The Standing Commmittee on Public Accounts reports as follows:
The Committee heard evidence from the Director-General and acting Chief Financial Officer of the Department of Justice and Constitutional Development on 14 November 2001 on the Reports of the Auditor-General on the Financial Statements of Vote 18 - Justice and Constitutional Development for the year ended 31 March 2001 and on the Statement of Monies in Trust (formerly Deposit Account) administered by the Department of Constitutional Development for the year ended 31 March 2001.
A. Report on Financial Statements of Vote 18 - Justice and Constitutional Development for year ended 31 March 2001 (Part A, Annexure to RP 158/2001)
In the Report under review, the Auditor-General withheld his opinion on the financial statements of the Department, and qualified his opinion on compliance by it with laws and regulations applicable to financial matters. This indicates a worsening in the financial management position from the previous year. It is with concern that the Committee wishes to report on the following specific areas:
1. Expenditure [par 2.2.1(a)]
The Committee was informed that the Department was unable to present supporting documentation as assurance for the validity of expenditure amounting to R7 million. In addition, a very serious capturing backlog existed regarding the financial management system resulting in uncertainty regarding the accuracy and completeness of the amounts included in the income statement and balance sheet. There was also overstatement of expenditure, as well as unrecorded expenditure.
The Committee welcomed the Director-General's indication that the bulk of the backlogs would be cleared by the end of March 2002. It was also learned that there was a serious backlog regarding the writing-up of books within the Department, and that a concerted effort was being made to correct the situation but that there was no indication when the task would be completed.
The Committee expects progress would have been made by the end of the 2001-2002 financial year regarding the work of both task teams. The Committee recommends that the Director-General report thereon within a month of receipt of these recommendations. He should also provide a clear indication of how long it should take to fully correct the situation, as well as indicate the risks for delays and how such risks were being addressed.
2. Internal control environment [par 2.2.1(g)]
Internal controls are essential to any sound system of financial management, and fundamental to curbing fraud and corruption. The Committee was therefore very perturbed at the acknowledgement by the Chief Financial Officer that the Department was not in a position to provide assurance to Parliament of a proper internal control environment.
The Committee wishes to point out that, owing to its stewardship of public monies, the Department cannot be allowed to compromise on internal controls. In addition, given the nature of its work, the Department of Justice should set an example with regard to a disciplined management environment.
The Committee therefore recommends that the Director-General afford this matter the highest priority. The Committee has also written to the Chairpersons of the Portfolio Committees on Justice and Constitutional Development and on Finance highlighting areas of concern. The Director-General must continue to explore ways in which the Department can -
* reprioritise its budget in order to provide the human and technical resources required to support a proper control environment; and
* implement compensating controls in areas where separation of duties is not feasible.
3. Personnel expenditure [par 2.2.1(a)(I)]
In the light of the personnel expenditure of the Department, totalling R1,6 billion, the Committee is very concerned about the various unexplained differences between the personnel and salary administration system and the financial management system. The extent of the various unexplained differences totalled R36,4 million.
The Committee recommends that the result of the reconciliation exercise, as verified by the Department's internal auditors in November 2001 as well as by any other reconciliation results received subsequently, be reported to the Committee.
The Committee also recommends that the Director-General report on the impact on financial management of the resources obtained through the "body shop" tender, and whether progress has been in line with performance targets set.
4. Suspense accounts
The Committee is concerned about the extensive use of the high-risk phenomena of suspense accounts in the Department - in March funds in suspense totalled approximately R657,4 million. A suspense account is used when no certainty has been reached with regard to the proper posting of certain transactions, and in the Committees experience is one of the worst ways for a department to manage its accounts.
The Committee recommends that the Director-General resolve the systemic problems that may contribute to unnecessary use of suspense accounts and implement better discipline among senior management staff as regards the use of suspense accounts, and provide a regime under which it may be permissible.
5. Leave credits
The Committee was informed that a departmental task team would complete an audit of the leave records of the Department by December 2001.
The Committee recommends that the Director-General report within a month of receipt of this resolution on the result of the audit and what corrective steps, if any, are to be implemented. Internal audit [par 3.7]
The Committee was informed that the Director-General was in the process of assessing the capacity of the internal function required by section 38 of the Public Finance Management Act (PFMA).
The Committee recommends that the Director-General report on the result of his assessment and indicate whether the contract of the firm of auditors currently insourced by the Department will be extended, and whether transfer of skills during the contract period so far had been adequate.
6. Thefts and losses
The Committee noted that during the year under review, losses written off amounted to R650,000, down from R2900,000 the previous year. However, a proper thefts and losses register did not exist and an annual stocktaking of inventory and equipment did not take place.
The Committee recommends that the Director-General ensure that a proper thefts and losses register exist by the end of June 2002. He should also ensure that a proper annual stocktaking, to which the external auditors will be invited, will be scheduled for the 2002-2003 financial year.
7. Asset management
The Committee noted that, with respect to asset management within the Department, a programme will be completed by the end of January 2002 that will address the proper management of classes of assets.
The Committee recommends that the Auditor-General evaluate the aforementioned programme during the 2001-2002 audit and specifically report thereon.
8. Training in financial management
The Committee commends the Director-General for the extensive training interventions that staff members have been exposed to, especially training relating to the PFMA.
The Committee recommends that the Director-General briefly report on the return on this investment by, inter alia, indicating the total cost of training for the year in question, as well as the impact the training has had on the performance of the staff members in question, for example by evaluating the performance of the staff concerned six months after the training intervention, to determine whether the training has the desired impact.
9. Housing guarantees - general financial management capacity within Department [par 2.2.1(e)]
A contingent liability of approximately R22,5 million exists with respect to housing guarantees. The Committee commends the Director-General on having completed the reconciliation between the housing guarantee register and the personnel and administration system. However, the Committee is concerned that the reconciled state will not be able to be sustained, given the staff shortages. The Committee noted that interviews in respect of all posts would be completed by the end of November 2001.
The Committee recommends that the Director-General report -
(a) as a matter of urgency on progress made with regard to the filling of all vacancies for financial administrative staff; and
(b) on the adequacy of the performance of the Human Resources Department in terms of industry benchmarks for the filling of vacant posts.
10. Witness protection programme [par 3.3]
The Committee welcomes the assurance by the Director-General that the necessary approval from the State Tender Board regarding alternative procurement measures would be obtained before the end of the 2001-2002 financial year.
The Committee recommends that the detail of the arrangements with the State Tender Board be provided to the Auditor-General for evaluation during the 2001-2002 audit and for specific reporting thereon.
11. Donor funding [par 2.2.1(c)]
The Committee took note of a number of shortcomings in the financial records in respect of foreign aid assistance. Weaknesses in project management were also identified.
The Committee recommends that by the end of the financial year all the deficiencies should have been resolved to the satisfaction of the respective donors and the Auditor-General.
The Committee shall await the report of the Auditor-General on the audits of the donor accounts for the last four years before making any further recommendations, including the R3,9 million donor funds for which the Directorate of Special Operations is responsible.
12. National Directorate of Public Prosecutions: Unresolved matters pertaining to 1999-2000 financial year [par 3.8]
Separate accountability was established for the Directorate of Special Operations in December 2000. The Committee took note of the following matters reported on by the Auditor-General:
* Some unauthorised expenditure amounting to R523 000 occurred, owing to non-compliance with tender board procedures.
* During the external audit certain documentation was unavailable to validate expenditure totalling R117 000.
* Donor funds to the amount of R3,9 million were not administered in terms of prescribed procedure.
The Committee notes with concern the non-compliance with the prescripts of the PFMA at the time of the establishment of the DSO and the resultant irregular expenditure, which the Committee will be reviewing in terms of the applicable legal framework.
The Committee recommends that a submission be made by the Chief Executive Officer of the DSO, highlighting the financial accountability arrangements between the CEO of the DSO and the Accounting Officer of the Department of Justice within a month of receipt of these recommendations.
B. Report on Statement of Monies in Trust (formerly Deposit Account) administered by Department of Constitutional Development for year ended 31 March 2001 (Part B, Annexure to RP 158/2001)
The Committee wishes to express its most serious concern about the position regarding the Monies in Trust accounts.
The Committee recommends that the Director-General immediately report to it on the following matters:
1. Whether the post of Chief Director requested to manage the account had been approved, and if so, when it would be filled.
2. When the Justice Deposit Account System would be fully operational.
3. What progress has been made with regard to automation of receipts and payments of monies in trust (including the possible involvement of the Post Office).