DIRCO’s implementation of Audit Plan: briefing by Audit and Risk management committees

Meeting report

The acting Chairperson said that the Chairperson might join later. The Committee noted that the Audit and Risk Committee reports similar to the manner in which the Department of International Relations and Cooperation (DIRCO) reports. The Committee expects the Audit and Risk Committee to be an independent body providing oversight of DIRCO. The Audit and Risk Committee must present an unbiased assessment of DIRCO. This assessment needs to be clear on reasons DIRCO did not reach its targets and why audit opinions have not been implemented. This informs the Committee and allows its members to engage with DIRCO on its quarterly and annual financial reports. The Committee expects a different report.

DIRCO Audit Committee update on implementation of the audit action plan and risks negatively impacting on the financial performance of the Department

Ms Ayanda Mafuleka,Chairperson: Audit and Risk Committee,lead the presentation and introduced her team.

Challenges:

● Budget overspending on the compensation of employees;

● Underfunding for certain expenditures, such as international transfers, foreign exchange losses, summits and conferences (unfunded mandates), leases abroad, among others;

● Recurring irregular, fruitless and wasteful expenditure;

● Non-implementation of consequence management;

● Challenges in the maintenance and the reporting of assets (in the asset register); and

● Leadership deficiencies in some parts of the Department, resulting in a culture of impunity and low staff morale

Recommendations:

● Review South Africa’s presence in some of the missions abroad;

● Review South Africa’s membership in some international organisations;

● Consistently engage with the National Treasury for any potential unfunded mandates;

● Implement the property acquisition strategy;

● Investigate all irregular, fruitless and wasteful expenditure which occurred and take corrective action;

● Management to regularly report on disciplinary matters and cases;

● Conduct a culture survey and implement the recommendations timeously and break the culture of impunity within the Department; and

● Migrate the asset data from an excel spreadsheet to an Asset Management Software and conduct regular physical asset counts and follow up on the exceptions from the count

Observations from the Audit Action Plan

Delayed conclusion of the 2019/20 external audit process, i.e. report signed off on 30 September 2020, effectively six months into the end of the financial year. Despite the Audit Committee highlighting to the management team the need to give immediate attention to resolve the Damages and Disallowances Account in 2020/21, the extent of the work and complexity involved was under estimated, resulting in a "too little too late” situation.

DIRCO had an inadequate causal analysis performed when they were developing the plan, for instance, the perceived lack of capacity, skills and experience within the Financial and Asset Management Unit has not been addressed anywhere in the plan.

Internal assurance providers (Internal Audit and Risk Management) are not adequately capacitated to execute their mandate in full, for instance, the analysis of the root cause was inadequate; internal audit is unable to adequately do follow-up audits once implementation has been completed.

The Audit Action Plan itself was inadequate as it did not include the Internal Audit findings nor detailed actions and target dates required by the management team as assurance; this was subsequently addressed.

At times Internal Audit is perceived to be less important (by the management team) as compared to the Auditor General. This points to a lack of understanding the value of internal audit and incorrect comparisons with other assurance providers.

The audit action plan is not fit to deal with the design of the control to address the root cause followed by the implementation of the control from a specific point in time.

Internal Audit provided limited assurance on the annual financial statements before submission to the external auditors on 31 May 2021.

Other risks negatively affecting the financial performance

A number of ICT-related findings have not yet been resolved (only two of 14 have been resolved), primarily due to, among other things, budgetary constraints on the filling of vacant posts, obsolete infrastructure and system limitations that require financial resources for redesigning. The Audit and Risk Committee also identified excessive spending on the lease for the New York Mission, and the Mission moved to the new leased premises on 1 June 2021 without a contract.

There is also a protracted organisational structure review process: After more than two years, the process is yet to be concluded. Consultations are still ongoing, and likely to be concluded within three months. This is further compounded by the current unusually high vacancy rate. The envisaged savings may take longer to realise.

There are various property management challenges such as the continued backlog in maintenance and renovation activities caused by a lack of a fully-fledged and professionally staffed property management portfolio unit at the head office, as well as in missions.

There are delays in the implementation of the Foreign Service Act, mainly caused by a delay in finalising the regulations. Anticipated improvements in areas such as governance, professionalisation of the foreign service, and efficiencies and coordination during the implementation of foreign policy may not be realised.

There are also delays in establishing the Contract Management Unit (to track the contract end dates so as to proactively start procurement processes, monitor the performance of service providers, amongst others).

Discussion

The Acting Chairperson reminded the audit committee of the remarks of the Chairperson. The Committee observes that the audit action plan addresses concerns raised by the Auditor-General. However the oversight recommendations made by the Committee, aimed at improving accountability, are not being followed up. Issues of oversight concern keep reappearing and needs to be addressed urgently. He asked what is being done to improve consequence management, and referred to the New York Pilot Project: Only two officials have been suspended and everyone that was involved needs to account.

Rev K Meshoe (ACDP) agreed that more needs to be done on consequence management. The Committee has asked about the suspension of the DG and has received no information on why the DG was suspended. He asked how much the charter flights costed the Department, as well as how many charter flights were taken and to which destination. Some of the assets on the asset register could not be physically verified; he asked whether these assets were recovered or if an investigation was underway.

Mr B Nkosi (ANC) found it contradictory: On the audit action plan it indicated that management had done nothing to investigate the root causes and have not developed targets measurable to the satisfaction of the Audit and Risk Committee, yet the presentation concludes there is positive feedback from DIRCO. He asked if when DIRCO closes a mission would termination of employment also occur, and what are some of the items DIRCO will save money on. He also asked what the sustainability is over the medium-term of cutting compensation of employees with the purpose of reducing the deficit on DIRCO’s budget. Further, he asked what the progress was on the disallowance fund and why DIRCO is continuing to accrue expenses from irregular awarded contracts. He asked who else is being charged on the issue of the New York Pilot project. He asked what the remaining revenue in the disallowance account was.

Mr X Nqola (ANC) said that overspending is one of the main reasons some missions are being closed. He asked if this was the most effective way of cutting down on spending, and asked which missions are being closed, which missions are already closed and what criteria was used.

If wasteful spending is recurring, this means either no measures are being taken to stop it or existing measures do not work. He wanted to know how it would be solved. He agreed that more people needed to be held accountable on the New York Pilot Project.  He asked why DIRCO was struggling to appoint people in all their funded posts. He asked what the holdup was in filling vacant posts. He then proposed the Portfolio Committee note the action plan and further discusses it.

Mr D Bergman (DA) said historically DIRCO’s asset register had always been a problem. Movable and immovable assets always seem to be improperly recorded on the register. He said that the data on which DIRCO depends are not very reliable and that the Portfolio Committee cannot trust such data. He warned the Audit and Risk Committee to watch out for the reliability of data provided to them from DIRCO.

Ms T Msane (EFF) said news just came in that DIRCO lost the court case to set aside the New York contract, and that DIRCO would appeal. She asked what the implications were of this judgment and the appeal.  She asked how far along the process was in appointing a new ICT contractor. Further, she wanted to know what the diplomatic risks of closing missions and having dilapidated buildings abroad are. She said that having workshops is not effective consequence management because they needed to be more drastic. Officials, she said, need to pay money back or get arrested.

Response

Ms Mafuleka said the suspension of the Director-General is a labour issue which remains the responsibility of the management team. The Audit and Risk Committee has not been involved in this matter and has not seen a charge sheet. The Audit and Risk Committee is currently discussing this matter with the Minister.  The Audit and Risk Committee asked the Minister whether the suspension will have any effect on the Department and the Minister assured the Audit Committee it was a personal issue between the CFO and the DG, and did not divulge any further information.

The Charter costed a minimum of R7 000 depending on the destination. Reasons for charter flights vary: it might be for an emergency, or perhaps an official needs to be at a destination to which it is hard get using a commercial flight. One of the reasons the Audit and Risk Committee flagged these flights was because some of them were procured outside the existing contractor. The total cost of the flights was R800 000. The asset register issue included the fact that some of the assets were not immovable, were not captured correctly, and were not linked to the accounting records. This does not necessarily mean any irregularity, it just means the assets were not captured correctly but were physically verified.

DIRCO has already closed missions in Italy, the Port of Spain, Oman, and others in a small town in Russia and in Belarus. There are a few that will be closed by September which is in Milan, Bucharest, Lima and the mission in Chicago. Termination of employment will unfortunately happen but DIRCO will take into account the labour laws within these countries. The issue of sending notices of termination of employment has also delayed closing missions but retrenchment packages will be made available. The line items on these missions include legal fees, leasing of property, compensation and services. DIRCO will look at other ways into how it can save cost and these line items might increase. DIRCO is also looking at buying instead of leasing.

The Audit and Risk Committee will respond in writing on disallowance as it did not have much information on this matter. The balance was sitting at R49 million, but this might have changed and therefore needs to be confirmed. The contract with BT Communications could not be cancelled and is the only contract DIRCO could not terminate because it relates to IT network services. The process to appoint another service provider has not been finalised and there needs to be continuity. The tendering processes for a new service provider is at the invite stage, and is taking longer than expected due to the complexity of the tender.

Once investigations are concluded steps will be taken against officials in various forms, for instance suspensions and the laying of criminal charges. There are bid Committee members that were asked to provide DIRCO with reasons why they should not be suspended and charged for their misconduct. The responses are currently being studied by the labour unit. The irregular spending framework has not been followed strictly by DIRCO but steps are underway to improve this. The Audit and Risk Committee has been monitoring this and continuously provides advice.

The Acting Chairperson thanked the Audit and Risk Committee. He said one of the reasons DIRCO is not present at this meeting is because the Committee wanted to have an open engagement with the Audit and Risk Committee, and that this will be the norm going forward.

The meeting was adjourned.