COGTA audit outcomes: Auditor General briefing

Meeting report

Opening remarks
The Chairperson welcomed all and expressed the Committee’s gratitude for the work done by the Office of the Auditor-General of South Africa (AGSA) to assist the Committee in its oversight role of assessing the performance of the entities, and assisting the Committee to produce a Budgetary Review and Recommendations Report (BRRR).

The Committee also noted the apologies from absent members.  

Presentation by AGSA
Mr Phillip Rakgwale, Senior Manager: AGSA led the briefing. He was accompanied by his colleague, Ms Stefani Wademan, Manager: AGSA. AGSA’s overall report covered the calculated percentages of six audits made at the following entities:
- the Department of Traditional Affairs (DTA)
- the Municipal Demarcation Board (MDB)
- the Municipal Infrastructure Support Agent (MISA)
- the South African Local Government Association (SALGA)
- the Cultural, Religious and Linguistic Rights Commission (CRL)
- the Department of Cooperative Government (DCOG)

To give a snapshot view of the report, the following could be highlighted:

-  the number of clean audits declined from 50 % last financial year to 33 % in the year under review
- irregular expenditure rose from R422.9 million last year to R716.6 million this year
- 100 percent of irregular expenditure was a result of contravention of SCM legislation

The report painted a picture of a regression in performance across the board:
- the status of audit action plans had regressed
- the overall internal controls had regressed
- the basic financial and performance management controls had regressed
- ICT controls had slightly regressed

Further regression had occurred in the following areas:
- senior management and accounting officer/authority
- executive authority had provided limited or no assurance
- internal audit units and audit committees
- investigations of previous year unauthorised, irregular, fruitless and wasteful expenditure (UIFW)

AGSA’s overall audit opinion per entity was as follows:
- DTA and SALGA: unqualified with no findings
- MISA, MDB and CRL: unqualified with findings
- DCOG: disclaimer with findings

It was important to note that DCOG’s audit outcomes were as a result of the entity’s failure to submit the required documentation for audit. AGSA therefore had no basis on which to form an opinion regarding DCOG’s performance. 

Mr Rakgwale said the AGSA had identified two main trends during the audit process, and these were:
- inadequate or no response to recommendations on improving  key controls and risk areas
- inadequate consequences for poor performance and transgressions

Discussion
Mr C Matsepe (DA) asked: what had been the Department’s response to the findings on the Community Work Programme (CWP), particularly the payments made to deceased people, or payments made without supporting documents, including those for work not done?

Mr E Mthethwa (ANC) noted the AGSA’s proposed formula for defining corruption was C = M (monopoly) + D (discretion) – A (accountability). He said “commitment” should also be part of the equation. In his view, lack of commitment also resulted in corruption. On the root causes identified by AGSA as being responsible for the Department’s bad performance, he felt that the report could have provided more detail by putting each Departmental entity under a microscope and isolating the issues specific to it.

Mr J Dube (ANC) wanted to know the extent of AGSA’s role in the work of departmental internal audit committees. Did the AGSA assist these committees to ensure that all relevant issues were picked up and dealt with before AGSA conducted its own audit and issued findings? Regarding audit assurance provided by the Department’s internal audit processes, he sought clarity on the apparent contradiction between the positive assurance reported at the CRL and the regression in the financial performance of the same entity.

Mr K Mileham (DA) drew attention to the DCOG’s status of internal control and noted that the report called for some level of intervention at leadership level. How did the AGSA see this intervention playing out? On assurance, he also noted that the report showed that the executive authority of COGTA – meaning the Minister himself – had provided limited or no assurance. His understanding was that the Minister had to be held accountable for this matter, and that he needed to explain what was being done to “fix it”. Did the AGSA agree with this assessment?

Noting the significant increase in irregular expenditure from last financial year, Mr Mileham asked whether it was possible to have a breakdown by entity of this expenditure, in order to identify the actual sources of it. He also asked: if DCOG was responsible for a significant chunk of reported non-compliance with Supply Chain Management, why was there no mention of DCOG in the list of investigations undertaken in connection with these matters?

Ms N Shabalala (ANC) wanted to focus attention on the AGSA’s findings on the Department’s management and delivery on key programmes – mainly spending, performance and reporting regarding the CWP. The findings had called for intervention regarding material misstatements; irregular expenditure (R331 million); useless and unreliable performance indicators and non achievement of targets. Ms Shabalala wanted to know what mechanisms were in place to carry out such intervention and how had the Department responded to these concerns.

Ms B Maluleke (ANC) echoed Ms Shabalala’s question and she was also keen to find out how the AGSA could characterise its relationship with COGTA.

Response from AGSA
To Mr Matsepe’s question on the Department’s response to irregular expenditure at the CWP, Mr Rakgwale said the Department had made assurances that the issues would be investigated. The AGSA had also advised the Department to re-verify all individuals and service providers paid by the CWP. A further recommendation had been that the Department should link its databases with those of Home Affairs, to avoid the payment of deceased people. 

On Mr Mthethwa’s comments on AGSA’s formula for defining corruption, Mr Rakgwale argued that accountability included a commitment to being held responsible for one’s conduct. On the question of root causes, his view was that from senior management downwards, entities like DCOG had “literally less” commitment to addressing the issues raised by AGSA.  At others, like MISA, the CRL and MDB, there was commitment to investigate, but not much when it came to following through with consequences for those found guilty of irregular expenditure and other transgressions.

Mr Rakgwale added that should Members require it, a management report detailing the entire range of COGTA irregular expenditure within the current Medium Term Expenditure Framework period (which now stood at R2.3 billion) was available from Departmental records.

Regarding collaboration between the AGSA and internal audit committees, Mr Rakgwale confirmed that this was the case. The process had mixed results, but the major challenge was that even when internal audit had made recommendations on how to address concerns, there was “lack of movement” on the side of the Department’s senior management to implement those recommendations.

Ms Wademan added that on top of an unresponsive management, COGTA’s internal audit units also had to contend with lack of capacity to perform some of the tasks expected of them, with the result being audits which took a long time to complete.

To further illustrate the point, Mr Rakgwale cited the example of the CWP with over 250 000 participants, including a number of strategic partnership with implementing agents in different provinces. It was unrealistic to expect a team of auditors sitting in Pretoria to deal effectively with such a challenge.

Mr Rakgwale said there was an urgent need for a new conversation around whether or not the CWP could be better served by a more decentralised, provincially located auditing process. This could finally break the annual cycle of reports of irregular expenditure which had haunted the CWP since inception.

Replying to Mr Milehams’s question on how to intervene in DCOG’s crisis of internal controls, Mr Rakgwale said his view was that increased oversight might be the answer. He also reiterated the approach he had advocated above, essentially that repeat occurrences of irregular expenditure and other infractions had made it necessary to ask: for how long was government willing to put up with this state of affairs? What alternative mechanisms could be used to get out of an annual cycle of wasted public finances?

On holding the Minister accountable, Mr Rakgwale said his view was that the incumbent holder of that office was relatively new, having been appointed in February 2018. Compared to his predecessor, he still had a lot to do before making an impact in the portfolio.

Mr Rakgwale said it was standard procedure for the AGSA to hold sessions with Department officials where each audit finding was discussed before sign-off on the final audit report. Some entities showed commitment to the value of these engagements and took steps to address issues raised by AGSA before the final report was issued. Crucially, however, at consequence management, all the entities fell short of actually carrying this commitment through to its logical end. 

Mr Rakgwale said the relationship between the Department and AGSA was “generally good”. There was no hostility, as was sometimes the case with other departments. AGSA had even expressed a willingness to increase its engagement with entities by holding meetings bi-monthly instead of the usual quarterly.

Mr Mileham insisted that his question on the breakdown of irregular expenditure by entity had not been adequately addressed. Mr Rakgwale had suggested that the Department could be asked to provide the information as it had this at its disposal. What he only wanted to know was which entity had caused the increase in irregular expenditure and how much had each entity contributed to the new figure.

Mr Rakgwale said DCOG was responsible for the bulk (R331.1 Million) of the amount while the rest was shared by MISA, MDB and the CRL.
Mr Mthethwa was in full support of Mr Mileham’s request and added that it would be very useful to have an accurate breakdown on paper for later when the Committee sat down with the Department to discuss the audit report. He also expressed the possibility that a separate management report might be demanded of DCOG regarding the matter.

Mr Rakgwale suggested that an investigation report might also be a good idea to complement the Committee’s efforts to hold the management of DCOG to account.

Ms Maluleke also pitched in with her support for the idea of a comprehensive breakdown of the irregular expenditure during the current financial year. This would enable the Committee to know whether or not Department officials were “telling lies”. It was clear that the AGSA did not have the information available at hand but she urged that it be made available as soon as possible.

Mr Rakgwale continued to direct members to COGTA’s records but Ms Maluleke insisted that the AGSA provide the information to allow the Committee to make a comparison between what the Department was saying and what the Committee had obtained independently.

The Chairperson then intervened and said he was inclined to agree that the AGSA should consider the request. Personally, the main issue was the irregular expenditure incurred by the CWP. He agreed with Mr Rakgwale’s earlier remarks that a new discussion was long overdue on how to overhaul the administration of the CWP. This would be a political discussion in need of a political solution, which AGSA could not be part of.

The meeting was adjourned.