Department of Home Affairs and Government Printing Works 2006/07 Qualified Audits

Meeting report

Department of Home Affairs (DHA) Annual Report 2006/07 Interrogation
Ms N Hlangwana (ANC) noted that for the past six years the Department had received either qualified audits or disclaimers. The Department’s excuse was always that the staff was new. The issues had become a legacy and there needed to be an indication of when and how they would be dealt with. Page 66 of the Annual Report indicated that there was under spending in the filling of vacancies and she enquired when would those posts be filled.

Mr Mavuso Msimang, Director General, DHA, replied that it was very perplexing to come in year in and year out. The posts were not filled during the year, and the Minister appealed to colleagues to take a complete look on how the business was conducted. There was a breakdown in certain areas, and the posts were not filled. The Department had done a thorough review of the organisation and a proposed structure had been submitted to the Department of Public Service and Administration (DPSA). He felt that the Department would fill most of the posts and believed that the critical posts that should be filled would be filled by the next financial year.

Ms Hlangwana asked for comment on the accuracy of the allocations included in the suspense accounts.

Mr Sagaran Naidoo, Acting Chief Financial Officer, DHA, replied that the unsubstantiated amounts on cash and cash equivalents were in suspense accounts. The Department had identified the accounts and was planning on clearing the accounts. One of the issues in clearing the accounts was that some of the transactions dated back several years. The target for clearing the accounts was March 2008.

The Chairperson asked how many accounts had been cleared to date

Mr Naidoo replied that about 75% of accounts had been analysed and some of the transaction required engagements with National Treasury.

The Chairperson asked how it would be possible to clear the accounts by March, when they were still being analysed. 

Mr Naidoo replied that all accounts had been analysed and the deadline for clearing was end of March

Ms Hlangwana asked why the accuracy of variables could not be verified, and whether there had been improvement in the issues surrounding irregular expenditure.

Mr Naidoo replied that when the suspense accounts were cleared, all the payable problems would be dealt with.

The Chairperson said that the issues arose as a result of work not getting done. The Committee would like to know whether things were being done to address some of the issues, as it was important for the issues not to be brought up again next financial year.

Ms Hlangwana asked for clarity on capital assets. According to the Auditor General (AG), the documents relating to capital assets were not available on time.

Mr Naidoo replied that on capital assets it was true that the documents were not there. What seemed to be happening in the Department was that work was not done consistently from a financial perspective. There was usually a huge rush to get things done towards the end for the purpose of the audit. A process had begun to establish a fixed asset register. This process was not completed when the report was completed, hence information was not available to present to the AG. The Department was performing an asset management existence verification and valuation. Therefore a fully auditable asset register would be in place by March.

Ms Hlangwana said that on Page 81 the Auditor General raised several issues pertaining to revenue and receivables. The Department should comment on what had been done to resolve the matter.

Mr Naidoo replied that in terms of revenue, the revenue stream within the Department was fragmented at best. There was a huge dependency placed on manual processes and people to get information to head office. There was also a relationship between the DHA and the Department of Foreign Affairs (DFA) concerning the revenue collected from the foreign missions. The process with DFA took at least 18 months, which was not acceptable. In order to resolve the matter pilot sites had been established, and a new web system had also been implemented.

The Chairperson asked how long it would take before the systems were fully operational

Mr Naidoo responded that the entire process would take at least 14 to 16 months for the systems to be implemented both locally and in the foreign missions

The Chairperson noted that the Department had received vouchers from DFA which had not been processed by year end, and money had not been received from DFA. He asked if the Department was in a position to state that such matters would not recur.

Mr Naidoo replied that the Department worked hand in hand with DFA, where people had been placed to analyse the vouchers. The Department was planning on reducing the timeline for receiving funds from DFA. The outstanding vouchers that were with DFA had been accounted for, but were still not up to date. 

The Chairperson asked what happened to the vouchers that had been received.

Mr Naidoo replied that the vouchers were captured.

The Chairperson said that the reasons for the time lag were that documents were not being processed.

Ms Hlangwana said that funds were authorised by the incorrect delegation of authority, which amounted to non compliance with Treasury regulations. She asked why there was such non compliance.

Mr Naidoo replied that he was not sure why people did not comply. However the Department had implemented comprehensive checks and balances, and the check list would be audited before payments took place.

The Chairperson said the placing of rules and procedures was the first basic step. The main problem lay in with compliance with regulations.

Mr Naidoo assured the Committee that he would try to prevent such issues from recurring.

Ms Hlangwana noted that according to the Auditor General there was irregular and fruitless expenditure, which amounted to millions of rands. She asked what measures had been taken to ensure that financial discrepancies would not recur.

Mr Naidoo replied there were procedures in place to prevent financial discrepancies. In terms of fruitless and wasteful expenditure, the Department was in the process of negotiating with the contracted vendors.

The Chairperson asked the Department to comment on when the negotiations process and clarity should be provided on the Lindela contract that was up for renegotiation.

Mr Msimang replied that the renegotiation for the Lindela contract would take place in September. The Department however did actively engage with the contractors, and there was a resolution made.

The Chairperson asked for more detail on the new agreement

Mr Msimang replied that the problem in the first place was that the pricing was not transparent, and a lot of the costs were hidden in the infrastructure. The Department looked at the actual costs and agreed that costing be done per item.

The Chairperson asked for the Department to comment on the areas of disagreements.

Mr Msimang replied that the areas of disagreements were the charges, and the Department asked the contractor to unpack the charges.

The Chairperson said the basis on which the amount of R56.02 million was regarded as fruitless and wasteful expenditure resulted from the numbers of people kept in the refugee centres. In the previous financial year, the Department, according to the contract, would pay the contractor for about 3 000 people every month, even when there were 2 000 or 4 000 people. There was a sense that the repatriation of illegal immigrants was taking place faster than ever before, yet the Department was paying for them as if they had been there for a long time. The Committee would be interested to know how the situation was resolved, and what was going to be done in future.

Mr Msimang replied that the monthly fee would be based on a daily tariff of R95.37 per day and it would be fixed on an average minimum cost. The problem last year was that the service provider gave the impression that the unit cost was much cheaper than it actually was. The figure of R79.90 per person was not realistic, as the contractor would claim to be undercharging, yet they recovered the costs in other areas.

The Chairperson said if the Department paid R79.00 for 3250 people and R95.00 for 2500 people then surely there was a discrepancy somewhere. The problem was that the amount paid was at variance with the actual number of people in the centre. It may be true that there were more than R2500 people in the center, however it was also true that at the time that there might be only 90 people the Department would still be paying for R2 500. 

Mr V Smith (ANC) said that if the tender promised the Department a fixed cost of R79.00 and then increased it to R95.00 a few months later, then the Department was honouring a tender which did not really mean anything. If that was the case then why was the Department continuing with a tender that came in on the pretext of offering a lower cost, when the actual costs were much higher.

Mr Naidoo replied that the Lindela contract was negotiated in 2005 with a clause which said that terms and conditions could be re-negotiated every 3 years. When the contract was entered into, the Department asked for a specialised building. The negotiations on the infrastructure would take place in September 2008. The Director General had outlined an interim arrangement just to get savings out of the agreement. The R79.00 was a fixed cost, but the Department however looked into the variable costs, which made the difference between the 79.00 and 95.00. The variable costs were originally disguised, and the Department was looking forward to the September negotiations.

Mr Smith said that as a result of the contract there was fruitless and wasteful expenditure, and something needed to be done.

Mr Msimang replied that the matter was very complex and preemptive steps had to be taken. The Department could not wait to September to take action. The sum total of the negotiations would probably be clear once the negotiations were complete in September.
                                                                                           
The Chairperson said that since the Department had retained the fixed cost of 2500 refugees they would still face the same problem with the Auditor General.

Mr E Trent (DA) asked how the Auditor General could prevent the contract from becoming described as fruitless, and also how the Department could get out of the contract.

Mr Terence Nombembe, Auditor General, added that the analysis that was being made was accurate, and what the report highlighted was the implications of the terms of the contract that had been signed. His office could not comment on whether there should be a fixed contract, and fixed costs had their advantages and disadvantages.

Ms Hlangwana said that according to the Auditor General, there were several instances of non compliance with Treasury regulations. Clarity should be provided on the innovations now put in place.

Mr Naidoo replied that non compliance with Treasury regulations was unacceptable. The majority of the issues related to the non disclosure of funds. In future the Department would not have matters of non disclosure, and these issues would not be a problem in the next Annual Report.

Mr D Gumede (ANC) said that in a service like the Home Affairs there were always fixed costs that should always be estimated. The figures should be informed by a scientific approach, and one could not have a threshold that was informed by impulse. Service providers needed to be informed that the costs were fixed.

Mr Msimang noted the issues that had been raised and confirmed that the issues would be brought up in the September negotiations.

The Chairperson asked whether the Department had concluded preliminary negotiations and whether the figure of 2500 was the final agreement.

Mr Msimang replied that there would be a review of the agreement in the September negotiations.

Mr Trent said that the report was shocking. The Department was a high risk department, and they needed focus on what caused the problems instead of what the problems were. Clarity should be provided on whether there were procedures put in place since the turnaround was initiated. On performance information, it was difficult to believe that there were measurable objectives in place, and the Department should state whether there would be an improvement in future performance information.

Mr Msimang replied that best answer would be to provide information on how the turnaround was to be organised. In regard to performance information, he confirmed there would be a definite improvement in the reporting of the information.

The Chairperson said that the turnaround report would be presented at a later stage.

Mr Gerber noted that the Minister’s report was missing from the Annual Report, and said it should be included in the next Annual Report. The dates of international trips by the Minister and the Deputy Minister should also be included in the report. According to the Auditor General, there was irregular expenditure pertaining to procurement of security services and the hiring of mobile toilets. He asked if disciplinary measures were taken for the irregular expenditure. He also asked what was the Department’s capacity to review contracts for service providers.

Mr Msimang replied that he was unaware of the non-inclusion of the Minister’s and Deputy Minister’s report. The Department was reviewing all contracts and disciplinary actions were being taken against the people who were involved in procuring the two contracts. On the capacity to review contracts, the Department relied on external support.

Mr P Gerber (ANC) asked for clarity on the individual who was listed as absent from the audit committee meetings.

Mr Msimang replied that the individual had left the audit committee.

Mr Gerber noted that the Department had underspent in various areas. He asked what was the Department doing to address issues pertaining to the under expenditure.

Mr Msimang replied that despite the irregular expenditure, the Department had to review its processes and implemented a whole range of changes. These changes were implemented late in the financial year and regrettably there would be under expenditure during the financial year.

The Chairperson emphasised the fact that there would be a surplus, as a result of the Department’s failure to appoint the relevant officials.

Mr Gerber asked for clarity on the debts that were written off.

Mr Naidoo replied that fines were levied to carriers when people came into the country without proper documentation. The debt that was referred to in the report was the interest that was generated on the fines, which was not billed to the carrier.

Mr Smith asked whether all the documents on vouchers received from DFA had been captured and whether there were any backlogs.

Mr Naidoo replied that all the documents had been captured, and the only outstanding documents were the ones that had not been received.

Mr Smith asked whether measures had been placed to monitor matters like expenditure and invoices received from other departments

Mr Naidoo replied the processes had been implemented

Mr Smith said that the problem did not lie with the head office, but at the regional Departments. Procedures should not have to wait for the Auditor General, but should be implemented immediately so that the Department could run efficiently.

Mr Msimang replied that there were procedures in place, and policies would roll out more fully during the forthcoming audit. On the backlogs of incoming invoices, the Department could not influence the timing in which the invoices reached Home Affairs, but once the systems were in place the Department could manage it fully.

Mr J Stephens (DA) said that there seemed to be a problem with the issuing of passports. He asked what was the point of issuing passports that could not be accepted everywhere.

Mr Msimang replied that the system for issuing passports was being changed, looking at the speedy delivery of passports as part if the turnaround strategy.

Mr Jacob Mamabolo, Manager of the Turnaround Project, DHA, replied that there was a comprehensive amount of detail on the scope of the turnaround project. It was the biggest turnaround project in the public service. There were fourteen works streams and there were immense opportunities and prospects for building a new Home Affairs, despite the limited resources. The challenge was improving those highly pressurised areas that had a bearing on the living conditions of South Africans. Members should be assured that the strategies would bear fruit and results would be delivered.

Mr Trent said that the only problem he had was that it would take the Department quite a while to get to the desired numbers. Clarity should be provided on how long it would take to implement the strategy.

Mr Msimang replied that the model was good; however the challenge at Home Affairs was getting the right people to do the work. It took time to obtain the right management skills and at lot of resources had been implemented to deal with issues pertaining to corruption.

Government Printing Works (GPW) Interrogation of matters arising from 2006/07 Annual Report.
Mr Stephens asked the Chief Executive Officer (CEO) to state how long he had been at Government Printing Works (GPW)

Mr Tom Moyane, CEO, Government Printing Works replied that he had been with the CEO for two years.

Mr Stephens noted that according to the audit opinion the figures provided for receivables were totally unreliable, yet the management comments said that it would have been impractical and ineffective to comply with the requirements of Generally Accepted Accounting Practices (GAAP).

Mr Moyane replied that when the audit was conducted there was a problem with the personnel. It was unacceptable for management to make comments of that nature. GPW would like to indicate that during the period under audit there was an internal problem with the people dealing with the finances, and the Chief Financial Officer (CFO) had to leave.

Mr Stephens asked whether it was the CFO who was responsible for the comments.

Mr Moyane replied that the CFO should not have made such comments

Mr Stephens noted that it was Mr Moyane who was the CEO at the time in which the comments were made.

Mr Moyane replied that he accepted the fact that he was in charge, but it was an internal matter. There were a number of things that were happening which might have may have focused attention away from the particular phenomenon.

Mr Stephens said he was happy to see that there was an acknowledgement of the comments. However, he noted that the salary of the CFO had increased.

Mr Moyane replied that the positions were at chief director level, and the salary related to someone acting on behalf of the Chief Financial Officer. The person who was dismissed was the Chief Financial Officer. Therefore the person who was acting was paid at the level of Director whilst the person who was dismissed was paid as the Chief Director. At the moment there was no Chief Financial Officer. A new appointee to this post had gone missing after 48 hours. The individual was dismissed for non-attendance, and the Acting post would be advertised once again.

Mr Stevens asked for the timelines for appointing the Chief Financial Officer

Mr Moyane replied that the advertisement would be going up at the end of February, and the entire process would take up to three months.

The Chairperson asked whether it was standard for a position to be vacant for at least three months

Mt Moyane replied that as a result of the various processes of appointing an individual, the process had to take this time.

Mr Stevens said it was unacceptable not to have a CFO for four months out of a 12-month period.

Mr Moyane appreciated the concerns that had been raised, however there needed to be a sound and well-based Chief Financial Officer.

The Chairperson asked for the cause of the predicament.

Mr Moyane replied that at the core of the whole matter was the level at which the appointment should be made. For GPW, a Chartered Accountant was needed. The salary that was paid did not attract the necessary skills. The issues had been raised with various stakeholders.

The Chairperson said there needed to be a sense of urgency and unless GPW addressed the underlying causes there would be no progress.

Mr Moyane replied that a proposal had been prepared by human resources.

The Chairperson said that the proposal should have been submitted a long time ago.
 
Mr Stephens asked for clarity on why a decision was made to write off large amounts of bad debts.

Mr Moyane replied that since most of the clients were government departments it was assumed that the money owed was recoverable. In hindsight it was not a good idea to have made such an assumption, and the decision was taken during the year under review.

Mr Stephens said that the Department wrote off R63 million worth of bad debts during the year under review. He asked how could a decision be made and bad debts written off at the same time.

Mr Moyane replied that the debts predating 1997 and 2007 should have been cleared. The matter had never been brought to anyone’s attention, and a decision had been taken that these debts had to be written off.

Mr Stephens asked whether a debt manager had been appointed.

Mr Moyane replied that there was an appointment of a debt manager; however given the Department’s problem to retain the necessary skills, the debt managers had left. GPW did have debt collectors, but not in the numbers that had been previously envisaged.

Mr Stephens said that he found no comfort in the answers that had been provided.

Mr Moyane said that there were some positive aspects within GPW. There was an internal mini transformation and there were other strategies which would deal with the problems that were faced.

Mr Stephens asked whether it was possible to contract out some of the work done by GPW, in order for GPW to resolve some of its issues.

Mr Moyane replied that GPW did work within government that could not be outsourced. The issue of skills had to be addressed and measures were being taken in order to determine what was to be done.

The Chairperson said that it seemed as if GPW was an entity within Home Affairs, which was not taken seriously. One could not have a functional GPW in a dysfunctional Home Affairs.

Mr Stephens asked for clarity on the bad debts, and asked how much of the bad debts was a result of customers disputing the quality of service. The Committee felt that the writing off of debts was unacceptable. GPW should also provide a list of Departments that still owed GPW money.

Mr Gerber asked for clarity on the bank costs for every cheque that was deposited in the bank accounts.

Ms Amanda Pretorius, Acting CFO, GPW, replied that GPW no longer accepted cheques, and usually preferred the clients to pay in cash.

Mr Gerber said that a Charted Accountant was not needed in GPW; all that he felt was needed was that the GPW must sit down and see who the clients were. There were many departments who wanted to corporatise and ended up with lots of problems, therefore GPW should move away from matters of corporatisation.

Mr Moyane replied that GPW did not receive a budget vote, and most of what was being done was on a cost recovery basis. Therefore there was a need to have people who dealt with cost accounting. Given the strategic nature of GPW, it was important to have the necessary skills. On the role of corporatisation, GPW needed to provide proof that documents were printed in a secure environment and people had been vetted accordingly.

Mr Trent said that one could not charge less than the cost, otherwise losses would be made. He asked if there was anything that prevented GPW from setting its own price. He asked why was GPW, effectively a training entity, not able to set a salary scale for itself.

Mr Moyane replied that the mandate and scope for GPW was such that it was effectively competing, as far as staff were concerned, with the private sector. GPW was unable to determine its own salary levels as it fell within the Department of Home Affairs.

The Chairperson asked where GPW fitted within the broader turnaround strategy for Home Affairs

Mr Msimang replied that the corporatisation was seen as the broad strategy for GPW. The skills issue was a major challenge, and if GPW was corporatised, then it would be able to establish levels at market rates.

The Chairperson said that he could not see why government should say why corporatisation was the only way out. He asked what stopped government from raising the salaries to the appropriate levels. He asked that National Treasury should comment on the matter.

Ms Swart, representative from National treasury,  replied that National Treasury was involved in discussions with the Development Bank of South Africa (DBSA) on the corporatisation of GPW. There had been some concerns raised, but a working team with the Department of Home Affairs had been established. National Treasury was hesitant in supporting the corporatisation of GPW.

The Chairperson said there seemed to be a view that this was being offered as the only way forward.

Ms Brenda Swart, Acting Director: Public Finance, National Treasury reiterated that National Treasury did not fully support that view.

Mr Gumede said that there were special provisions in the DPSA for scarce skills. An area of concern was that GPW appeared to be confining itself to appointing Charted Accountants, when in his view a three year post matric qualification could do.

The Chairperson said that he did not think that the fact GPW could not keep a CFO or a debt manager could be solved by corporatisation. The Committee did not think that this was the route to go.

Mr Becker said that it should not be too difficult to collect money from State departments. The Committee had an undertaking from the departments that they would in future adhere to the Public Finance Management Act (PFMA). Clarity should be provided on whether the Departments that had been defaulting on payments had been listed and passed on to the Auditor General.

Mr Trent asked why performance information was not reported and what would be the situation before the end of the financial year.

Ms Nomsa Mtakane, Head Human Resources and Transformation, GPW, replied that a lot of the matters that had been placed in the Annual Report were symptoms, and that GPW needed to get to the root causes. There was a new corporate plan that would focus on all issues and the root causes.

Ms Swart replied that it was unacceptable for Departments not to pay. National Treasury received a list of outstanding debts in departments and sent letters to the respective CFOs. GPW however also needed to sit down and review their tariff charges, as provisions were made in the PFMA.

Mr P Chauke (ANC, Chairperson of Home Affairs Portfolio Committee) said that the Home Affairs Portfolio Committee had been dealing with the same issues for the past twelve years. The Committee was supportive to the approach that the Department of Home Affairs was taking. The Department was down on its knees and the Committee would assist in picking it up. The Committee had managed to unblock a number of issues that had clogged the systems for years. He would like to see whether all the issues that had been identified would be dealt with and part of the engagements of his Committee would be to call on the individuals who were involved in the processes to account.

The Chairperson said that he would rely on the Portfolio Committee to follow up on some of the issues that had been raised.

The meeting was adjourned.