Commission for Conciliation, Mediation & Arbitration: Forensic Audit report

Meeting report

Commission for Conciliation, Mediation and Arbitration (CCMA): Auditor-General’s Forensic Report
Mr Pramesh Bhana, Corporate Executive: Specialised Services, Office of the Auditor-General (AG) presented the forensic audit report on the Commission for Conciliation, Mediation and Arbitration (CCMA). He noted that when tenders were done in the CCMA, the four processes mandated by National Treasury (NT) were not followed. For every single one of the service provider tenders that the CCMA had put out there was some deviation from the established processes. When there was non-compliance with Supply Chain Management (SCM), this amounted to irregular expenditure. Until 31 December 2009, payments of R23.6 million by the CCMA were thus regarded as irregular.

Mr Bhana explained that if tender amounts were below R200 000, as set out on page 5 of the AG’s report, then the entity may be able to select a preferred vendor on the basis of three quotations. However, there was deviation even from this mechanism. There were also instances of inconsistent scoring of tenders amounting to R179 000 and R375 000, which was of concern since the scoring was to be done as an absolutely objective task.

If tender amounts were above R200 000, then SCM procedures must be followed. However, there were instances where comparative bids for an amount of R368 000 were not done. No tender process was followed for another appointment of a service provider, for services that were worth R600 000, but only a quotation process was followed. This R600 000 was the total being charged for similar services done by the same company, and, in order to avoid a tender process, the total figure was split into a number of figures below R200 000.  

Mr Bhana said that proper financial management involved a number of aspects, including proper management records, maintaining adequate governance arrangements, having adequate monitoring ,supervision and review. He believed that the CCMA could have had better monitoring and supervision.

Ms Caroline Mpuru, Business Executive: Investigations, Office of the Auditor-General, addressed the issue of fruitless and wasteful expenditure. There was a payment of R11 million owed to the South African Revenue Services (SARS) for Pay As You Earn (PAYE) tax, which the CCMA neglected to pay for part-time commissioners for 2003/04 and 2005/06. The CCMA had realised its failure to pay SARS and had negotiated a settlement figure of R11 million, and this amount was set out in the Annual Report for 2008/09. In August 2009, CCMA had to pay a R11  000 fine to the Provident Fund for late payment. It was further found that the CCMA covered travel expenses for commissioners who were employed by the head office in Johannesburg, but lived in other provinces. Between December 2008 and December 2009, this figure amounted to R1.2 million, although this was not regarded as fruitless and wasteful expenditure, since it had been covered in the contracts with the commissioners.

In contravention of the existing policy of CCMA, an advance payment of R73 000 was given to a part-time commissioner. CCMA had acknowledged this and sought to recover the funds. 

The CCMA had also opened a bank account without prior approval from NT, but was now in the process of closing this account. 

Ms Mpuru said that the AG’s findings indicated that the Governing Body (GB) of the CCMA should consider taking action against the employees responsible, in terms of the Public Finance Management Act (PFMA) for irregular expenditure on service provider tenders. Furthermore, the GB should try to recover the unpaid taxes from commissioners. CCMA also needed still to calculate amounts not captured due to lack of documentation. Once the full amount of fruitless and wasteful expenditure had been calculated, it must be reported. Ms Mpuru said that it seemed there had not been proper oversight at the CCMA.

Discussion
Ms A Rantsolase (ANC) asked whether the CCMA matter was high-risk, low-risk or an issue of housekeeping. She asked what the AG’s findings were, and whether the PFMA was not followed to the letter. She was not quite sure how to proceed, as the CCMA management had responded to the findings. She asked whether the recommendations were accepted or rejected, and whether the matter was still sub judice. If it was just a matter of housekeeping then it needed to be sorted out by CCMA management and the Office of the Auditor-General, not the Portfolio Committee.

Mr Bhana replied that the mandate given to AGSA was clear – it was not a court or prosecuting authority, but merely investigated a matter, established the facts, and wrote a report on those facts. Here, the facts indicated non-compliance with prescripts. Whether this was the result of gross negligence or intent would be established through another process, either of internal disciplinary hearings or through the courts. Public procurement was always high risk, as it made use of public funds, even before issues of fraud or corruption arose. Because there was higher risk stemming from public procurement, there were good public procurement prescripts. If poor practices were not curbed they could lead to future high-risk issues. The AGSA had found non-compliance with NT practice notes and guidelines. Because the role of the Committee was to ensure that an institution did proper monitoring, this was an indication that perhaps the Committee should call the CCMA board to account.

Mr W Madisha (COPE), said that all issues related to improper financial governance and inadequate monitoring services. He asked how long this had been the case at the CCMA. He asked who was responsible for the people who were employed, pointing out that there appeared to have been improper payments to SARS. He asked whether SARS was unable to say that this amount needed to be returned, whether anyone had checked with SARS whether this was possible, and if not, then there was a need to look at the capabilities of SARS.

Ms Mpuru replied that with regard to SARS, the CCMA had realised its error and had engaged with SARS. The AGSA had therefore not deemed it necessary to engage with SARS further. The CCMA had corrected its procedures.

Mr M Masemurule (ANC) said that in certain areas it had been pointed out that there were no documents, but the AGSA had not elaborated on how they treated that issue.

Ms L Makhubela-Mashele (ANC) referred to the splitting of the R600 000 into smaller amounts that did not exceed the quotation threshold, in order to avoid the tender process, and asked whether there was any evidence of CCMA procurement officials colluding with service providers. She also asked how the AGSA had dealt with the matter.

Mr Bhana replied that the AGSA had looked at payment documents, which clearly showed that total payments were made to one service provider for similar services which added up to R600, 000. It was obvious what had happened.

The Chairperson asked for clarity why it was problematic for the CCMA to have opened a second bank account. She asked whether the CCMA was compliant, with regard to the account, when the AGSA had started its investigation. She asked when these irregularities occurred, and for how long they had extended. She also asked for how long the CCMA had made use of commissioners who commuted from other provinces, and what CCMA had flouted by allowing payment of travel expenses to occur.

Mr Bhana replied that the AG’s investigation had covered 2007/08 and 2008/09 financial years. However, in some cases, where documentation was unavailable, the issues went back as far as 2001. It was important for the CCMA to indicate how it had tightened up controls since then.

Ms Mpuru replied that with regard to the bank account, the CCMA had invited financial institutions to submit proposals in May 2008, and had opened the account in October 2008. However, only in December 2009 did the CCMA ask for retro-active approval from NT. The AGSA had established that in January 2010 the account was still open. It was not certain what the current status of this account was.

In regard to the procurement, she said that there was a common thread that the amounts were approved, yet the actual amounts paid in terms of the contracts were in excess of the approved amounts. Contracts were also not dated and signed properly. These were indications of an inappropriate tone of management.

Ms Mpuru then noted that, in regard to commissioner travel expenses, the CCMA had explained that these were necessary because of scarce skills. She believed that it was the prerogative of the institution to decide on how to fill its posts, but suggested that perhaps it was necessary to consider whether this was a sustainable option, although it was not the place of the AGSA to make a judgment call on that.

Mr Bhana agreed that the CCMA had responded to some of the issues. The responses did not change the facts, although they did establish context, which provided a balancing view to the allegations of fraud. There would be a need for the Committee to discuss this context in detail with the CCMA.

Mr A Louw (DA) said that he was not quite clear on the split quotation issue. On page 5 of the report there was reference to a figure of R612 760, which meant that there was clearly a contravention of the SCM procedures. He asked whether this was due to negligence or was done to deliberately keep other service providers out.

Mr Bhana responded that the R612 760 tender split was serious and significant, because it related to public procurement. This kind of situation should be addressed by perhaps taking action against the individuals responsible, and ensuring that the system was regularised. The AGSA was unable to state with certainty whether there had been collusion, as it had occurred sometime ago. From the evidence it seemed that this may have happened, alternatively an official may have simply recorded it this way to avoid the more laborious process of tendering.

Mr Louw noted that the PFMA was very clear about the advantages and disadvantages of payments related to part-time commissioners. He asked what was wrong with advancing an employee money if this would be recovered later. He also asked whether there was any appointment of people without due process, owing to favouritism.

Mr Bhana replied that the AGSA had indicated that it had found nothing wrong with the appointment of individuals.

Ms Mpuru added that that the point around the advance was that the CCMA had a policy stating the amount that could be advanced , but that the amounts approved were in contravention of their own policy.

Mr I Ollis (DA) noted that usually when an audit of this nature was done, it would be preceded by the Standing Committee on Public Accounts having identified a problem and reported it to the AG. He asked whether this procedure was followed for the CCMA, and whether the letter of engagement of the AGSA was signed by Mr Jimmy Manyi, Director-General of the Department of Labour (DoL). He asked who specifically had asked the AGSA to undertake the investigation. He also enquired if the AGSA had found misappropriation of funds, fraud, theft or the favouring of family and friends in tender awards. A number of the problems seemed to have occurred through incorrect supervision and monitoring of staff. He asked whether there had been any fraud involved with the SCM and noted that the amount of R23 million was reported in the financial statements of the CCMA.

Mr Bhana replied that the request was made to the AGSA from the Minister of Labour, following a report by a whistle-blower. The AGSA had discussed the matter with the Director General of the DoL, who then requested an investigation, stressing that the Portfolio Committee on Labour wanted the issue looked at. Normally the AGSA would engage with the Minister, but in this case Mr Manyi was acting on behalf of, and was authorised by the Minister to sign the appointment letter. No requests had been received from SCOPA. Mr Bhana pointed out that it was not always Parliament who requested investigations, as Ministers also did so. The AGSA had spent a lot of time with the executive authorities in order to clarify what the AGSA had found, including a detailed discussion with the Minister after the report was finalised.

Mr Ollis then said that Mr Bhana’s answer implied that the Director General of DoL had given Mr Bhana the impression that the Committee had wanted this investigation done. This was news to the Committee, as Members were only made aware of the process after the report had come out. He added that he needed assistance in understanding the significance of the AG’s report. He acknowledged that it was not the Auditor-General’s place to enforce, but that the AG’s representatives had avoided answering the questions as to how serious the issues were. The DA’s Research Office had come to the conclusion that the issues were minor. He asked for input on this.

Mr E Nyekembe (ANC) asked if the AGSA was saying that it only made recommendations, and that, in respect of this report, it thus expected the CCMA’s GB to act on the recommendations, and the Committee to play an oversight role, using these recommendations.

Mr Nyekembe noted that the AGSA had been approached by the DoL, and agreed that there had been whistle-blowing, which had come about as a result of the CCMA having presented its Annual Report to the Committee, and the Committee having asked questions on certain issues. The Committee had pointed to contradictory statements in the CCMA’s Annual Report, which indicated that there were irregularities. He added that it was necessary to contextualise how the interest of the Committee had been raised.

The Chairperson said that the AG’s investigation was a result of a decision by the Committee to do an investigation, after Mr Nyekembe had brought forward the whistleblower, who was one of his constituency. She had then written a letter to the Director General of DoL, asking for a forensic investigation, as certain matters and disclosure issues could only be determined by such an investigation. She was aware that Mr Ollis had never seemed to be interested in the report and in making the CCMA accountable for its actions, but was surprised by his statement that the report had not previously come before the Committee. She commented that the DA had consistently blown a number of small issues out of proportion, but was dismissing a substantial issue.

Mr Ollis replied that he did not see the letters that the Chairperson had written. He said that he was not dismissing the report, and that he had studied it in detail. He added that the Committee did not know about the report until it came out and he did not know that the Chairperson had asked for a report from the Auditor-General.

The Chairperson replied that she had written to the DoL, as it was her duty to follow up on the decisions of the Committee. She added that Mr Ollis had asked her about the report in previous meetings and was therefore surprised that he was not aware of it. She stated that it was not true that the Committee was not aware of the report.

Mr Madisha said that the AG’s report was correct. He pointed out that issues of workers losing their jobs permeated the country, due to lack of services such as the CCMA. He noted that some of these issues went back as far as 2001. He asked what exactly the DoL had done to address them.

Mr Bhana replied that the Executive Authority over the CCMA was the Minister, not the DoL, and that the CCMA needed to be accountable to the Minister.

Ms F Khumalo (ANC) asked why deductions for PAYE had not been made from part-time commissioners, as she understood that every employee was supposed to have PAYE deducted from their salaries.

Ms Rantsolase also referred to this point, and asked why the payment to SARS could be considered as fruitless expenditure, since every employer had to deduct PAYE from its employees and pay over to SARS. She asked whether the employees had refused to give the money to SARS.

Ms Mpuru replied that Ms Rantsolase was correct that the CCMA was supposed to make deductions and pay SARS. CCMA had not done so. This was the reason why it had then needed to negotiate and reach a settlement figure with SARS.

Mr Bhana added “irregular expenditure” was defined as expenditure where there was no compliance with prescripts. Some tenders and the awarding of contracts were irregular.

Mr Masemurule asked whether the AGSA did not find that CCMA had compelling reasons to open the new bank account.

Ms Mpuru replied that the CCMA felt that it was paying excessive bank rates, but this could not be verified. Whatever the reason, prior approval from NT for this was needed, and CCMA had neglected to obtain approval.

The Chairperson said that the CCMA, in its 2008/09 Annual Report, had made a disclosure of R11 million as irregular expenses. However, she noted that the forensic report came up with a figure of R23.6 million. She asked what the AG’s own evaluation of the discrepancy was.

Mr Bhana replied that the R11 million in 2008/09 related to fruitless and wasteful expenditure in relation to SARS. The figure of R23,6 million was the total amount of wasteful expenditure, although this had been stated as R3 million in the CCMA’s Annual Report. He clarified that the AGSA was not saying that the remuneration of part-time commissioners was considered wasteful, as travel was covered in their employment contracts, but rather that the AGSA had queried whether it was really necessary, although it may be legally allowed, to source people who were not living in Johannesburg.

The Chairperson said that the R11 million was money pad by the CCMA to SARS from the DoL’s coffers. She asked for clarity on how much else was regarded as wasteful expenditure.

Ms Meisie Nkau, Business Executive, Office of the Auditor General, replied that the 2008/09 financial statements of the CCMA showed a figure of R3 million, but that the AGSA had discovered a further R23 million had been found.

The Chairperson stated that then there was also a problem of under disclosure.

Ms Nkau added that the figure could exceed R26 million.

Mr Bhana recommended that the CCMA’s board must determine exactly how much the irregular expenditure had been.

Ms Mpuru said that the investigation of the AGSA had covered the three years of 2008, 2009 and 2010.

The Chairperson asked what Mr Bhana’s own assessment of the role of the CCMA’s GB in oversight had been. She noted that there had been flouting of the CCMA’s own policies. She asked whether he could say that the GB had performed its fiduciary duty, and whether there was a need for the GB to improve.

Mr Bhana replied that the GB had failed to perform its duties. It was clear from the AG’s report that at the outset there was an incorrect interpretation of the SCM prescripts of NT. When the CCMA developed its own system and its own SCM policy, these were not in line with NT prescripts. The AGSA explicitly felt that leadership oversight needed to be strengthened.

Committee’s Report on Oversight Visit to Labour Centres in the Provinces from 17-21 May: Adoption
The Chairperson asked Members to raise any issues with the Committee Report on the Oversight Visit to Labour Centres in the Provinces (the Report).

Mr Ollis said that on page 5 it should be noted that the building did not have a fire extinguisher and was condemned by the inspector.

The Chairperson agreed that this should be included.

Mr Nyekembe said that there was a typographical error on the second bullet point from the bottom of page 5. He also asked that the “Recommendations” section should refer to ‘instances when’ rather that ‘instances where’.

Mr Ollis said that he had heard from the Director General of DoL that he had been unable to get the Department of Public Works (DPW) to sort out problems at labour centres. He thought the Committee should record that the Director General, Minister of Labour or Parliament should approach the DPW. Something needed to be done.

The Chairperson said that both the Director General of DoL and the Minister should approach their counterparts in Public Works.

Mr Ollis agreed.

Mr Nyekembe said that reference to this should then be inserted on page 5.

Mr Louw suggested that the Report should contain wording to the effect that ‘The Portfolio Committee of Labour urges The Minister of Labour to speak to his counterpart’, otherwise the issue would just hang in the air.

Ms Rantsolase said that it should also be added that ‘The Minister of Labour needs to meet his counterpart in the DPW to ensure adequate facilities’. There was a dire situation in regard to staffing and capacity in the areas that the Committee had visited.

The Chairperson suggested that the wording to be added should then read: ‘The Minister of Labour must approach his counterpart , the Minister of Public Works, to address and fast-track the question of proper offices and facilities.’

Ms Rantsolase said that the Committee must ensure that the Minister of Labour did make provision for proper capacity at the labour centre offices.

Ms Maserumule said that sometimes the Committee made recommendations that were not followed through, and that the Report should therefore stipulate a 30 day timeframe for a response.

Ms Rantsolase agreed with this timeframe.

The Chairperson asked if there were any suggestions or corrections to page 10 of the Report.

Members did not have further comments and the Report was adopted, with the amendments proposed.

Adoption of Committee Minutes for 20, 22 and 23 July 2010
The Minutes of 20 July were tabled and adopted by the Members.

The Minutes of 22 July were tabled.

Ms Rantsolase thought that the Minutes should note the reasons for Members’ apologies.

The Chairperson replied that letters of apology were kept on file and could be referred to if needed.

Mr Louw asked whether it was correct that the Committee was receiving apologies on time, or if they were given only on the morning of the meetings.

The Chairperson replied that while apologies were noted, this did not necessarily mean that they were accepted.

Mr Nyekembe said that late apologies could happen if a person had been taken ill.

Members adopted the minutes of 22 July 2010.

The Chairperson tabled the Minutes of 23 July 2010.

Mr Nyekembe referred to page 3, point 13, under ‘Challenges’, and said that while these formed part of the briefing, the minutes should also reflect the decision that the Committee took to say that all departments who were on the Inter-Departmental Task Team (ITT) needed to take financial responsibility.

The Chairperson asked Mr Nyekembe to explain this.

Mr Nyekembe said that the ITT comprised the DoL, Department of Human Settlements (DHS), the Department of Social Services (DSS), the Office of the Deputy President and the Premier’s Office in the Eastern Cape. When it came to accommodation for ex-mineworkers, this was the responsibility of the DoL alone. However since the ITT spanned several departments, the DoL needed to liaise with the Director Generals of the other departments to share the financial burden.

The Chairperson suggested that point 1 be replaced with what Mr Nyekembe had said.

Ms Rantsolase suggested that point 1 should be left as it was, but that another sentence should be added that all departments should contribute, as there was no budget allocated.

The Chairperson agreed.

The Chairperson asked whether the Committee wanted special staff allocated to the task team.

Ms Rantsolase said that it should be mentioned that people in the ITT should be released from other responsibilities while serving in the ITT.

Mr Nyekembe said that these were the challenges raised by the ITT, and that the budgetary issue was one of the reasons why the ex-mineworkers were not being attended to. However, the suggestions to amend point 1, which spoke to the budget, were Committee resolutions as to what had to be done to address these challenges. Thus while he agreed with Ms Rantsolase, he stressed the need to be specific.

Ms Rantsolase replied that there was still a need for staff to be released from their other duties in order to speed up the process. The Committee needed to talk to what the budget needed to achieve.

The Chairperson agreed with Ms Rantsolase, and said that on the basis of the challenges the Committee needed to make recommendations. The first one was that all departments needed to take financial responsibility and that full-time staff should be allocated to these matters.

Mr Louw said that last year he had said that the minutes needed to be forwarded to members on the day before every meeting. Although the situation had improved, it would make it much easier if Members could formulate their comments and suggested amendments prior to the meeting, then voice them at the meeting.

The Chairperson replied that the reason why the minutes were sent ahead of time was precisely for advance comment. She agreed with Mr Louw, but said that this was supposed to be the case already.

Ms Rantsolase said that it was appropriate that comments should be prepared in advance, but that consensus still needed to be sought in the actual meeting.

The minutes of 23 July 2010 were adopted with amendments.

The meeting was adjourned.