days, provide all documentation requested by the Auditor General, to enable his Office to proceed with the investigation.

The Auditor General then took the Committee through the 2007/08 audit report of the Department. Once again a disclaimer had been given. Problems across a number of areas pointed to lack of supporting documentation, delays in the recording of transactions, lack of a clear and proper audit trail, lack of compliance with the National Treasury Regulations, and lack of reconciliations performed during the financial year. The asset register was still not completed, and some vehicles belonging to Department of Transport were listed as assets of the Department of Home Affairs, other assets to the value of R249 million could not be verified with supporting documentation, and internet usage of R11 million was incorrectly classified as an asset. Adjustments had also been capitalised as separate assets, instead of being allocated properly, which had given rise to duplications. Suspense accounts had not been cleared, nor reconciled. Members acknowledged that the work of the Department was made more difficult by the number of offices, yet expressed their disquiet that many of the errors were quite basic, and had been repeated year after year, which pointed to the fact that proper systems had never been put in place. This was the third disclaimer from the Auditor General, and Members expressed their frustration that none of the efforts so far made to assist this Department seemed to have resulted in a turnaround. They criticised the apparent lack of commitment on the part of the Minister and Department. Members mooted that perhaps National Treasury should be asked to take over the financial aspects. The Auditor General noted that it also might be useful to have the financial statements prepared and reconciled on a quarterly or half-yearly basis. The Chairperson noted that these issues would be raised the following day.

Meeting report

"Who am I Online": Office of the Auditor General (OAG) briefing
The Chairperson noted that some time ago this Committee had identified problems with the project "Who Am I Online". When it had raised the matter with the Minister of Home Affairs, she had said that she had already instructed the Office of the Auditor General (OAG) to investigate the matter. In July 2008 the OAG had written to the Committee saying that it would appreciate some information, but constraints in the Committee’s programme meant that the meeting could not then take place. The Chairperson of the Committee had written back to the OAG on 1 October, identifying and explaining some of the matters on which the Committee would like to have answers. The OAG would therefore now brief the Committee on the processes of the Who Am I Online project (the Project).

The Chairperson then noted that the Auditor General would also report on its audit report, contained in the Annual Report of the Department of Home Affairs (DHA) for 2007/8. The briefing on the Annual Report had taken place during September, but once again constraints in the Committee’s time had meant that the meeting with the Auditor General on the issue of the audit report could not take place at that time. The Annual Report presented yet another sorry story about the state of affairs in the DHA. The Department seemed to have reverted to where it was before. The Chairperson expressed his disappointment that the DHA was not moving where it had been expected to go. The Committee would meet with the Department the following day, to discuss the issues in the Annual Report. There had been a call that this should be a closed meeting, but the Chairperson did not agree. The issues of Home Affairs were in the public domain, it was necessary for the Committee to achieve some finality, and he appealed for openness and frankness, to try to find a way to assist the Department. He suggested that perhaps National Treasury could also be asked how it could assist. 

Mr Kimi Makwetu, Deputy Auditor General, OAG, noted that Ms Lily Zondo, Corporate Executive responsible for Home Affairs, OAG, had asked that he attend this meeting in her place, and that she had briefed him fully. He was also assisted by a team who had worked on the audit for 2007/08. He could give a status report on how far the investigation into “Who Am I Online” had progressed, but he asked also if the Committee had any further information for the OAG.

The Chairperson clarified that the letter from the OAG of 7 July requesting a meeting with the Committee so that Members could provide further information, had been responded to in the letter of 1 October, which had then listed a number of issues that the OAG should be looking at, but mentioning also that there might also be other issues that Members of the Committee wanted to raise. They could speak to any further issues at this meeting. He noted that he would like to hear how far the investigation had proceeded, especially since it now appeared that the costs originally anticipated had risen sharply.

Mr Makwetu reported on the status of the investigation by the Specialised Audit Services Unit. This Unit had commenced the investigation on the Project and, in the process of executing the procedures that were identified as important, had reached a point where they had been stalled because considerable documentation requested from the Department was not forthcoming. A number of requests were made by the OAG for additional information, particularly around how the documentation was compiled, but this had still not been received. There had therefore been no conclusion. The documents requested were listed, and he could provide this to the Committee. One of the critical points to note was that the person in the DHA who was originally responsible for overseeing the tender process, had left the DHA, and when he had left, many of the documents relating to the process, which had supposedly been in his possession at some stage, could not be found. Therefore, although OAG had managed to do some work, and would like to complete its investigations as soon as possible, it was simply not possible to do so as long as the documentation was outstanding.

The documentation that was missing included documentation that would provide evidence on how the Committee that was to compile the business case specifications had been formed. This was necessary to evaluate whether the process was carried out in accordance with Supply Chain Management processes. In addition, documentation providing proof that a Needs Analysis identification was done was also outstanding. Some documentation was requested from State Information Technology Agency (SITA), and after discussions with Mr Peter Peddler, Acting CEO of SITA, documentation had been received. However, all the listed documents would have to be accessed before the proper procedures, as contained in the terms of reference, could be completed. Some of the questions that the Chairperson had asked in the letter of 1 October were able to be answered, after engagement with senior officials of SITA.

The Chairperson noted that the questions raised in the letter of 1 October need not be answered now, but the answers should be included in the full report still to come from the OAG. It was clear that the lack of documentation was hindering the OAG. He was concerned that this Project had been signed into operation on 10 July, only a few days after the OAG had written to Parliament to say that it had been instructed to investigate the matter. It seemed that the Project was simply continuing, despite the concerns raised. The amounts involved had grown substantially. He would like to hear when the investigation might be able to be concluded. He pointed out that the Project involved taxpayers' money. It was no longer a question of this Committee merely "suspecting" that things were not right. The Minister and SITA had heard the Committee’s concerns in clear terms. If the Director General of DHA had signed to commence the Project, he should have been satisfied about the supporting documentation, which therefore should have been in his possession. It was very disturbing to hear that the documentation could not be produced. Whatever the OAG had called for must be provided. He said that in his capacity as Chairperson of this Committee, he wished to ensure that this was concluded by the end of the Parliamentary session. He could not allow the situation to exist or continue where documentation was not forthcoming, the contract was going on as if no investigations were pending, and the costs had meantime more than doubled.

Mr P Mathebe (ANC) asked whether the person who had left the office, who had allegedly been in possession of the required documentation, had left before or after the contract had been signed. If the documents could not be found before the contract was signed, then the contract should not have been signed in the absence of vital information. He could not believe that those documents did not exist and suspected a cover-up.

Ms N Mathibela (ANC) followed up on the question of the person who had later left the DHA. Even if he had been working at home, the documentation should remain in the office.

Mr Mathebe was also concerned about the massive escalation in the amounts. The contract price had been quoted originally at R1.8 million but suddenly it had escalated to over R4 million. This report did not really tell the Committee anything and he was not satisfied with what had been presented.

Kgoshi K Morwamoche (ANC) noted, in respect of the escalation, that Parliament and National Treasury should have approved any changes. He asked if this requirement was adhered to.

Kgoshi Morwamoche also raised some points that he felt the OAG should address. It was necessary to determine whether the tendering process was free, fair, equitable and transparent. The adjudication committee should have consisted of senior officials from the departments of Home Affairs, Treasury, and Public Services and Administration, should have included senior accountants and be chaired by a legal person. He needed to know whether these processes were followed. He would also like to know whether the opening of the bids was free and fair. Further, he enquired if the Bid Adjudication Committee appointed the Evaluation Committee, and whether they had appointed a Specification Committee. Phases 1 to 5 should have been properly followed, and he asked the OAG to check compliance with all phases.

Mr Mathebe asked if there had been any interaction, before signing of the contract, between the Department and the contractor on this Project. He also wanted the OAG to check whether those who were the superiors of the person who had left were not taken on board – he pointed out that surely that person must have been reporting to someone, and the latter person should know where to access the documents.

Mr M Lowe (DA) said that the DA shared the ANC’s concerns about the matter. The failure to provide documentation had also been one of the reasons, in respect of the financial statements, that the OAG had issued a disclaimer for the 2007/08 financial year. In July this Committee met with the then-Minister of Public Services and with the Minister of Home Affairs, yet no concrete answers had been given. He strongly supported the Chairperson's suggestion for a direct interaction with the Department and the Minister. He did not feel that the Minister was displaying enough concern on this matter. He suggested that, through the Office of the Speaker, a meeting should be arranged with the Minister, Director General and OAG, to get some answers. He was aware that this term was set aside to deal with legislation, but if necessary the Speaker should be asked for special permission to debate this issue.

Mr Lowe then said that the Chairperson’s mention of National Treasury was also important. He agreed that matters of internal control had not been met, and basic financial systems were not properly followed. He asked whether National Treasury should not perhaps be asked to step in and manage the Department’s finances.

Kgoshi Morwamoche felt that, pending the completion of the investigation by the OAG, the Project should be brought to a halt.

Mr Mathebe agreed with this proposal.

The Chairperson noted that the Committee would meet with the Department on the next day. He agreed that a recommendation needed to be made to Parliament that the Project be suspended, pending the outcome of the investigation. By the end of November, the OAG should be able to give a full report to Parliament.

Mr Lowe also indicated his support of this suggestion. He pointed out that the general election was due to be held next year, and it was necessary to get matters working quickly, so that the DHA was able to handle the work that would be required of it in connection with the general election.

Mr Makwetu responded that the update he had just given was not a complete report, and it would only be possible to submit a complete report once the OAG had been able to perform the minimum procedures that would enable it to report fully. He agreed that, provided the documentation was received, his office could be ready to report by end November. However, the custodians of the information that the OAG needed were the DHA, and the OAG was dependent entirely on that Department. The information was required so that the OAG could formulate an independent opinion. The OAG had clearly set out what it needed, but it was impossible to complete a report without that information. He wished to highlight this to stress that the delays were not of the OAG's making.

Mr Makwetu then explained that there were various procedures that the OAG must conduct. For instance, in the area of evaluating the bid process, there were several documents to be examined, to check whether there was a conflict, or any declaration of interests. The OAG could only comment once it had had sight of these documents. The custodians of that information must make it available.

The Chairperson said that he would raise this issue on the following day when the Committee met with the Department. If the Department did not respond to the requests - whether deliberately or negligently – they would need to understand that the matters could not go further.

The Chairperson then suggested that he should draft the Committee Resolution and send it through to Parliament. It would be along the lines that the Portfolio Committee, having met with the OAG, and having received a report in regard to the investigation on the Project, and the lack of documentation forthcoming from the Department, had resolved:
(1) that the Project be immediately stopped, and held in abeyance until finalisation of the investigation
(2) that the Department must, within seven days, provide all documentation requested by the OAG, to enable that Office to proceed with the investigation>

Members supported this proposal.

Annual Report 2007/08 of the Department of Home Affairs: Office of the Auditor General’s briefing
The Chairperson noted that the OAG had previously indicated that it would like an opportunity to brief the Committee on the audit for the 2007/2008 financial year, as contained in the Department’s Annual Report, but once again there had previously been difficulty in fitting this briefing into the Parliamentary programme. He asked the OAG to take the Committee through its findings, as the Committee would be engaging on the same issues during the meeting with the Department on the following day. He noted that despite previous endeavours to assist the Department, the same issues seemed to have arisen again.

Mr Kevish Lackman, Business Executive, OAG, referred the Committee to the Audit Report findings, which appeared on Page 138 of the Department’s Annual Report.

He said that in regard to Revenue and Receivables, there was lack of supporting documentation, delays in the recording of transactions, lack of a clear and proper audit trail, lack of compliance with the National Treasury Regulations, and there were also issues on the debts receivable accounts not balancing with the accrual account. This was due to lack of reconciliations performed during the financial year, the accounts not being cleared regularly, nor being balanced at year end, and lack of proper processes.

In respect of Capital assets, the asset register was not completed at the time of conducting the audit, so that the OAG was unable to verify the assets. A number of assets acquired after April 2002 were not able to be verified with supporting documents. The vehicles belonging to Government Garage were recorded incorrectly as assets of this Department. Other assets recorded at a cost of R246 million were not supported by appropriate documentation. Internet usage of R11 million was incorrectly classified as an asset. Computer hardware was recorded as intangible assets. R29 million was characterised as intangibles but the description on the invoice was not sufficient to assess the classification. Consumer Price Index adjustments, foreign exchange adjustments and retention fees were capitalised as separate assets, and not allocated to the respective assets from which the adjustment arose, and this would result in duplications.

In respect of leases, the DHA could not provide a complete list of all leases, and leases to the value of R34 million were not supported by a list or proper contracts. Overall, there was a lack of proper records, reconciliations and supporting documentation.

In respect of Cash and Cash Equivalents, the key issue was the non-clearing of the suspense accounts, which had led to amounts being reflected for the financial year that were not able to be reconciled, and their validity could therefore not be tested.

Mr Makwetu interjected to explain that this was a large balance, but it was a credit balance. It represented amounts paid into the Department that could not be identified, and therefore could not be allocated to the correct accounts. He noted that this situation could arise where there was a multiplicity of transactions of small or large amounts, where no reference numbers existed. In addition, a fairly substantial portion of the suspense accounts represented money that had not been able to be identified in previous financial year.

In respect of the payables, there was lack of reconciliation and clearing of suspense accounts, which was contrary to the Treasury requirement that suspense accounts must be cleared on a regular basis.

In respect of expenditure, Government Garage expenditure for the use of vehicles could not be supported with sufficient documentation, and the OAG had been unable to satisfy itself that the amount of R76 million had been properly spent. 

Foreign allowances were also not supported with sufficient documentation for the OAG to satisfy itself, and it similarly could not verify the amount of R99 million included in other non-pensionable allowances.

Mr Lackman summarised that these key deficiencies in the keeping of the financial statements were repeated over a number of areas of the finances. In general, there was lack of supporting documentation, reconciliation and implementation of controls. This had led to the Auditor General issuing a disclaimer for this financial year.

Mr M Lowe said that it must be acknowledged that the DHA had difficulties in running some of their offices. However, these were basic errors, the systems that should be in place had not been put in place, and the problems were running on year after year. No doubt one of the reasons that the public was battling to obtain documents was that there was a whole crisis in the Department. He asked the OAG for its opinion whether the suggestion to ask National Treasury to organise the financial systems would be useful, if the Minister and Department were not able to do something. He believed that until the financial and internal control systems were put in place, there would not be results and services provided to the people of South Africa. He asked if this step should be followed and how it could be done.

Mr W Skhosana (ANC) noted that the OAG was unable to tell the Committee what exactly was happening in regard to the finances. He too commented that this had been a repeating pattern over the years, and the problems pertained to several areas of the office systems. He wondered if the Department was simply unwilling to give the documentation, or whether the OAG had observed anything else. He also asked for advice what the OAG thought could be done in such situations.

Ms M Matsemela (ANC) agreed that this was of great concern, and she asked if the OAG could perhaps assist the DHA to perform better, and in particular whether internal audits were being properly conducted or could assist with the problem.

Ms Mathibela referred to the capital assets register, and she asked how the Department could work without having such a register.

The Chairperson cautioned that the OAG was mandated to audit the Department's finances and give an opinion, which had been done. He noted that Members' frustrations were clearly reflected in their comments. This was the third disclaimer. At the time of the first disclaimer, National Treasury and Department of Public Service and Administration had deployed some staff, and had made some recommendations, and there had been some work on resolving some of the issues. However, following the departure of some people, these efforts had collapsed. The Intervention Task Team had identified the areas of internal controls as a problem.  After the second disclaimer the Turnaround Team was appointed, as a cost of almost R1 billion. In the current financial year, almost half a billion alone was being spent on this Team. The new Director General and CFO had been deployed, but it was clear that matters were not improving. Therefore Members were now asking what more could be done. He felt that during the Committee's engagement with the DHA on the following day, the Department should also be asked pertinently where the Committee and the OAG must go.

The Chairperson noted that the OAG could not go further than giving an opinion on the financial statements. He noted his appreciation for the work done by this Office, and for its submissions to Parliament. Parliament must pass the budget of the Department and it must also make recommendations on what must be done; either the route that Mr Lowe had proposed, or any other steps that might assist. Currently the DHA was not showing any compliance. The very same issues were being raised year after year. Even stokvels in communities were being better run. DHA was failing to turn around and there seemed to be reluctance to take ownership of the "mess" that had been created. The Turnaround Team and the Director General must explain exactly what was being done. He stressed again that this Department was dealing with taxpayers' money and Parliament had responsibilities in respect of the Department’s performance.

Mr Makwetu noted that the mandate of the OAG was limited to giving the Committee the necessary information to enable it to engage with the Department. The issues around financial administration and governance had been highlighted in this report and discussed with the leadership of the Department. The next level of engagement must be between this Portfolio Committee and the Department, to address the action plans in place in the short and long term, as this was not the function of the OAG.

In respect of the internal audit, Mr Makwetu noted that many of the weaknesses were arising in institutions because those who were supposed to exercise internal audit oversight either had not done so at all, or not to the necessary extent.

Mr Makwetu agreed that the processes in DHA were often complex, because transactions took place in so many locations in the country. He noted that currently only one set of financial statements was produced at the end of the financial year, which only then showed problems that might have accumulated during the year. It might be useful instead for the Department to report on the financial status and reconciliations on a quarterly or half yearly basis, even if these reports were not formally audited. One of the problems contributing to the financial reporting challenges was there was only one opportunity to deal with the multiplicity of problems. This might be an area that National Treasury could explore. OAG had highlighted some of the problems and this possibility during its roadshows, and had identified some disciplines in other jurisdictions that had helped to improve the financial management.

The Chairperson asked if Mr Lackman had been working with the internal audit committee>

Mr Lackman said that he had, and this was reflected in the report.

The Chairperson noted that the Government Printing Works was also showing similar problems as in previous years. He noted that the Members should study the report in order to prepare themselves for the meeting the following day.

The meeting was adjourned.


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