SETAs under administration: Local Government SETA and Services SETA Annual Reports 2012/13

Meeting report

The Chairperson noted that the SETAs present continued to attract media attention with allegations of maladministration.

Services SETA presentation
Mr Themba Mhambi, Chair of the Accounting Authority (Board) of the Services SETA said that the SETA had been under administration for two and a half years (to July 2013), after which the Board had been established. The main reason for the SETA being placed under its administration was the costliness of its achievements. For example one year’s learning for one learner cost more than three years of university education. Mr Mhambi said he had been an administrator for 22 other entities and the recent administration had faced the following challenges:

▪ Paralysis of investigations, combined with neglect of day to day processes
▪ External focus on international activities
▪ A highly skilled workforce which was not well utilised
▪ Poor record keeping
▪ Combined accounting and executive functions, which rendered the Chief Executive Officer accountable to himself.

Mr Mhambi gave an overview of the Auditor-General’s 2012/13 audit report. R292m could not be accounted for. Projects prior to July 2013 would be subject to scrutiny and a validation exercise undergone. There were significant uncertainties regarding lawsuits and all legal matters on the books were being independently reviewed by a contracted legal practitioner. In response to the Auditor-General finding of ‘restatement of corresponding figures resulting from errors in financial statements’ interim financial statements are prepared and reviewed by the Audit Committee to monitor progress monthly. With regard to the finding of irregular expenditure, deviations instead of condonations within the parameters of Treasury Regulations and Procurement Policy were applied. Supply Chain Management (SCM) was subject to a complete review of previous practices and appropriate action was taken. Financial misconduct was being investigated and matters concerning the previous executive and senior management were with the Hawks. One criminal investigation had resulted in an R80 000 fine and a suspended sentence but others were ongoing. A whistle blower who had sent anonymous emails was also being investigated for not following the proper channels. Fictitious learners were being investigated.

The Chief Executive Officer, Mr Johannes Mouton, gave an overview of core programmes audited. The Services SETA had aimed to increase the number of employers that submitted Workplace Skills Plans (WSPs) and Annual Training Reviews (ATRs) by 25% but had achieved an 18% increase. 27% of employers who received mandatory grant reimbursements did not submit WSPs and ATRs and the target had been 0%. The target for recognition of prior learning (RPL) was significantly overachieved (2000 against a target of 200). A backlog of certificates that had not been awarded had mostly been cleared. All learners were now linked to an identity number, employer, service provider (SP) and training qualification. The top and mid management vacancy rate was highest. There was now a paper trail linking any activities to expenditure.

Discussion
Ms N Gina (ANC) was concerned about how the Committee should best play its oversight role. The last presentation by the SETA had been convincing about change and she was apprehensive about further disappointment. She said that an R80 000 fine sounded good but what was it balanced against?

Mr S Makhubele (ANC) reiterated the previous point. The fine for stealing a cow was R2000 but a cow could be sold for R10 000. He believed that the SETA situation had not changed and that, as a juristic person, the Chair of the Board should be blamed. Expenditure of R290m without records was a very large sum. Loopholes, not only in SCM but in top and middle management had to be dealt with. The administrator should not be seen as a messiah and it was believable that there was collaboration with the Department. He would like to know more about how 2000 learners were awarded RPL certificates, as a model of best practice.

Ms D Chili (ANC) said that the Auditor-General’s material finding was that 64% of targets were not well defined. There was no value for money, so why was a consultant used?

Mr A Mpontshane (IFP) hoped that the presentation was not a display of ineffective good intentions. Regarding skills transfer and fictitious learners, he had attended a graduation ceremony for young people who had been through learnerships. One could sense that the graduates had no hope of finding employment but the service provider benefited. What was the extent of the problem of fictitious learners, financially and numerically? Regarding irregular expenditure, he noted that the Auditor-General had decried the lack of sanctions.

Prof A Lotriet (DA) said that a new Board and CEO having to answer questions was problematic. She noted that when the SETA was under administration, the administration emolument was over R3m. How did that happen and why was there an increase in overseas travel when the SETA was under administration? She would like feedback on implementing a plan to correct the findings.

Mr S Radebe (ANC) wanted to know if the figure of 11 327 certificates issued between May 2013 and February 2014 included the 11 000 backlog. He noted that with Skills Development Programmes (SDPs), sometimes oversight visits revealed no students on the ground.

How was it possible for important legislation and regulations to be overlooked in Supply Chain Management (SCM)? The Department should be blamed for not monitoring the SETA adequately. The Board should be blamed for not getting on top of the situation. Someone should be arrested if the administrator painted a good picture that turned out to be false. He asked the CEO how long it would take to turn the situation around. If he was called by the Committee in, say, September would the situation be different?

The Chairperson also hoped that the presentation was not a list of good intentions. The Department was a ‘sleeping policeman’ and would have to answer. The Committee wanted a written report with a timeline on how it was remedying the situation.

The Chair of the Board, Mr Mhambi, responded that his Board was excellent. It was unnecessary for them to vote as they reached consensus. Two other SETAs for which he had been the administrator were now functional. With respect to sanctions against financial misconduct, one executive member had been found guilty of taking money but the sanction was not yet known. They were not just taking a stance, they were taking action.

The number of fictitious learners was unknown. Each and every learner would have to be phoned to have his/her details verified.

Administration costs included travel, accommodation etc and might be justifiable. Details had been requested but the principle of innocent until proven guilty had to be upheld.

Irregular expenditure would not be condoned. Any deviations would have to be approved by the Board.

Overseas travel was necessitated due to partnerships, some of which was justifiable.

In terms of overall progress and timelines to address the Auditor-General’s findings, they would report on this regularly. The next audit report would be better than the most recent one and it would be clean by 2014/15.

The SCM system was being revamped but was constrained by lack of skills. In the past the CEO and Chief Operating Officer had been the same person, and should not have been.

Mr Johannes Mouton, CEO, said that RPL was an important strategic objective and discretionary grants were targeted there. 121 companies assisted.

By May, the critical issues would have been identified and prioritised. Every three months there were important deliverables and by September much would have improved.

Ms Debbie Machard, Quality Assurance manager, said that the backlog of certificates had been investigated and ringfenced. They had had to improve business processes and understand financial figures retrospectively. They knew numbers of students, providers and geographical areas and would send audit companies to those learners to disburse certificates. Untraceable learners’ certificates would be archived. Current staff did not get sidetracked by dealing with ‘legacy’ certificates. They knew turnaround times and performance indicators and were achieving them.

Local Government (LG) SETA presentation
Mr Nqaba Nqandela, Administrator and acting CEO, commented that while the Services SETA had just come out of administration, the LG SETA had just been placed under administration in March 2013. The Auditor-General’s 100-page report indicated that virtually every transaction had something wrong whether trivial and substantial. The SETA had failed to submit Annual Financial Statements, a Performance Report or Annual Report, in contravention of the Public Finance Management Act.

This was the situation that the administration team had inherited. The administration team had analysed and diagnosed the various matters. Forensic investigations took up much time, but the investigation was near to completion.

The CFO, Mr Omega Shelembe, gave an overview of financial performance. The Auditor-General was assisting. Levy income rose with the increase in employment statistics of employers but investment income dropped. 58% of income had been distributed as mandatory grants and had exceeded that disbursed in 2012/13. Discretionary grant projects were at a minimum in 2012/13. This was because many projects were not implemented as SCM processes were hampered in advertising tenders. The administration programme underspent by R9m due to a vacant position not being filled in 2012/13. Reserves of R49m had accumulated since 2009/10. An application to retain the funds was granted.

Ms Pumla Mkele, LGSETA Quality Assurance Manager, reported that seven colleges and six municipal training centres had been accredited, thus overachieving on that target but only one qualification had been approved by the Quality Council for Trades and Occupations (QCTO). The target had been 10. 110 qualifications had been evaluated. The target was 60. The overachievement was because of high demand from training providers to offer programmes. 250 providers had been evaluated when the target was 120, because of emphasis on the quality of training. 365 learners had had RPL. Most Education and Training Quality Assurance programmes had been achieved, or more than achieved, with the exception of Adult Basic Education and Training because workplace demands made it difficult for learners to attend.

Ms Refilwe Mokwena, LGSETA Human Resources Manager, gave an overview of personnel costs per programme. Only six provinces had managers/offices. There had been a moratorium on all recruitment until November 2012, after which only limited duration contractors could be appointed. Twelve high ranking staff had resigned in 2013/14, including the CEO, during "proceedings". In addition, four other staff members were subjects to ongoing disciplinary matters.

The Administrator, Mr Nqandela, gave the IT report. In 2012/13 the Auditor-General found that ICT controls to support accurate, complete and reliable information were not in place and that risk management was inadequate. He listed the deliverables of the turnaround strategy. He concluded, saying that the LGSETA has gone through a difficult period in the recent past, which saw it fail to play the role it is support of local government. Great strides have been made to restore the SETA back to a state of good governance and proper financial management. Much more remained to be done to achieve the ambitious objectives that have been set. The SETA would be transformed into a model SETA characterised by excellence

Discussion
Mr Mpontshane noted that mandatory grants to municipalities had increased by 8% over 10 months and wondered if this was justified, given the SETA's poor performance. Who approved these internal workshops, as their quality left much to be desired?

Ms Chili wanted to know the reasons for the resignations and dismissals.

Mr Makhubele wanted to know more details of the 250 learners certificated through RPL.

Ms Gina commented that rewards and recognition as part of the HR turnaround strategy was ‘troublesome’. Also, provincial LG SETA offices should be capacitated.

Mr Radebe said that if resignations left critical skills gaps, they should be filled as soon as possible and if resignations were actually due to people ‘running from disciplinary hearings’ they should be followed up. He was not pleased with the administrator’s progress and would give him a mark of 60%. When would legal action be taken to deal with the ‘bad apples’?

The Chairperson said that the worst two SETAs had deliberately been asked to present together today. He wanted the names of the service providers who received millions. They had to be on the system as they were accredited. The Auditor-General had said that the contracts had disappeared but the system should still show who they were, and who paid them.

Mr Nqandela said that mandatory and discretionary grant systems were stabilising and municipalities were currently to appoint accredited service providers. The SETA signed the contract. The first tranche, which was deliverable on signing, had been reduced from 50% to 30%.

An audit on beneficiaries as well as transactions had been conducted. Some beneficiaries said their training had helped them but others said they had not been contacted by the service providers after registration.

Between July and December 2013 road shows to provinces had been undertaken. Most committed grants were not taken up as municipalities insisted on appointing service providers who were not accredited. In order not to disadvantage workers, the SETA offered to arrange the training but the municipality usually declined this offer and asked for the allocation to be rolled over.

Mandatory grants increased simply because there was an increase in the payroll.

Some of those who resigned did appear to resign when they feared investigation was imminent. But leading a crusade against all of them might be expensive and futile.

Efforts to bring the SETA back to the Local Government sector were prioritised. Gauteng and North West shared an office, as did Mpumalanga and another province, for no good reason. There would soon be a presence in all provinces. A ‘different sort of person’ who would ‘be in the face of municipalities’ was required.

Mr Nqandela said that corrupt people did frustrate him because they used lawyers and caused delays but he had to follow due process. All current cases would be finalised by the end of March and new ones would take a further three months.

The Quality Assurance manager said that the RPL projects were related to Water Affairs, legislation and National Treasury. There was an official minimum competency level qualification for municipal finance people but actually many of such were Chartered Accountants i.e. they were competent beyond the minimum level but did not have the particular required certificate. So they submitted portfolios and their prior learning was recognised. In Water Affairs, some longstanding officials were awarded RPL certificates, if there was no need for them to undergo learnerships.

The HR manager said rewards and recognitions had to be based on analysing, benchmarking and comparing with others. Before that could be done, one needed job profiles. This had now been done and benchmarking had begun. There had been a decision not to pay bonuses in 2013.

The delegation left the meeting and the Committee considered a draft report and minutes. The minutes were approved and the draft report was approved, in principle, pending changes.

The meeting was adjourned at 12.55.