Department of International Relations and Cooperation on its Quarterly Performance and Qualified Audit, with Deputy Minister in attendance

Meeting report

Department of International Relations and Cooperation (DIRCO) on Quarter 4 2014 Outcomes
The briefing was undertaken by Mr Caiphus Ramashau, DIRCO Chief Financial Officer. Deputy Minister Luwellyn Landers was also in attendance and extended apologies for the absence of the Minister and Director General as both were overseas.

Mr B Radebe (ANC) said that he hoped that both the Minister and the Director General would be present when DIRCO briefed the Committee on its Annual Report. Mr S Mokgalapa (DA) shared Mr Radebe’s sentiments.

Deputy Minister Landers proceeded with introductory comments. He noted that over the past few years the Office of the Auditor General had provided colour coded audit report outcomes. If the audit report was colour coded green it meant that everything was fine. If orange/yellow it meant caution/warning. If red it meant that there were adverse and serious findings. He noted that DIRCO’s audit outcomes were red.  For the past 4-5 years DIRCO had received warnings from the Office of the Auditor-General. He spoke about an incident that had happened when he had been the Chairperson of the Justice and Constitutional Development Portfolio Committee. The then newly appointed Justice Minister, Mr Jeff Radebe, called a meeting with his officials and informed everyone that he had been in parliament since 1994 and had seen how Justice officials had abused Minister Dullah Omar and his two subsequent successors. Minister Radebe emphasised that he would not be abused and that the officials should do their work. He noted that the bad track record of DIRCO in terms of its audit outcomes had to end. It was true that the Director General of a department was the accounting officer and political heads often said that it was the Director General’s problem. He did not agree with that sentiment as political heads had to express their concerns to the Director General who in turn had to see to it that things were corrected. There should be a zero tolerance approach. The audit report of DIRCO had been discussed at Executive Management Committee level and the Minister, the Director General and Deputy Directors General had discussed a variety of issues. It was agreed that the current state of affairs was unacceptable and that steps needed to be taken to resolve the findings. The briefing would shed light on what steps had been taken.

Mr Ramashau continued with the actual briefing. The first leg of the briefing dealt with the expenditure outcome for 2013/14. As at 31 March 2014 the total amount of funds received was more or less R5.7bn. The total spent by DIRCO was however R5.8bn. It was evident that total loss was made of R116m. He continued with detail on the audit outcome for 2013/14. DIRCO had obtained a qualified audit opinion for 2013/14. There were repeat findings on asset management. Members were provided with a comparative analysis of DIRCO’s audit outcomes for the past five years. DIRCO had not improved over the past five years and had actually regressed in 2013/14. Matters that had arisen was the manner in which DIRCO prepared its fixed asset register and also how it reconciled information received from missions abroad.

The Committee was given a breakdown of the asset portfolio of DIRCO, providing detail on immovable, movable and intangible assets. The information provided spoke to the total number of assets held by DIRCO which sat at 167 901 assets as well as its total corresponding value which amounted to R5 952m. A fair amount of time was spent speaking to the audit findings of the AG and what was being done by DIRCO to address them. On the management of assets, the recurring finding was that assets were not physically verifiable and some assets were not recorded in the fixed asset register as was supposed to be done on a quarterly basis. There were also problems of reconciliation of physical fixed assets on hand with assets recorded in the fixed asset register. Measures would be implemented to update the asset register procedure, to decentralise the asset management system to missions and the verification of assets by using scanning devices.  Corrective action was being implemented against officials who failed to implement the directives /procedure for assets.

With regards to irregular expenditure by DIRCO, findings were that goods and services were procured without following supply chain management practice notes, policies and procedures as required by Treasury Regulation 16A6.1 Contracts and quotations were awarded to bidders who did not submit declarations as to whether they were employed by the state or connected to any person employed by the state as was prescribed by Treasury Regulation 16A8.3. Measures implemented were the establishment of bid committees and the following of a centralised approach. There would also be updated financial delegation of authority. Supply chain management and financial management policies and standard operating procedures would be reviewed. Procurement would be done in accordance with a demand management plan. A further finding was that payments to suppliers were not made within 30 days of receipt of the invoice. An adverse effect of this was that DIRCO would have to pay interest for late payment which led to fruitless and wasteful expenditure. Measures put in place included the implementation of a central point for receiving all invoices at Head Office and the implementation of an electronic invoice tracking system for Head Office.

Discussion
Mr S Mokgalapa (DA) felt it unacceptable for DIRCO to have adverse audit findings. There seemed to be serial offending on the part of DIRCO. He hoped that DIRCO would address the issues by its next audit outcome. He referred to the irregular expenditure finding by the AG where contracts were awarded to bidders who did not submit declarations on whether they were employed by the state or connected to any person employed by the state. How was the problem to be resolved given the lack of capacity of DIRCO? On the problem of tracing assets, how would DIRCO ensure that assets existed physically where they were supposed to be.

Mr Ramashau, referring to irregular expenditure and non-compliance with National Treasury Regulation 16A8.3, stated that the AG Office accessed the Department of Trade and Industry’s database to check on who were the directors of certain companies. It was discovered that there were government officials doing business with government departments. The main problem with the management of assets was that DIRCO was not good at consequential management. DIRCO had a decentralised approach where each branch handled its own procurement. It was decided to move towards a centralised procurement approach where approval had to be obtained from head office. Payment however took place at mission level. 

Mr B Radebe (ANC) also expressed disappointment with DIRCO’s red flagged audit. He was concerned about DIRCO not paying its service providers within 30 days as required. It impacted negatively upon the operations of businesses involved. Apparently DIRCO also had information and communication technology (ICT) problems. What was being does to address these problems? How many DIRCO officials who had not performed their duties of verifying DIRCO assets, had been disciplined?

Mr Ramashau noted that DIRCO had launched its ICT in 2006. DIRCO was now in the process of refreshing it. Minimum-security devices were in place but work was being done to improve on it.

Ms D Raphuti (ANC) felt that stricter requirements should be in place for asset management. She suggested that monthly reports be done on assets. She also felt that irregular expenditure by officials was misconduct on their part and that they should be disciplined.

Mr Ramashau welcomed the suggestion of a monthly report to be done on assets.

Mr M Maila (ANC) was also disappointed with the audit outcome of DIRCO. He noted that the audit was done by sampling. It chose certain missions on which to do the audit. How reliable was that process? Mr Ramashau explained that DIRCO was engaging with the AG’s Office. It had to be remembered that the AG’s Office also had standards it had to comply with. One of the problems was DIRCO had not done an effective internal audit of itself.

Ms S Kalyan (DA) asked whether the process for the tracking of assets was tried and tested. At the Members of Parliament residences at Acacia Park in Cape Town everything had a barcode attached to it. Everything in the residences was scanned every six months. What was DIRCO scanning? Was it scanning local or overseas assets? She pointed out that a while back she had seen an advertisement calling for tenders to supply furniture to SA’s mission in Japan. She felt it ridiculous. Why was the furniture not sourced in Japan? Sourcing it from SA meant that it had to be later shipped to Japan. The costs would be high.

Mr Ramashau said that for SA missions, furniture was usually acquired from Denmark. Japan simply did not have the furniture which SA needed. DIRCO did a cost-benefit analysis. Local procurement was also done.

Ms M Moonsamy (EFF) stated that DIRCO was in the red and yet its accounting officer, the Director General, was overseas. DIRCO was in this position for the past three years. Could the situation be rectified by DIRCO’s accounting officer? She asked for clarity on the over expenditure of R116m. The managing of DIRCO assets should be the responsibility of persons at each mission. People should be conscious as to what assets were in their offices. She was concerned about irregular expenditure. She was pleased about DIRCO establishing bid evaluation committees. She asked for greater detail on the over expenditure of R116m.Was it pure negligence? She also asked for detail on fruitless and wasteful expenditure.

Mr Ramashau replied about the overspending of R116m, noting that DIRCO was unqualified on that part. DIRCO had explained to the AG’s Office why the overspending had taken place and it was found that that the overspending by DIRCO had been beyond its control.

Mr M Lekota (COPE) was glad to hear Members expressing their concerns about DIRCO being in the red. It was not a new occurrence as DIRCO had been in the red for quite a few years. The fact that DIRCO was in the red was a serious problem and needed to be addressed as a matter of urgency. He asked how secure information was at SA missions. Often times local persons were employed at SA missions who had access to sensitive information. He felt that the security of information at missions was a factor to consider. DIRCO needed to take the Committee into its confidence on this subject.

The Chairperson agreed that DIRCO was degenerating over the last three years. Were there lessons to be learnt by DIRCO from other departments like the Departments of Trade and Industry and Defence on how to deal with assets held outside of SA? 

He also expressed concern over the sampling method used by the AG’s Office to audit DIRCO’s 125 missions as audits had only been done on 20 missions. This needed to be raised with the AG’s Office. The audit should have at least covered 50% of the missions.

On contracts and declarations, the Chairperson asked when would DIRCO ensure compliance. The requirement was that government departments needed to pay service providers within 30 days. Had all service providers been paid in connection with Nelson Mandela’s funeral?

Mr Ramashau said that the funeral expense was payment which DIRCO made to other departments for expenses incurred by those departments.

Mr Radebe pointed out that it seemed as if DIRC’s next audit report was also going to be a qualified report.

Ms Kalyan stated that Nelson Mandela’s funeral was an unexpected event. Did DIRCO have a budget for it or did National Treasury handle the expense? Why did DIRCO have to sit with the burden of the expense when it was a multi-departmental one?

Mr Ramashau explained that the funeral over-expenditure were services that DIRCO had provided itself. No funds had been received from National Treasury. DIRCO did not have contingency funds. Presidential inauguration expenses incurred by departments were claimed from DIRCO.

Deputy Minister Landers noted that the responsibility fell upon DIRCO as it involved visiting heads of state. In SA’s culture, funerals were not usually planned for. The Presidency together with Director-General was drafting a funeral policy which would cover Ministers, Deputy Ministers etc. The expenses incurred by DIRCO for such funeral was what would be covered by the policy.

Mr Ramashau spoke about expenses attached to presidential inaugurations, noting that DIRCO had Memoranda of Understanding with other departments. The funding mechanism being worked on was still a strategy.

Expenditure outcome for Quarter1 for 2014/15
Mr Ramashau said the total appropriation for this financial year was R5.75bn. Projected expenditure for the quarter was R1.49bn with an actual expenditure of R1.34bn which was roughly 10% lower.

The Committee was provided with a breakdown of actual expenditure versus projected expenditure figures for the five DIRCO programmes: Administration, International Relations, International Cooperation, Public Diplomacy and Protocol and International Transfers.   

He elaborated on DIRCO’s property management. The property portfolio of DIRCO consisted of chanceries, official residences and staff accommodation. There were 135 state owned and approximately 700 rented properties. DIRCO’s rental budget was in excess of R500m per annum. DIRCO was embarking on a property acquisition strategy with the aim of increasing its state owned property portfolio and to reduce its operational lease budget via strategic acquisition of properties abroad.

Detail was briefly provided on the African Renaissance Fund projects for Quarter 1 in terms of the amounts that had been appropriated and what had been spent to date. 

Discussion
Mr Mokgalapa was pleased that DIRCO was moving away from the renting of property abroad towards the purchasing thereof. He asked the Chairperson’s guidance on the African Renaissance Fund (ARF). The Deputy Minister was expected to provide the Committee with a report on the ARF. The idea was to be well informed before embarking on a discussion on the issue. Of particular interest was ARF projects.

The Chairperson affirmed that the Committee would invite the Minister to walk the Committee through the governance of the ARF. Both the Minister and the Director General of DIRCO should be present at that meeting.

Mr Mokgalapa thanked the Chairperson and welcomed the interaction.

The Chairperson said that he would invite the Minister to appear before the Committee at the earliest time possible.

Ms Moonsamy referred to DIRCO’s practice of signing leases and paying rental up front for one year in advance and asked if it resulted in the overspending by DIRCO.

Mr Ramashau explained that in Asia and Africa suitable rental property was in short supply hence SA entered into 4-5 year lease contracts. Currently SA was entering into one-year paid-in-advance contracts. The intention was to decrease the upfront payment period to quarterly. Payment was usually in foreign currency, the standard being US dollars.

Mr Raphuti felt that international transfers were negatively affecting DIRCO’s budget. Many of DIRCO’s buildings purchased in foreign countries were old and needed maintenance. Was it not an employment opportunity for young South Africans to renovate such buildings. She asked if missions abroad had lists of items that were to be found in each office. On a lighter note she asked why something like a dinner plate should be on an asset register.

Deputy Minister Landers said that even a plate had to be placed on the asset register. It was a requirement in law. Every asset bought with taxpayers’ money had to be accounted for. For the purchase of a single plate three quotations were required.

Mr Maila asked how many missions of foreign countries owned property in South Africa. He asked where such information could be obtained?

Deputy Minister Landers answered that the figures were obtainable from the DIRCO website.

Ms T Kenye (ANC) said that if it was true that DIRCO’s losses were due to non-submission of claims by other departments for presidential inauguration expenses, he wondered what measures DIRCO had to deal with the issue. What action was DIRCO taking about the non-declaration by officials of a conflict of interest in a contract?

The Chairperson was not convinced that DIRCO had the required capacity to do viability studies on the construction and renovation of buildings. He asked if DIRCO worked with the Department of Public Works on this. Foreign exchange would always have an effect on DIRCO. The issues that arise were hence not DIRCO’s doing. He felt that National Treasury should look into the matter. 

Ms Moonsamy pointed out that if lease contracts were paid in advance how currency fluctuations could affect advance payments.

Mr Ramashau reiterated that payments were made in US dollars. Currency fluctuations came into play between DIRCO and the National Treasury. 

Ms Raphuti wished to see the list of organisations that DIRCO paid membership fees to.

Mr Ramashau said that the list would be forwarded to the Committee.

The meeting was adjourned.