1.       Twenty-Seventh Report of the Standing Committee on Public Accounts on the report of the Auditor-General on Housing Subsidies to Municipal Employees and the Administration of Low-Cost Housing Projects by certain Provincial Housing Departments, dated 21 October 2008.

 

1.       BACKGROUND

On the 31st of March 2008, a transversal performance audit at six provincial housing departments was approved. The audit focused on municipal employees who should not have received a subsidy or who should have received a reduced subsidy as a result of their employment and income status.

 

The following provinces were covered by the audit:

·         Free State

·         Gauteng

·         KwaZulu-Natal

·         Limpopo

·         Mpumalanga

·         Western Cape

 

There were a number of criteria which needed to be met for eligibility. Those included aspects such as marital status, residency, age, monthly household income, whether previous benefits had been received from Government funds, and whether it was a first time property owner.

 

The following shortcomings were identified with regard to the administration of subsidy applications:

a.       municipal employees misrepresented their income on the application forms and supplied outdated information to the  provincial housing departments;

b.       the subsidy application forms were not always provided to the Auditor- General as the provincial housing departments did  not have adequate management measures which ensured the safe keeping of completed subsidy application forms.

 

The following shortcomings relate to housing projects administration:

a.       Numerous instances were identified where the ownership of houses was not transferred to the beneficiaries although payments had been made to developers for completing the top structures;

b.       Provincial housing departments could not provide the Auditor-General with all the supporting documentation indicating payments made to developers for the construction of low-cost houses. Therefore, the correctness of payments made to developers could not always be verified;

c.       Building defects were identified in 737 of the 970 houses inspected by the audit team. The defects included, amongst others: walls and foundations were severely cracked, gaps between the outside walls and the roofs, roofs of houses which were leaking, general basic services were either not installed or not connected to the bulk supply, etc.

 

The Committee recommends that provincial housing departments should introduce improved measures to ensure that:

a.       applicants submit adequate proof of income and updated payslips;

b.       applicants submit supporting documentation regarding spouses and dependents; 

c.       affidavits must accompany application forms;

d.       there is collaboration with municipalities where applicants are employed with a view of instituting disciplinary action  against municipal employees who made false affidavits, and legal action should be considered accordingly;

e.       measures are instituted to ensure the safe keeping of completed subsidy  application forms;

f.         where properties were allocated to individuals who should have been  disqualified as a  result   of their household income, consideration should be given to give those properties to qualifying applicants and that   forensic investigations into corruption and collusion are conducted;

g.       contracts with developers include retention and penalty clauses to ensure that contractors   will forfeit money for bad workmanship;

h.       disciplinary actions are taken against inspectors who certified on inspection certificates that  top structures had been successfully completed by developers when the general condition of the houses was  poor and unsatisfactory; and

i.         there is integration of their database with that of SARS to verify eligibility through PAYE information.

 

3.   CONCLUSION

The Committee expressed its dissatisfaction with the progress made by the Department of Housing to correct deficiencies identified by the special audit. The Committee further requests the National Department of Housing and the provincial housing departments to ensure that corrective measures are implemented to rectify the shortcomings identified. SCOPA should monitor the above recommendations on an ongoing basis and that regular  progress reports are submitted to the Committee, the first of which should be six months after the adoption of the report by the National Assembly.

 

Report to be considered.

 

 

2.       Twenty-Eighth Report of the Standing Committee on Public Accounts on the Annual Report and the Report of the Auditor General on the Financial Statements of the Independent Complaints Directorate (ICD) for the year ending 31 March 2007, dated 21 October 2008.

 

The Standing Committee on Public Accounts (SCOPA) heard and considered evidence on the Annual Report and the Report of the Auditor-General on the financial statements of the Independent Complaints Directorate (ICD) for the financial year ending 31 March 2007.

 

For the 2006/07 financial year a qualified audit opinion was expressed by the Auditor-General on the financial statements of the ICD. SCOPA, therefore, requests the Accounting Officer to urgently address the following:

 

1.        Fixed Assets

The Auditor-General reported the following shortcomings with regard to fixed assets:

a.       The valuation of the assets amounting to R29 319 000, including adjustments of R7 093 000 could not be verified due to inadequate documentation;

b.       assets were not always bar-coded; and

c.       assets valued less than R5,000 (minor items) which were not supposed to be included in the asset register were included.

 

The Committee recommends that the Accounting Officer ensures that:

a.       an appropriate document management system is implemented to control all source documentation and ensure that accurate reconciliation is done;

b.       assets are recorded and bar-coded;

c.       there is compliance with the National Treasury prescript which requires that assets with a value of less than R5000 should not be listed as capital assets in the financial statements.

 

2.       Vacancies

The Auditor-General reported that out of 535 approved positions only 231 were funded for in the 2006-07 financial year.  Due to critical management positions being vacant, policies and procedures were not properly monitored to detect and prevent non-compliance.

 

The Committee recommends that the Accounting Officer reassesses the organisational structure, and requests more funding from National Treasury to ensure that the entity delivers on its mandate.

 

3.       Leave Benefits

The following control weaknesses were identified:

a.       leave forms were not properly filed, resulting in them not being properly captured on PERSAL; and

b.       leave forms were not always completed and approved before staff went on leave.

The Committee recommends that the Accounting Officer ensures compliance with human resources policies and guidelines.

 

4.       Conclusion

The Committee noted with concern the internal controls as reported by the Auditor-General and requests that the issue of leadership and key vacant positions are addressed as a matter of urgency to ensure the efficient operation of the entity. Reports on progress made with regard to issues identified should be forwarded to the Committee within 60 days after the adoption of this report by the National Assembly.

 

Report to be considered.

 

 

3. Twenty-Ninth Report of the Standing Committee on Public Accounts on the Annual Report and the Report of the Auditor General on the Financial Statements of the Inkankala Water Board for the financial year ending 31 June 2007, dated 21 October 2008.

 

The Standing Committee on Public Accounts (SCOPA) heard and considered evidence on the Annual Report and the Report of the Auditor General on the financial statements of the Inkankala Water Board for the financial year ending 31 June 2007.

 

For the 2006/07 financial year a qualified audit opinion was expressed by the Auditors on the financial statements of the Board.

 

    The Auditors reported the following shortcomings:

a.       there was no audit committee;

b.       no internal audit was performed during the year under review;

c.       essential controls such as segregation of duties was not complied with; and

d.       there was non-compliance with the PFMA and Water Services Act.

 

 The Committee recommends that the Accounting Officer urgently ensures that:

a.       an audit committee and an internal audit section are put in place, and

b.       there is compliance with relevant rules and regulations.

 

          Conclusion

The Committee further requests the Department of Water Affairs and Forestry to intervene in  ensuring that there is stability within the Board and that an updated report on all problems identified, are forwarded to the Committee within 60 days after the adoption of this report by the National Assembly.

 

                        Report to be considered.

 

4.       Thirtieth Report of the Standing Committee on Public Accounts on the Annual Report and the Report of the Auditor -General on the financial statements of the Magalies Water Board for the financial year ending 31 June 2007, dated 21 October 2008

 

The Standing Committee on Public Accounts (SCOPA) heard and considered evidence on the Annual Report and the Report of the Auditors on the financial statements of the Magalies Water Board for the financial year ending 31 June 2007.

 

For the 2006/07 financial year a qualified audit opinion was expressed by the Auditors on the financial statements of the Board.

 

The Auditor-General reported the following shortcomings:

a.       an internal audit section was not fully operational;

b.       monitoring and control within the Board did not function properly;

c.       a fraud prevention plan was developed but not implemented; and

d.       due to a lack of approved policies and procedures, transactions were not supported with documentation.

 

The Committee therefore recommends that the Accounting Officer ensures that:

a.       the internal audit section of the Board is fully operational;

b.       monitoring controls are put in place, particularly with regard to reconciliations and ensuring that building contracts and projects are managed effectively; and

c.       a fraud prevention policy is developed, and implemented, and that policies and procedures are approved as a matter of urgency

 

Conclusion

The Committee noted with concern the state of internal controls in the entity and requests the Board to ensure that policies and procedures are developed, approved and monitored to ensure compliance to applicable regulations. An updated report on the progress regarding the issues raised, must be forwarded to the Committee within 60 days after the adoption of this report by the National Assembly.

Report to be considered.

 

5.       Thirty-First Report of the Standing Committee on Public Accounts on the Annual Report and the Report of the Auditor General on the Financial Statements of the Namakwa Water Board for the financial year ending 31 June 2007, dated 21 October 2008.

 

The Standing Committee on Public Accounts (SCOPA) heard and considered evidence on the Annual Report and the Report of the Auditors on the financial statements of the Namakwa Water Board for the financial year ending 31 June 2007.

 

For the 2006/07 financial year an unqualified audit opinion was expressed by the Auditors on the financial statements of the Board.

 

The Auditors reported the following shortcomings:

a.        there was no audit committee;

b.       no internal audit was performed during the year under review;

c.        essential controls such as segregation of duties was not complied with;

d.       the Board does not have a CEO; and

e.        the Board will not be able to repay the loan from the Development Bank of Southern Africa.

 

The Committee recommends that the Accounting Officer urgently ensures that:

a.        an Audit Committee and an internal audit section are put in place; and

b.       staff with suitable skills and experience are appointed.

 

Conclusion

The Committee requests that the Department of Water Affairs and Forestry intervene in ensuring stability within the Board so that the Board can realise its mandate. The Committee requests a report on the issues identified to be submitted within 60 days of the adoption of this report by the National Assembly.

 

Report to be considered.

 

6.       Thirty-Second Report of the Standing Committee on Public Accounts on the Annual Report and the Report of the Auditor General on the financial statements of the Bushbuckridge Water Board for the financial year ending 31 June 2007, dated 21 October 2008.

 

The Standing Committee on Public Accounts (SCOPA) heard and considered evidence on the Annual Report and the Report of the Auditors on the financial statements of the Bushbuckridge Water Board for the financial year ending 31 June 2007.

 

For the 2006/07 financial year a qualified audit opinion was expressed by the Auditors on the financial statements of the Board.

 

The Auditors reported the following shortcomings:

a.       no internal audit was performed during the year under review;

b.       the municipalities were not paying the money owed to the Board;

c.       forensic investigations concluded that an amount of R644 651 was irregularly paid during the 2003/04 financial year, that amount has still not been recovered; and

d.       the internal control environment regarding safe keeping of records was inefficient.

 

The Committee recommends that the Accounting Officer urgently ensures that:

a.       an internal audit section is put in place;

b.       the Board, with the Department of Water Affairs and Forestry and all the role players, address the matter of non payment of water by the municipality;

c.       the Board reports to Parliament on progress with regard to the forensic investigation within 60 days of the adoption this report by the National Assembly; and

d.       policies and procedures are documented and complied with.

 

Conclusion

The Committee requests that the Department of Water Affairs and Forestry to intervenes and ensure that there is stability within the Board so that the Board can realise its mandate and that the Committee be provided with a progress report within 60 days of the adoption of this report by the National Assembly.

 

Report to be considered.

 

7.       Thirty-Third Report of the Standing Committee on Public Accounts on the Annual Report and the Report of the Auditor-General on the financial statements of the Construction Education and Training Authority for the financial year ending 31 March 2007, dated 21 October 2008.

 

 

The Standing Committee on Public Accounts (SCOPA) heard and considered evidence on the Annual Report and the Report of the Auditor-General on the financial statements of the Construction Education and Training Authority (CETA), for the year ended 31 March 2007.

 

The Committee noted the disclaimer audit opinion expressed by the Auditor-General.  The Committee raised its concerns on the following matters and reports as follows:

 

1.       Capacity and skill

The report highlighted that the Chief Financial Officer  resigned in February 2006. A new Chief Financial Officer was appointed in April 2006. The Chief Executive Officer was suspended and a new Chief Executive Officer was appointed in March 2008.

 

The Committee is concerned about the lack of skills and the significant control weaknesses identified.

 

The Committee recommends that the Accounting Authority ensures that:

a)       improvements of human resource control policies and procedures are implemented and that recruited staff meet the required standards;

b)       salaries of senior management staff  should be market related;

c)       the reasons for staff turnover are reviewed, and strategies are established and implemented to eliminate the problems encountered;

d)       the Chief Financial Officer and financial staff receive training; and

e)       feedback is given to the Committee on the departmental action plan to address the high vacancy rate.

 

2.       Governance issues

The Committee noted the following shortcomings:

a)       internal control policies and procedures were not developed for the National Skills Fund;

b)       there was lack of systems and controls due to various policies not developed;

c)       there was no supporting documentation provided for commitments disclosed to the value of R35 047 million for projects which have already expired, as well as for contingent assets amounting to R12 982 million;

d)       non compliance with applicable legislation; and

e)       double payments to service providers and other control weaknesses over learnership disbursements and administration.

 

The Committee recommends that the Accounting Authority ensures that:

a)       management establishes monitoring controls that prevent and detect errors on the annual financial statements;

b)       reconciliation of total commitments, as well as contingent assets, are provided to the auditors, together with relevant supporting documentation;

c)       the outcomes are evaluated and legal opinion with regards to rights and obligations are obtained. Correction of prior year adjustments errors are made in terms of Generally Recognised Accounting Practice;

d)        mandatory grant payments are made quarterly;

e)       evaluation of governance and risk environment as well as development and implementation of policy to govern the environment are done; and

f)         an update on forensic investigation regarding the suspension of the Chief Executive Officer is provided.

 

The Committee requests the Accounting Officer to provide a progress report on all the abovementioned issues within 60 days after  the adoption of this report by the National Assembly.

 

Report to be considered

 

8.       Thirty-Fourth Report of the Standing Committee on Public Accounts on the Annual Report and the Report of the Auditor-General on the financial statements of the Department of Health and Welfare Sector Education and Training Authority (HWSETA) for the financial year ending 31 March 2007, dated 21 October 2008.

 

 

The Standing Committee on Public Accounts (SCOPA) heard and considered evidence on the Annual Report and the Report of the Auditor-General on the financial statements of the Health and Welfare Sector Education and Training Authority (HWSETA), for the year ended 31 March 2007.

 

The Committee noted the disclaimer audit opinion expressed by the Auditor-General.  However, the Committee raised its concerns on the following matters and reports as follows:

 

Capacity and skill

The Committee noted the following:

  1. the previous Chief Executive Officer and Chief Financial Officer were suspended in June 2006 and both resigned in August 2006;
  2. a new Chief Executive Officer was appointed in December 2006 but was suspended in June 2007 and dismissed in July 2007;
  3. no Chief Financial Officer appointment was made for the remainder of 2007;
  4. the Chairperson of the Board resigned on 31 March 2007; and
  5. a new Chairperson of the Board resigned on 30 November 2007 and another Chairperson was appointed on 24 January 2008.

 

      The Committee recommends that the Accounting Authority ensures that:

a.       all errors that occurred due to a lack of capacity and skills are corrected;

b.       appropriate training is provided to all employees especially in finance; and

c.       management institutes adequate monitoring controls to ensure that all transactions are correctly recorded in the financial statements before they are submitted for audit purposes.

 

Governance

The annual report highlighted the following:

a.       an amount of R14 million irregular expenditure was disclosed for non-compliance with the supply chain management and payments made in contravention of the Skills Development Amendment  (SDA) regulation on mandatory grants;

  1. no reliance placed on the work of the internal audit committee as there was no internal audit function for the first six months of the financial year;
  2. representation in the Accounting Authority was not equal between employer and employee organisations in accordance with the Skills Development Amendment Act  (SDA) 13(3)iii;
  3. the human resource plan was not approved by the Executive;
  4. non-compliance with applicable legislation; and
  5. significant reliance was placed on voluntarily contributed government levies of R22 million, the absence of which would compromise the normal day-to-day running expenses and cause the HWSETA to exceed the legal limit on administrative expenditure.

 

The Committee recommends that the Accounting Authority ensures that:

a.       management implements monitoring controls verifying that payments for mandatory grants are made only if Work Place Skills Plan (WSP) and Annual Training Report were submitted on time;

b.       management considers the effect of government levies not being received and develops a strategy to ensure that the entity remains a going concern;

c.       HWSETA has an internal audit function and that it performs in terms of its mandate throughout the year;

d.        employees are charged with governance design and implementing controls to ensure that the board members of HWSETA are at all times representative of employees and employers on an equal basis;

e.        there is revision and/or drafting of appropriate policies and procedures; and

f.         tenders and awards are advertised in the Government Tender Bulletin

 

The Committee requests the Accounting Officer to provide a progress report on all the abovementioned issues within 60 days after the adoption of this report by the National Assembly.

 

Report to be considered.

 

9.       Thirty-Fifth Report of the Standing Committee on Public Accounts on the Annual Report and the Report of the Auditor-General on the financial statements of the Local Government Sector Education Training Authority for the financial year ending 31 March 2007, dated 21 October 2008.

 

           

The Standing Committee on Public Accounts (SCOPA) heard and considered evidence on the Annual Report and the Report of the Auditor-General on the financial statements of the Local Government Sector Education and Training Authority (LGSETA), for the year ended 31 March 2007.

 

The Committee noted the qualified audit opinion expressed by the Auditor-General.  The Committee specifically raised concerns on the following matters and therefore reports as follows:

 

1.       Governance issues

The annual report highlighted the following:

a.       ineffective internal audit function and audit committee;

  1. no contracts for the Board (Accounting Authority) stating acceptance of their responsibilities;
  2. supply chain management framework has not been implemented and this issue has been highlighted in the reports of the past three years;
  3. non-compliance with applicable legislation;
  4. LGSETA  invested in an endowment policy, however, the life insured by the policy is that of the former financial manager who resigned in April 2007; and
  5. objectives disclosed as per the strategic plan were not specific enough to address the overall target as set by the National Skills Development Strategy.

 

The Committee recommends that the Accounting Authority ensures that:

 

a.       proper policies and procedures are implemented as a matter of urgency to ensure control over investments;

b.       an adequate supply chain management framework is approved by the Board;

c.       quarterly internal audit reports are produced and implemented;

d.       audit committee meets at least twice a year and ensures sufficient numbers attend to obtain the necessary quorum;

e.        LGSETA, in consultation with the Department of Labour, establishes specific SETA targets that would result in achieving the overall targets; and

f.         only performance objectives/information that are in line with the strategic plan are approved.

 

 

2.       Capacity and skills shortage

 

For the past two years, the position of the Chief Financial Officer had not been established in LGSETA and its responsibilities had not been assigned as required by Treasury Regulation.

 

The vacancy of a Chief Financial Officer and financial manager resulted to:

  1. Financial statements submitted for audit purposes required significant material adjustments.
  2. Adequate explanations and documentation to support the provision of levy income could not be provided.
  3. Accounts receivable and accounts payable were being netted off in contravention of Generally Recognised Accounting Practice.
  4. Material irregular expenditure of R5,2 million relating to mandatory grants paid to employers in contravention of the Skills Development Amendment(SDA)  regulation.
  5. There was non-compliance with applicable legislation.

 

The Committee recommends that the Accounting Authority ensures that:

a.       a Chief Financial Officer is appointed and delegated the responsibility;

b.       all errors that occurred due to lack of capacity and skills are corrected;

c.       appropriate training is provided to all employees especially in finance;

  1. revised and/or drafts of appropriate policies and procedures in accordance with accounting standards are made;
  2.  management implements monitoring controls to ensure that payments for mandatory grants are made only if the Work Place Skills Plan (WSP) and Annual Training Report (ATR) were submitted on time ; and

f.          management implements monitoring controls to prevent irregular expenditure and establish a system to record those that have been incurred.  

 

The Committee requests the Accounting Officer to provide Parliament with a progress report on all the abovementioned issues within 60 days after  the adoption of this report by the National Assembly.

 

Report to be considered