Committee 100 day Status Report; DIRCO Audit Action Plan; DIRCO Finance Branch performance

Meeting report

The Chairperson welcomed all Members to the virtual meeting and read the agenda to Members for adoption.

Rev K Meshoe (ACDP) made a request to the Chairperson asking if the Committee could be briefed on the current status of the issue of Prophet Bushiri who escaped to Malawi.

Briefing on the Report of the Portfolio Committee on International Relations and Cooperation on its achievements within the first 100 days of conducting oversight on the mandate of the Department of International Relations and Cooperation and its entity  

Ms Dineo Mosala, Committee Content Advisor, read the report to the Committee and explained the changes that were made to the report. She said that in terms of Sections 55 and 92 of the 1996 Constitution of the Republic of South Africa, the Portfolio Committee on International Relations and Cooperation (the Committee) is mandated to oversee and ensure accountability in the formulation and conduct of South Africa’s international relations policy. Consequently, the Committee conducts oversight on the activities of the Department including other activities carried by the Department and South Africa’s missions abroad on policies, legislation, financial spending patterns and administrative issues to hold the Department accountable for its operations and functions.

In terms of the oversight Model of Parliament of the Republic of South Africa, as a first challenge, the Committee identified the need to address the challenges with regard to the execution of the Committee’s mandate, as brought about by the current Oversight Model of Parliament of the Republic of South Africa. The Oversight Model is inward-looking in that it envisages the conduct of oversight (4-5 times a year) by sectoral committees to be carried out in provinces within the country. Any travel abroad by these committees is considered a ‘study tour’ which is allowed once in a five-year period. By its unique nature, the mandate of the Department is largely executed by the 125 South African Missions abroad. As a consequence of this uniqueness, the Committee has to oversee the activities of those Missions abroad as well.

The Committee was thus from the onset determined to exercise oversight on the Department and its missions abroad, and on the African Renaissance and International Cooperation Fund with equal vigour. As a result, the Committee resolved to approach the Presiding Officers to request that the Parliamentary Oversight Model should allow the Portfolio Committee to have more regular oversight visits to South African Missions abroad. This would enable it to have a holistic approach on the performance abroad of the Department.

The Auditor-General’s report depicts that the audit outcome on the performance of the Department has remained unchanged compared to the prior year. The Department received a qualified audit opinion in the current reporting year (2019/20) on receivables. This is a new qualification as the Department was qualified in tangible capital assets and cash and cash equivalents in the prior year (2018/19). The Department managed to address prior year qualification on movable tangible and cash and cash equivalents.

 Further concerns are highlighted to the effect that the preparation of financial statements remains a concern for the Department. Material adjustments had to be effected to the Annual Financial Statements (AFS) submitted for audit. Compliance with applicable legislation is another area of concern for the Department especially in supply chain management (SCM).

It was reported that the material misstatements in cash and cash equivalents that resulted in a qualification in 2018/19 were as a result of differences between the balances as per the cash book and the balances as reported in the annual financial statements. The root cause was a lack of proper reconciliations between the cash book and the actual bank accounts/statements and where there are differences no one was tasked with following up.

This matter was reported in the previous year and has affected the Department in prior years as well. Process management was followed to clear the qualification matter on prior year cash and cash equivalents. Management determined a plan to resolve the matter after consultation with the National Treasury.

To rectify the issue in the current year, a reconciliation of the cashbook and actual bank accounts were done. Management reconciled the cashbooks to the amounts of cash and cash equivalents as recorded in BAS (Annual financial statements) for 31 March 2019.

The unexplained differences under cash and cash equivalents and petty cash were then moved to a suspense account under “receivables” called “disallowance and damages account”. In terms of the accounting standards, this account is used to investigate transactions which are not clear to management.

The differences that could not be explained amounted to R188 million (2018/19: R140 million) which has resulted in a material misstatement of the disallowance account under “receivables”, as it could not be audited. Management has now committed to perform regular reconciliations in order to prevent similar issues in future. More reviews are to be done at a chief director level.

The Department continued with contracts which were irregularly awarded. One such contract is the bandwidth contract provided by the BT Communications for which the CFO was charged but not found guilty. The Department incurred irregular expenditure of R217 million in the current year. The majority of irregular expenditure was caused by contracts that were extended/varied without approval from the National Treasury.

The reasons for irregular expenditure were that the procurement of goods and services through transversal contracts were not in accordance with Treasury Regulation (TR) 16A6. The required three quotations were not obtained as required by TR16A6 and insufficient documentation on deviations process. Awards were made to suppliers who did not submit declarations as required by TR16A8.3. Contracts were extended/modified not in accordance with Treasury regulations.

The Department incurred unauthorised expenditure of R247 million in the reporting year. This is due to the compensation of employees ceiling implemented by National Treasury which not cover costs for the filled positions. It is also due to the depreciation of the Rand against major currencies which impacted expenditure incurred in foreign currency.

The Committee has expressed concern that the Department needs to seek an understanding with the National Treasury on this matter. It should be borne in mind that the budget is further impacted upon by foreign exchange fluctuations.

Ms Mosala said that the Department incurred fruitless and wasteful expenditure of R1.6 million in the reporting year. This was due to expenditure incurred for the upkeep of unoccupied state-owned properties abroad, where plans to put the properties to better use were abandoned. There was also reported cancellation of services, such as cancellation of flight tickets, prior planned functions.

Discussion

Mr T Mpanza (ANC) welcomed the report and proposed that the report be adopted. He asked where the report is going to be taken and that the responses of the Department will be covered in the next issue even though there were only a few weeks left.

The Chairperson responded by saying that the Committee had suggested that the report be submitted to the Chair of Chairs and to respective organisations.

Mr M Chetty (DA) said that the Committee had previously raised concerns on the matter of accountability on cash transactions and the R188 million in the report is the result of accountability. It is concerning why the amount was in cash and not cheque or EFT; it is difficult to understand the excuses being given for instance the fluctuation of the dollar and rand exchange rate. He said that it is alleged that there are people who are in a position to take money and they will probably continue doing so if there are no accountability procedures.

Ms T Msane (EFF) was of the view that the Committee has not taken a strong stance towards the findings of the Auditor General and the right steps need to be taken as money is being written off and there are no proper explanations. She suggested the Committee come up with a solution on how to deal with the matter as soon as possible on how they were to deal with the finance branch.

Mr B Nkosi (ANC) agreed with the previous speakers and added that it was evident that there is an attempt to write off the amount and that it is unacceptable. It is clear that the finance branch is doing things not by the book. He said that the Committee made recommendations before but the recommendations have not been taken into consideration. He suggested that the Committee check on the recommendations and retable them again to the Ministry and that SCOPA should also investigate the finance branch.

Mr Mpanza supported the suggestion of recommending the matter to SCOPA.

Mr D Moela (ANC) was of the view that the matter can be referred to SCOPA; he was concerned that the finance branch was not meeting the targets and it came across as the people employed in that branch do not have the required skills and the matter has been raised previously.

Response

Ms Mosala said that the recommendations made by the Committee were in reference to the audit of the skills. The Audit Committee pointed out that the findings were not conclusive because people were allowed to determine the criteria for assessments. The issue has been brought up by the Corporate Services Managers (CSM) as they are the ones who do accounts in the missions and it was mentioned in the meeting that they do not have the necessary accounting skills. The challenge is that there is a lack of good bookkeeping in the branches; they are not in a position to say what is going on as they cannot do proper bookkeeping. The capability and skills to deal with multinational currencies is also a problem because the Department requires people who are able to deal with more than 100 currencies. The Committee is aware of the performance of the Department on the political front and the problem is on the finance side of things.

The Chairperson said that in the previous meeting they had asked Ms Mosala to write to the Department and get the Audit Action Plan and she was supposed to provide profiles of those working at the finance branch.

The Committee Secretary said that they were still waiting for a response from the Department as they had sent an email the previous day asking for documentation.

Mr Mpanza asked why the letter was only facilitated the previous day because the issue was raised a while back.

Mr Chetty was not pleased by the fact that there was no letter sent to the Department in time because the resolution was that the letter had to be sent the previous week and it was not reasonable to expect a response in less than a day. He also said that it was unacceptable and there must be consequences towards the officials who are not conducting their duties on time and diligently. Mr Chetty pleaded with the Chairperson to ask the Minister to get a better understanding on the irregular expenditure and the extension of contracts. It is time that heads must roll so that the Committee can be taken seriously.

Ms Msane was concerned with the fact that the Committee had not received any documents from the Department. She wanted to know how the process is being done because previously there seemed to be some procedures followed and it is unclear at the moment if the backup staff is sending the requests on time.

Ms Mosala said the Committee Secretary will process the letters. She also said that she will try to get hold of the Director General so that they can get the documents required. The recommendations are still available and if the Committee was comfortable they could be tabled with the Department. She said that usually someone is employed as an overseer to see that no information is left out.

Ms Msane emphasised that the Committee was dealing with the issue of correspondence so that they can get a chance to deal with the issue, especially the fact that a letter was sent the night before is not acceptable. She asked if the letters were sent to the Department timeously. The issue of correspondence must be dealt with.

Mr Mpanza agreed with Ms Msane on the issue of correspondence to be dealt with first and after that then the Committee can engage in other discussions.

The Committee Secretary said that usually the Department sends documents to the Committee without being asked unless it is for specific documents. The documents being asked by Members were not sent by the Department.

Ms Msane proposed that the Committee should have a register that will keep track of what has been requested and received from the Department so as to avoid such scenarios.

The Chairperson suggested that the Committee Secretary write a letter immediately to the Director General so that they could expect a response by the end of the business day.

Mr Nkosi said the dilemma faced due to the irregular contracts is that if the irregularity is not regularised through the Treasury it will continue. The problem might be that the Department is afraid to go back to the Treasury considering that the contract was irregular. He suggested that the matter be taken to SCOPA and the Department can furnish the Committee with details of what they have done in terms of the recommendations. The broader issue is around the Department's capacity on contract management and to ensure that the contracts that they enter into do not bind them without an option to terminate. Supply Chain Management must be consulted in terms of contracts and keep track of the progress. It is important to have the audit plan as it helps with the planning.

Mr Chetty added to what Mr Nkosi had said, he stated that the irregular expenditure was costly. He was of the view that there must be journal entries to keep track of the monies used because the Department has not shown them how some of the money is being spent. The fluctuation rate is being used as an excuse. The exchange rate does not have a major impact on irregular expenditure. He also said that the contracts need to be regulated because if they continue like that it will be a problem, he gave an example of how the Department handled the issue of the building in New York and some of the people who were involved in the project did not do a proper job. He was of the view that people are doing as they please at the Department and they do not respect the Committee. Mr Chetty emphasised taking the issues to SCOPA so that there is accountability.

Mr Mpanza was in agreement with referring the issues to SCOPA, he said that there is an escape clause in most contracts and the legal department within the International Relations Department should have inputs before the Department signs contracts and this was evident that they were doing things their own way.

Ms Msane asked for an explanation on the secondment and if it meant that Treasury will be involved and how will it work. ‘Does the Committee have all the contracts’? She said that the finance breach is a problem but it must not be dealt with in isolation because the Department as a whole is a problem. The Department must be sent to SCOPA.

The Chairperson said that she had noted the issues raised by Members.

Ms Mosala explained that the secondment is done by Treasury but this time around it can be asked by the Committee and usually Treasury appoints someone who will oversee the process of the handing over of assets.

Ms Msane asked if the process can happen concurrently with the Department going to SCOPA and the Chairperson responded by saying that there is nothing wrong because the Committee can write to SCOPA.

The Chairperson closed the meeting by summarising the process to be followed should they want to carry on with the secondment and referring the Department to SCOPA as they could be done at the same time.

Meeting was adjourned.