Evaluating Annual Reports is an important part of the oversight work of Portfolio Committees. It is in the Annual Reports that reporting entities indicate to what extent they have delivered on the "measurable objectives" identified in the Estimates of National Expenditure and their Strategic Plans.

The Annual Reports also include reports both from internal audit committees and the Auditor General on the financial management of the entities concerned. Although there are a total of 24 institutions reporting to the Minister of Finance that have tabled Annual Reports, 2 of the 3 the Committee met are the subject of specific budget votes (votes 8 and 13 respectively), while the performance of South African Revenue Services (SARS) is critical to the functioning of the entire government. As well as studying the tabled Annual Reports, the Committee had an opportunity to meet with delegations from the three entities led by the Commissioner of SARS, the Director General of the National Treasury and the Statistician General respectively.

SARS received an unqualified audit report from both the Auditor-General and its internal Audit Committee.

• The Audit Committee’s report highlights the fact that the investigation against the suspended General Manager: Internal Audit is still pending but he has been replaced by a new acting head of Internal Audit since December 2003.

• The report also gives some insight into the Internal Audit transformation programme, which has been put in place to redefine roles and responsibilities and further improve the skills and competencies of the Internal Audit staff.

• The audit reports also speak of an improved working relationship between Internal Audit and the office of the Auditor-General.

• Monthly and quarterly reports were submitted timeously and in compliance with the relevant requirements to National Treasury and the South African Reserve Bank.

The Auditor-General was generally satisfied with the financial position of SARS but highlighted some areas of concern:

• Weak performance in the controls relating to RIBs/RITs/XIBs and other relevant documentation on goods in transit from bonded warehouses to other countries, some of which were not acquitted in time and sometimes with no follow up at all. Consequently, an undetermined amount of revenue was forgone.

• In terms of penalties and interest on customs, there was non-compliance with Section 39(3) of the VAT Act for the period up to the amendment of this act in 1 April 2004.

• Risk management needs improvement.

• The issue of tax evasion affected their fiduciary responsibilities and is acknowledged by SARS, but their annual report says nothing about how they intend to resolve this.

• There is progress with regards to the weakness in internal controls relating to property, plant and equipment.

• The committee commended SARS for its unqualified annual report and for generally achieving its output targets.

• The committee also commended SARS on their style of reporting, which facilitates the committee’s oversight role.

• There was, however, some concern with regards to the pace of the roll out of the Siyakha programme to provinces other than Gauteng, Free State and the Western Cape.

• The high turnover of staff (821) and the vacancy rates were of concern.

• There were questions around the lack of internal capacity on debt collection. The Committee wanted to know what the main reasons for external debt collection were.

• The financial implications of the court cases (administrative, minor or serious cases) were questioned.

• The fact that revenue collection was less than budgeted for (large percentage increases on tax collection year on year) was also questioned.

In response to the Committee’s concerns, SARS highlighted the following key challenges:

• On the issue of outsourcing debt collection, SARS indicated that the administrative costs of collecting internally are sometimes unreasonably high and that it has limited internal capacity. This, however, is work in progress, as they aim to develop own skills in the long run.

• On the matter on internal controls on goods in transit, SARS argued that it is less a matter of reconciling paper than putting in place real controls to ensure that goods supposed to be in transit to neighbouring countries actually go there. This, too, is work in progress.

The Committee will liaise with SARS to undertake a site visit of Siyakha operational sites.

National Treasury received an unqualified audit report both from the Auditor-General and the Internal Audit Committee.

• The Audit Committee reports that there was no significant or material non-compliance with prescribed policies and procedures.

• The Audit Committee’s report remarks that the internal controls were appropriate and effective with exception of controls over contributions to medical schemes, an inherited issue that has not yet been resolved.

• The Auditor General was generally satisfied with the financial position of National Treasury but also expressed concern at the persisting weakness in the control over contributions to medical schemes. This was exacerbated by the fact that service level agreements were not entered into with major service providers and procedure manuals were not in place.

• The Auditor General reported that recommendations made by SCOPA from the previous financial year were adequately resolved by the organisation.

• The Committee commended National Treasury for its unqualified annual report.

• The Committee questioned whether National Treasury was taking sufficient steps to ensure that Provincial Treasuries also received unqualified reports.

• The Committee reinforced the Auditor-General’s important concern with regards to the deficiencies on medical schemes.

• Questions were raised around the fact that programme 2 (Economic Planning and Budget management) did not appear to be sufficiently visionary. For example, it was not very clear how National Treasury intended to contribute towards promoting employment creation through Extended Public Works Programmes.

• The Committee raised concerns about the issue of savings and rollovers. Departments are not allowed more than 5 per cent to be rolled over but Treasury seems to have more flexibility in that regard.

• The delay in the procurement process was of major concern, especially the impact this has on provinces and municipalities; the report was not very clear in terms of the progress made.

• The manner in which performance measures, especially outputs and targets, were arrived at needed more discussion: output targets often remained vague or were purely quantitative giving little guide to assessing the quality and impact of programmes.

• Infrastructure delivery in Provinces and Municipalities was questioned. It was argued that although National Treasury played its role in terms of transfers, the ability of Provinces to deliver is in question. The Committee wanted to know what the real problems are and what National Treasury doing about it. The Committee would like to see correct output targets put in place with regards to this matter because the transfer of funds alone is not sufficient.

• The high vacancy rate was a matter of concern; clarification was requested with regards to learnership programmes.

• The committee was concerned about gender inequality in top management and senior management (only one female in top management).

• The committee also showed concern with respect to administered prices and the negative effects this has on consumers.

The National Treasury responded by highlighting the following:

• The deficiencies with regard to medical schemes arise from inherited arrangements in place before 1994. The National Treasury indicated that they planned to raise some of these matters in appropriate collective bargaining processes.

• The issue of performance measures is still work in progress. National Treasury, like any other government department, argued that they are still learning how to use this concept effectively.

• The rectification of the gender issue was acknowledged by National Treasury to be a huge challenge and they are still working on it.

Additionally, there has been a huge lack of skills, primarily because university graduates were not competent for the practical daily tasks performed by Treasury.

• With regards to the performance of Local government and Provinces, National Treasury argues that they have done their part and the main challenge lies within these organisations whose organisational structures needed to be dealt with. They also insisted that they could not transfer

funds continuously at the expense of unmet objectives.

2.3 Recommendations

The vacancy issue needs urgent attention.

Statistics South Africa (Stats SA) received a qualified report from the Auditor- General and the Internal Audit Committee.

• The internal Audit Committee’s report highlights major concerns with Stats SA’s ability to apply financial discipline and organisational management control within the organisation. The report argues that if these matters are not dealt with they may compromise the ability of Stats SA to deliver official statistics of a satisfactorily high quality.

• The Auditor General’s report identifies expenditure procured in contravention of tender procedures amounting to R16,1 million, with an additional sum of R3,3 million paid to the same supplier. Other irregularities were made totalling R9,0 million. These matters will have to be dealt with by SCOPA.

• Also, questionable were the unreconciled advances made to the Provincial offices of the department to the sum of R 25,4 million, which was later written off. In addition to this, R1,3 million was unaccounted for with no explanation.

• Asset registers at the sum of R13,1 million were incomplete and incorrect.

Other issues, not leading to qualification, but emphasized by the Auditor-General included:

• Unverifiable tax payments,

• Weaknesses in internal control, inadequate delegations of authority, as well as delayed implementation of internal audit recommendations,

• Lack of risk management strategy,

• Creditors not paid within 30 days, which meant non-compliance with the PFMA and Treasury Regulations,

• Outstanding information with regards to previously identified ghost workers,

• Information systems audit of the general controls surrounding the IT environment.

3.2 Summary of Stats SA Management Report

The Statistician General, Mr P. Lehohla, highlighted the following issues:

• General review of financial affairs – Stats SA’s four main sources of income are: appropriations; general revenue; foreign aid assistance and contract work. The final budget for Stats SA was R293, 884 million and final expenditure on appropriations was R280, 935 million resulting in a surplus of R12, 949 million.

• Services rendered by the Department - the main statistical activities of the department are: national accounts; financial statistics; industry and trade statistics; employment statistics; price statistics; social statistics, vital statistics; and population statistics. These services are rendered

electronically via the website and as a general principle the services are provided at no cost to the user.

• Capacity constraints – the department has future plans to appoint core permanent field staff so that the current practise of employing and training numerous temporary staff ceases. The core staff would be supplemented with temporary staff during large surveys. Stats SA has been utilising the expertise of foreign statistical agencies (Australia, Sweden and Canada) because these skills are lacking in the department and in the general South African labour market. These experts provide help in terms of improving methodologies and transferring skills especially in the area of economic statistics. The department is experiencing numerous problems with the transversal BAS and Logis system.

• Utilisation of donor funds – donor funds were used to carry out a comprehensive survey of non-statistical information on the existing infrastructure and services provided by the 284 municipalities.

• Trading entities/public entities – the Dissemination and Marketing Trading Account which was used to sell statistical products emanating from the Census ’96 was closed – as census products are now regarded as a public good and financed through appropriations.

• Corporate Governance – the post of DDG for Organisation and Management was filled in January 2004. In November 2003, senior managers with the help of an expert in risk management undertook an intensive program of identifying and controlling risks. The next phase will be implementing the controls. A Management Information System was implemented during the year. A performance management system has been designed for implementation in the 2004/5 year.

• New/proposed activities – during 2003/4 the CPI Development project and the Causes of Death Project were undertaken. Future activities include a census of dwellings and the assignment and standardisation of physical addresses between 2005 and 2007. The improvement of quality of economic statistics is also a future priority.

• Progress with improvement in financial management – a modern system is being tendered for and should be implemented in the new financial year.

• Performance information – internal and external audits have highlighted weaknesses in the Department’s compliance with the PFMA with issues relating to procurement.

The Annual Report also included a critical report from the chairperson of the Statistics Council. She together with two other members of the Council attended the Portfolio Committee meeting and interacted with the Committee.

Key issues highlighted by the Chair of the South African Statistics Council, Dr H. Southhall, included:

• The problems at Stats SA were structural and did not relate to individuals.

• The lack of capacity was the biggest issue - compromising quality and reliability of information. The Chairperson said that half of the employees at Stats SA lacked the proper skills to do their jobs and the current training strategy was insufficient in light of the skills shortage. This had to

be placed in the context of the general lack of quantitative skills in the country.

• Past recommendations and concerns raised by the Council have generally been ignored – thus compromising their advisory role.

• The statistics produced by Stats SA relating to government departments do not tell departments whether they are performing well.

• The Committee raised concerns about the poor working relationships between the Statistics Council and Stats SA as well as the audit reports and their comments on management and quality control. A particular concern was the apparent delay in implementing the recommendations made by internal audit committee mentioned in the Auditor General’s

report.

• The Committee noted with concern that a qualified audit report had been received despite assurances from the Statistician General to the committee in June 2004 that the audit report would be unqualified.

• The Committee noted the apparent lack of clarity with regards to issues around the Census Replacement Survey to be undertaken in 2006.

• The Committee noted the serious skills shortage at Stats SA and the serious problem with respect to capacity building and training. The Committee expressed particular concern about the absence of a clear strategy to accelerate/fast track training and build capacity in technical skills in the general staff at Stats SA. The high turnover amongst statisticians was also raised as an area of concern. The position of Deputy Director General for Economic and Social Statistics is vacant -

the committee is concerned since Stats SA has identified this area as strategically important. The Committee also noted the high cost of consultants and questioned the outputs of these consultants.

• The Committee was concerned at the Council’s report that four provinces were not adequately represented on the Council.

• The Committee expressed concern over the quality of information being produced by Stats SA and its effect on the economy. Of particular concern were the issues raised in the Council’s report on the undercount in the 2001 census, and the error in the 2003 CPIX figures.

In response Stats SA:

• Acknowledged that the current governance model where there is little separation of powers between the Council and Stats SA is inappropriate.

They said that a project to define the role of Council was started in 2001 but was never completed – the Statistician General said this project would be taken up again.

• Stated that the tertiary institutions were not providing sufficient support in the area of capacity building and training and that they needed more graduates with adequate statistical skills. Dr Ross Hirschowtiz the DDG for Quality and Integration described a detailed integrated training plan that was being developed by Stats SA which included among other things: competency profiling, developing a SAQA accredited ‘Master Maths’ course, conducting a skills audit and developing a ‘Virtual Statistical Institute.’ Dr Hirschowtiz acknowledged that to date training and capacity building at STATSSA has been ad hoc but warned that this integrated plan would be unfold over the long term and would thus not provide solutions to the capacity problem in the short term.

• The Statistician General said that several of the specific matters leading to the qualification of the audit report had been superseded by reforms introduced under Stats SA’s Supply Chain Management Framework.

• The Statistician General stated that the quality of data had improved over the past decade and also argued that "consultants" included numerators in censuses and that when this was taken into account, use of ‘consultants’ was not really excessive.

3.4 Recommendations

The Committee makes the following recommendations:

• "Measurable objectives": The Committee raised concerns about the usefulness of the "measurable objective" (output targets) presented in the Estimates of National Expenditure and Stats SA’s Strategic Plan. They by and large relate to the production of specific surveys and reports and give no indication of progress in addressing key challenges of quality and skills development. The Committee recommends that the Council and Stats SA set up a task team to develop more meaningful output targets.

• Census Replacement Survey 2006: Cabinet has decided to postpone the next full population census from 2006 to 2011. There is little clarity, and evidence of significant disagreement between the Council and Stats SA on proposals for a Census Replacement Survey in 2006. The Committee is of the view that it is necessary that this matter be resolved urgently.

• Governance: the Committee recommends that the Ministry urgently addresses the corporate governance issues that have emerged in relation to Statistics South Africa. In particular there are a number of significant issues around the role of the Council and its relationship to Stats SA, as well as of the content of recommendations made by the Council.

• Qualified audit report: The Committee is concerned that Statistics South Africa has a qualified audit report. Although many of the specific issues are matters that will be looked at in detail by

SCOPA, the qualifications point to a need to improve financial management and control as matters of urgency.

Report to be considered.