The Standing Committee on Public Accounts (SCOPA), having considered the Report of the Auditor-General on the Financial Statements of the Department of Public Works (DWP) for the year ended 31 March 2003 and 2004:
1. General observations, including previous SCOPA recommendations
Background: The Auditor-General reported that progress had been made in respect of eight of the fourteen recommendations made by SCOPA in its 112th Report for 2003. However, to date no formal response to the recommendations as adopted by the House has been provided to Parliament.
SCOPA hearing: During the hearing, the Committee probed the four matters that remain unresolved, as well as various other matters and where appropriate, made recommendations for the House to consider.
The Committee wishes to commend the Accounting Officer for the progress made in a number of areas. However, the Committee is disappointed that certain matters remain unresolved, especially the completeness and accuracy of the state-owned property register. The Committee also wishes to express concern about the new matters dealt with during the hearing, especially the high number of vacant positions within the DPW.
Recommendation: The Committee recommends that Parliament ensure that the recommendations contained in this Report, once adopted by the House, are transmitted to the relevant executive authority for response by the DPW.
Debtors
Background: The following weaknesses were reported regarding rental debtors:
the debtor sub-system (Property Management Information System or PMIS) is not fully utilised;
no interest is charged on outstanding amounts, and monthly invoicing and submission of statements to debtors are not being done;
receipts are not captured on the debtors subsystem; and
NO debtors’ age analyses are made available for management purposes.
SCOPA hearing: The Accounting Officer reported to the Committee that a number of corrective steps had been implemented. This included the establishment of property management units, and implementing best practice standard lease agreements with client departments. Lease agreements now include an interest clause that did not previously exist. An age analysis module has also been incorporated into the PMIS and the information generated is discussed at management meetings.
Recommendations: The Committee recommends that:
the debtor system at the Department should be evaluated by the IT Section to determine whether the current system complies with all the needs of the DPW; and
progress made regarding the weaknesses of the debtor system should be reported, on a quarterly basis, to the Audit Committee of the DPW, who should monitor and evaluate the progress in order to report thereon in the next annual report of the Department.
3. Revenue
Background: In terms of Section 38 (1) (c) of the Public Finance and Management Act (PFMA) an accounting officer must take effective and appropriate steps to collect all money due to the Department. The controls over rental revenue were reported to be ineffective. A lack of training of officials was also reported. An investigation into married and single quarter official housing highlighted that tariffs was last updated in 1995. In terms of Treasury Regulation 7.3.1 the accounting officer must at least annually review these tariffs if they are under his or her control.
SCOPA hearing: The Committee was informed that an annual review of the tariffs for official housing had not been carried out in about nine years. The Accounting Officer indicated that the tariffs were part of public service central bargaining chamber negotiations on service conditions, and that the DPW had little choice but to implement the bargaining chamber agreements. It was further argued that the loss to the State owing to lower than market related rental should not be regarded as a loss, seeing that it is part of service conditions of essential services.
Recommendation: The Committee recommends that this matter be taken up by the Accounting Officer with the Department of Public Service and Administration as a matter of urgency and reported on to Parliament by the end of the current financial year as the Committee is convinced that the position with regard to official housing could be better managed.
Asset management
Background: The fixed asset register for moveable assets was incomplete. This was due to the implementation of a computer software program started in the previous year aimed at maintaining a register of item identification codes and locations.
In addition, a "proof on concept" on the requirements for a complete, valid and accurate national fixed property register to meet accounting disclosure requirements still has to be developed. An evaluation by the Auditor-General of the proof of concept revealed that:
the PMIS database was not sufficient or updated to form the basis for a fixed asset register;
the Department of Land Affairs database was found to be largely accurate, but did not disclose valuation details necessary for DPW purposes; and
differences existed in the calculation of municipal valuations which, may impact on the apportionment of rates and taxes between government and private landowners in terms of the new Property Rates Act.
SCOPA hearing: The Accounting Officer indicated that progress has been made with respect to the database in question. He also indicated that the information system was intended to also produce useful management information. However, he pointed out that the Department of Land Affairs was responsible for the overall inventory of land, and that the DPW register was only part of such a bigger inventory.
Regarding confirmation of ownership, this was a Land Affairs project for which funding seemed imminent. The DPW would participate in such a project and would utilise information resulting from such a project for purposes of a fixed property register.
Indications were that a project to ensure a proper valuation model would require about R250 million over approximately five years. Funding was being discussed with National Treasury. The DPW was considering various options, including obtained international advice. However, SCOPA observed that the action plan seemed weak. It was also noted that it might lead to a qualified audit opinion in future years if not addressed sooner than five years.
Recommendations:
The Committee recommends that:
the Accounting Officer urgently attend to the finalisation of a valuation model.
an action plan should be tabled at the next meeting of the Department's Audit Committee for review and comment to the Accounting Officer and the Minister. The Committee should report thereon in the next annual report of the Department.
5. General and application controls - computer environment
Background: A general control review by the Auditor-General identified certain significant system control weaknesses, including the absence of a disaster recovery plan. SCOPA hearing: The Committee was informed that a proper disaster recovery plan was being finalised coupled with related improvements such as a service level agreement between the IT division and the departmental users.
Recommendation: The Committee recommends that:
the Accounting Officer ensure the urgent finalisation of a proper disaster recovery plan;
the Audit Committee evaluate the adequacy thereof and report thereon in the next annual report of the Department; and
the Accounting Officer and Audit Committee review the relevance of the last risk assessment exercise, as well as the adequacy of the current risk management strategy, and report thereon in the next Annual Report.
6. Property Management Information System (PMIS)
Background: An information system audit of the application controls within the PMIS, conducted by the Auditor-General, found that although some controls were in place, significant weaknesses existed in the general control environment as a whole.
SCOPA hearing: The Chief Information Officer indicated in her comments that various corrective measures have been taken or envisaged.
Recommendation: The Committee recommends that:
the Audit Committee evaluate the adequacy of corrective steps implemented, and report thereon in the next annual report of the Department.
the Accounting Officer and the Executive Authority take cognisance that the responsibility for implementing basic controls such as these was the obligation of all accounting officers in terms of section 38 of the Public Finance Management Act, and that failure to effectively implement such controls constitutes financial misconduct.
7. Vacancies and Skills development
Background: The Auditor-General indicated that a lack of management reviews seemed a likely underlying cause of financial management weaknesses.
SCOPA hearing: The Accounting Officer maintained that the DPW was a highly technical department with core functions for which it was not always easy to procure the required staff. In spite of this, the DPW had recently managed to fill over 300 posts at highly skilled supervisory level and at middle management level. In addition, an extensive recruitment drive will continue.
Recommendation: The Committee recommends that:
in view of the incorrect information contained on page 90 of the Annual Report, the Accounting Officer provide SCOPA and the Portfolio Committee on Public Works with a correct and updated skills development plan; and
the Portfolio Committee on Public Works monitor progress with the filling of all vacancies, especially financially related vacancies, and specifically the critical top management positions such as the Deputy Director General: Extended Public Works Programme.
8. Unauthorised expenditure
Background:The appropriation statement reflects overspending of R30,360 million on one main division, which is also disclosed as unauthorised expenditure in Note 12 to the financial statements. In the previous financial year, unauthorised expenditure amounted to R227,088 million.
SCOPA hearing : The DPW argued that it was obligated to honour all rental contracts, even though adequate funds were not provided for in the annual national budget. The same applied to property rates and taxes. The DPW argued that both these categories constituted unavoidable expenditure. The DPW admitted, however, that the quality of its motivations to National Treasury could improve.
However National Treasury disputed this and attributed it to inefficient planning and lack of expenditure reprioritisation.
The Committee further noted that the disclosure of information in the notes to the annual financial statements seemed inadequate, as no information was provided on the appropriateness or otherwise of disciplinary steps against relevant officials, or of other processes that have been instituted.
Recommendations:
The Committee recommends that -
The Accounting Officer, in future ensure –
better quality budget submissions to National Treasury; and
pro-active budgetary management as provided for in the PFMA to avoid over-expenditure.
9. Fruitless and wasteful expenditure
Background: The notes to the annual financial statements (note 12.4, page 65) disclosed an amount of R167, 000 in respect of fruitless expenditure, which has declined from R16,547 million in the previous financial year.
SCOPA hearing: The Accounting Officer indicated that the DPW has been educating user-departments on the consequences of vacating buildings before the expiry of a rental contract. A system of user charges will be introduced in about two years and will force user departments to budget for rental charges.
Recommendation:
The Committee wishes to commend the DPW on the decline in the total amount of fruitless expenditure.
The Committee recommends, however, that:
the DPW ensure that all user-departments are contractually bound to carry the cost of any fruitless expenditure arising from early vacating of rented properties; and
the Department expedite the implementation of user charges.
10. Account balances
Background: The following items, which originate from prior to 2002 remain unresolved due to a lack of supporting documentation:
transactions not accounted for through the income statement, originating on or before 1999-2000; as well as R12.6 million in respect of receivables; R19,3 million for other debtors; R2 million for payables (current); R0,2 million for staff debtors, and R0,19 million for advances.
The DPW has reportedly met with the Accountant-General and presented information supporting the write-off of these transactions. At the time of the publication of the Annual Report, finality on the possible write-off of these amounts was still outstanding.
The resolution of irreconcilable debts and debt inherited from regional structures is currently being addressed as a government wide initiative with all relevant stakeholders. The DPW has disclosed the various items in notes 11.2 and 11.3 to the financial statements.
SCOPA hearing: The Accounting Officer assured the Committee that in future, no documents will be destroyed before a period of five years or before audits have been completed. He argued that the pre-2002 situation was a historic situation beyond the control of the DPW, and that he believed that the amounts should be written off.
The Auditor-General indicated that a prerequisite for the write-off of the amounts in question was that proof would have to be provided that sufficient attempts had been made to either recover the amounts, or retrieve the relevant documentation. The department would also have to have a surplus from which such amount can be written off against.
National Treasury indicated that it required a consolidated figure of all departments, who were in a similar position, before the Treasury could consider approving its write-off.
Recommendations:
the Committee recommends that National Treasury consult all national departments who are in the same position, and clearly indicate what is required for this long outstanding matter to be resolved; and
the DPW continue its discussions with the Accountant-General in order to determine what more is required to resolve this matter.
Financial Management
Background: There is a reported lack of independent checks and management reviews within the DPW resulting in policies and procedures as implemented by management not being fully adhered to.
In its 112th Report of last year, the Committee noted the lack of capacity within the internal audit unit within DPW, and the Committee recommended that the Accounting Officer consider outsourcing part of the internal audit function.
SCOPA hearing: The Accounting Officer indicated that management reviews had to be addressed by recruiting the right quality and number of skilled staff.
Regarding internal audit, DPW contracted in a consortium of private audit firms to assist with the internal audit function during the 2003-2004 financial year. The capacity in the internal audit has also been expanded at regional level. However, the training and skills transferring was raised as a matter of concern even at Audit Committee level. The Accounting Officer assured the Committee that measures have been taken to ensure that training and proper skills transfer take place.
Recommendations:
Having considered the evidence and steps taken by the Accounting Officer to ensure that all weaknesses as indicated by the Auditor-General have been addressed. The Committee recommends that:
a target date be set for the total independent functioning of the internal audit section throughout the Department;
the Audit Committee should assess the feasibility of the target date, and monitor progress towards the final date agreed between the Audit Committee and the Accounting Officer; and
the Audit Committee monitor management responses to the weaknesses reported in the audit management letters of the Auditor-General.
12. The reconciliation of the PMIS to BAS
Background: In SCOPA’s 112th Report of 2003, the Committee recommended that:
the DPW should perform regular reconciliation's (i.e. monthly) that will be reviewed by the Director-General on a quarterly basis; and
monitoring mechanisms should be in place to ensure proper reconciliation.
During the 2003-2004 audit, the Auditor-General Office brought to the attention of the DPW the fact that reconciliation between PMIS and BAS was only carried out annually and not on a monthly basis.
SCOPA hearing: The Accounting Officer provided assurance to the Committee that reconciliations between PMIS and BAS were now being done on a monthly basis.
Recommendation: The Committee recommends that the Audit Committee review the adequacy of the monthly and quarterly reconciliations, and report thereon in the Annual Report for 2004-2005.