Report of the Standing Committee on Public Accounts on its oversight visits to Third-party Funds Centres in KwaZulu-Natal, Eastern Cape, Mpumalanga, Limpopo; and Gauteng, dated 24 August 2011

 

 1. Introduction

 

The Standing Committee on Public Accounts (the Committee) undertook oversight visits to Umlazi Magistrate’s Court (Durban, KwaZulu Natal), Tubatse and Seshego Magistrate’s Courts (Tubatse and Seshego, Limpopo), Thulamahashe Magistrate’s Court (Mpumalanga) and the Mdantsane Magistrate’s Court (East London, Eastern Cape) on 28-30 March 2011.  At a later date, the Committee visited the Johannesburg Magistrate’s and Family Courts, Protea Magistrate’s Court and the Pretoria Magistrate’s Court (all in Gauteng).  The main objective of the visits was to conduct oversight on the Third-Party Funds (TPF), which are administered by various courts around the country, under the management of the Department of Justice and Constitutional Development.

 

The Committee hereby reports its findings and recommendations to the House as required by Rule 137 of the Rules of the National Assembly.

 

2.       Delegation

 

Below is the delegation that represented the Committee on these visits:

 

Eastern Cape and KwaZulu Natal

Members of the Committee: Mr R Ainslie, MP (ANC, Leader of the Delegation), Ms S Mangena, MP (ANC), Ms F Muthambi, MP (ANC), Ms G Saal, MP (ANC), Mr M Steele, MP (DA) and Ms N Balindlela (COPE)

Support Staff: Mr P Mbele (Committee Secretary), Ms G Shabalala (Committee Researcher) and Ms X Mnyute (Committee Assistant)

 

Limpopo and Mpumalanga

Members of the Committee: Mr T Godi, MP (APC, Leader of the Delegation), Ms T Chiloane, MP (ANC), Mr S Thobejane, MP (ANC) and Mr P Pretorius, MP (DA)

Support Staff: Mr S Nqwala (Committee Secretary), Ms N Cenge (Committee Researcher)

 

Gauteng

Members of the Committee: Mr T Godi, MP (APC, Leader of the Delegation), Mr R Ainslie, MP (ANC) Ms S Mangena, MP (ANC), Ms F Muthambi, MP (ANC), Ms G Saal, MP (ANC), Ms T Chiloane, MP (ANC),  Mr M Steele, MP (DA), Mr P Pretorius, MP (DA),  Ms N Balindlela (COPE), Mr N Singh (IFP),and  Ms M Matladi (UCDP)

 

Support Staff: Mr P Mbele, Mr S Nqwala (Committee Secretaries), Ms G Shabalala and Ms N Cenge (Committee Researchers)

 

Office of the Auditor-General: Ms Z Kota and Mr S Saki

 

3.       Background

 

3.1 Third-party funds

 

The Department of Justice and Constitutional Development manages the TPF through a network of 600 cash halls country wide. As at 31 March 2008, 500 bank accounts existed at the four major South African banks. According to the Office of the Auditor-General of South Africa (AGSA), it is estimated that in excess of R2.5 billion in funds are collected and paid on behalf of other parties by the Department annually.

 

 The Third-Party Funds (TPF) administers the following types of transactions:

 

·         Admission of guilt - fines, mostly traffic fines, where the accused chooses not to defend the matter in court – these funds are paid over to either the local or provincial government or the National Revenue Fund at the end of each month.

  • Bail - where an accused is granted bail by a judicial officer or an official duly authorised, where the funds are kept until a court authorises the return of the funds to the accused or the funds are forfeited to the state as a court fine or paid over to the National Revenue Fund when the monies remain unclaimed for a period longer than 12 months after they have been authorised to be repaid to the depositor.
  • Court fines - fines imposed by a court that are paid over to the National Revenue Fund, provincial administration or local authority at the end of each month.
  • Maintenance - money received from defendants as per order of court, which is then paid to beneficiaries/plaintiffs or returned to the defendant or to the National Revenue Fund if the monies remain unclaimed for a period longer than 12 months.
  • State Attorney monies - money collected by the State Attorney on behalf of government institutions – the State Attorney also collects a commission on debt collections on behalf of government institutions, which is paid over to the National Revenue Fund.
  • Compensatory fines - criminal court orders for a given defendant to pay compensation to a plaintiff.
  • Deferred fines - fines deferred over a period as imposed by court, which are paid to the National Revenue Fund at the end of each month as court fines.
  • Payments to court - civil action where an offer in settlement of a plaintiff’s claim is made – these payments may in certain cases be made without a court order, where a defendant pays an amount to court, without prejudice, as an offer in settlement of a plaintiff’s claim in a civil case, pending acceptance by the plaintiff.
  • Unclassified monies - monies received that cannot immediately be classified into one of the above categories.

 

3.2   Audit Report of the Auditor-General of South Africa

 

The Auditor-General has a constitutional mandate and, as the Supreme Audit Institution (SAI) of South Africa, it exists to strengthen South Africa’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence.

 

The Committee works closely with the Office of the Auditor-General, and enjoys regular interactions with the institution. The Auditor-General briefed the Committee over the years on the audit outcomes of the TPF. Past and recent interactions between the Committee and the Office of the Auditor-General revealed serious challenges surrounding the fund, which led to undesirable audit outcomes and indicated an existence of bigger challenges, namely;

 

  • The Fund received disclaimers on its audits for the 2006/07 and 2007/08 financial years. For the 2008/09 financial year, financial statements of the fund were not submitted to the Auditor-General for audit, and hence there was no audit outcome;
  • Inadequate financial records;
  • The challenges with the Justice Deposit Accounting System (JDAS); and
  • The incomplete investigations – the auditors recorded that they were not given access to reports on these.

 

These were amongst the reasons the Committee resolved to undertake these visits.

 

 

4.       Terms of Reference

 

During the first parliamentary term of 2010, SCOPA resolved to conduct oversight visits to selected magistrates’ courts in order to examine the procedure through which the Third Party Funds are processed and managed. The specific focus of the visits would be on;

 

·         Method of work

·         Segregation of duties

·         Staff complement

·         Financial Management System (FMS)

·         Cash office control

·         Information systems

 

 

5.       Findings

5.1 General

 

  1. The offices use the Justice Deposit Account System Version 4 (JDASV4.0).
  2.  Financial management at the courts is carried out in Cash Halls, and comprises of two components, the TPF and the Vote Account. There remained no career pathing in the cash halls. Administration Clerks were rotated to all the sections in the Magistrate’s Office so that they may be multi-skilled. The structure of the offices had never provided for financially trained practitioners for the cash halls.
  3. There was a general weakness in the oversight and accountability by management with regards to Third Party funds.
  4. There was a lack of internal control systems.
  5. Officials in the current employ were not adequately trained in financial management.
  6. There was a lack of sufficient middle management and Checking Officers to support the Court Managers on finance operations.
  7. There were reported delays in criminal investigations
  8. The centres were under-capacitated for the finalisation of internal disciplinary cases, especially those related to financial misconduct.
  9. There were inadequate fraud prevention plans in the offices.
  10. The courts did not have sufficient numbers of Court Sheriffs.
  11. Large numbers of beneficiaries still opted for manual payments than the Electronic Fund Transfer (EFT) system.
  12. A number of cases of cancellation of bank accounts by beneficiaries had been reported.
  13. The use of wrong reference numbers by depositors still posed challenges.
  14. There were at times reported delays, and in some instances, payment schedules from payers (especially government departments) were not always available on time.
  15. There were instances of inadequate office space and security.

.

5.2 Financial Management and Information Systems

 

The Justice Deposit Account System Version 4 (JDASV4.0) and the Joint Management Information System (JMIS) report on all activities in the Cash Halls.

 

For transactions, the Department uses JDAS. On both visits, the delegation heard and also observed that:

 

1.       The system was not user-friendly, and some staff members did not know how to operate it well as there had been no adequate training on its use.

2.       The information technology computerised system experienced slow connectivity

3.        Only the EFT (Electronic Funds Transfer) Supervisor could monitor, authorise and check cancellations on JDAS, with another Supervisor responsible for the verification of payments on the system for correctness. The system required that users perform different tasks to enable proper controls. It catered for eight modules, namely, bail, compensation fines, court fines, civil matters, deferred court fines, maintenance and unclassified and general funds. All these modules allowed for receipting and payouts. Before the cash hall could make transactions on these modules, the administrative personnel and their supervisors needed to capture certain information and have it authorised to allow the finance section to do the relevant transactions.

4.       The unclassified module of the system was used to keep monies that could not be classified immediately to the correct module. This required the officials to trace the depositor’s details and establish the account to which the monies must be paid.

5.       There remained a number of unresolved differences on the manual records and the JDAS systems after the rollout of new systems affected balancing on JDAS reconciliations. As a result there were large volumes of unclassified funds, as well as losses.

6.       The issuing of receipts, which would normally take ninety seconds, took up to three or more minutes because of the slow response of the system. The processing of payments took up to four to five minutes, which is longer than the expected two minutes. At times, it gave error messages which require the user to quit the session and log on again.

7.       There were also challenges with bank reconciliations.

8.       On some of the system controls, there were flaws which pointed to the absence of segregation of duties in the design of the system itself. Examples of these included:

(a)     Reports – these can be drawn from the system by whoever has access, and not limited to control officers only

(b)     Power of Attorney – can be added without authorisation on the system, and there is no limit on how many can be added per card

(c)     Authorisations – with each transaction having to be authorised by one controller, and taking up a lot of time especially when the system is slow, backlogs are created on important daily checking; and

(d)     Payments – these can be done without authorisation and there are no controls to confirm and verify signatures. Assurance cannot always be given that the correct person is collecting the payouts.

 

6. Submission by the Department on the Justice Deposit Account System (JDAS)

 

The delegation heard that:

 

1.       The Department planned to replace JDAS with a new system that would be more effective in the management of daily operations at the courts.

2.       The Department awaited approval from the National Treasury, and money had already been secured for the development of the system.

 

7. Conclusions

 

Following the oversight visits, the conclusions below are made:

 

  1. The failure to make available the financial records of the TPF for the 2008/09 financial year pointed to a serious challenge within the Department, and the TPF in particular, of the inability to ensure sound financial practices.
  2. The admission by the Department, that its staff who worked with the Fund did not always have adequate training in financial management and other necessary skills, may lead to delayed progress on the implementation of strategies needed to turn the TPF around.
  3. Career pathing for the staff in the cash halls, would lead to improved service delivery to the people, as staff would be exposed to other aspects of the job with prospects of career growth.
  4. There was a clear need for additional capacity in the court offices.
  5. The slow response by the system server had already led to slow turnaround times in payouts.
  6. The unresolved differences on the TPF manual records and JDAS, leading to increasing unclassified (‘parked’) funds, could result in subsequent undesirable audit outcomes.
  7. Regional and local courts would benefit from more direct support from the Department, which would ensure improved conditions and motivated staff.
  8. The installation of security cameras at the centres would improve security conditions, and ensure the prevention of incidents of crime.
  9. The reported delays in criminal investigations could lead to the continuation of a culture of unabated fraudulent activities, to the detriment of the fund.
  10. The provision of up-to-date information technology hardware could lead to better use of the current system whilst offices await the implementation of the new system.
  11. Adequate training of staff on the new system would ensure improved service delivery.

 

 

8. Recommendations

 

The Committee on recommends as follows:

 

  1. Documents should be made available to the Office of the Auditor-General to conduct audits on the TPF as required by legislation.
  2. The Department should assist the Regions more directly, as a matter of urgency, by responding to their proposals on human and financial resources.
  3. The human resource strategies should be re-thought, and include clear career development and support for staff.
  4. Information technology systems should be realigned as necessary, and relevant training provided to staff.
  5. Adequate training of staff members in the TPF offices, on the new system, should be ensured.
  6. Security measures should be improved at the courts by the installation of security cameras.
  7. Appropriate disciplinary measures should be taken against staff members found to have been involved in fraudulent activities.
  8. The Department should ensure that there is uniformity in the administrative procedures and systems of the court offices responsible for Third Party Funds.
  9. Daily and monthly reconciliations should be made, as well as the provision of staff with the skills and qualifications to perform these tasks.
  10. A national plan should be developed to use the EFT system as a preferred means of payment, where possible.
  11. The Department should provide more oversight on worst performing courts.
  12. The department must also assist the courts to reduce the backlog of unclassified funds.
  13. The improvement and monitoring of the policies on password security for any staff with access to the database should be ensured.

 

9. Conclusion

 

The Committee further recommends that the Executive Authority submits a progress report on the implementation of the above recommendations to the National Assembly within 60 days after the adoption of this report by the House.

 

 

Report to be considered.