Progress in resolving implementation of IFMS: National Treasury briefing; with Minister

Public Accounts (SCOPA)

07 March 2023
Chairperson: Mr M Hlengwa (IFP)
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Meeting Summary

The Standing Committee on Public Accounts (SCOPA) convened in Parliament to receive a briefing from the National Treasury on the progress in resolving matters regarding the implementation of the Integrated Financial Management System (IFMS).

National Treasury (NT) told the Committee that the Auditor-General of South Africa (AGSA) regarded the IFMS spending as fruitless and wasteful for five consecutive years from 2017/18. The NT had pointed out that the IFMS project was implemented jointly with the DPSA and the State Information Technology Agency (SITA), but the NT bore sole responsibility for spending and audit. The NT had consistently regarded IFMS spending as a contractual commitment, and not fruitless and wasteful.

It had committed to SCOPA to close the audit process for its 2021/22 financial statements, even as it was in dispute with the AGSA. For 2021/22, the AGSA had agreed with the NT’s submission that IFMS licences were capital work-in-progress, so the NT believed that the support and maintenance should be treated the same. AGSA’s view was that either the NT declare in a note that it was fruitless and wasteful expenditure, or the NT's financial statements would be qualified. A legal review between the NT and AGSA was still in progress for the future audit cycle. The NT was engaging with Oracle to renegotiate the contract, to take account of the AGSA’s concerns. 

The implementation of the IFMS depended on stabilisation, meaning that investigations needed to be completed and steps to address the recurring challenges with service provider procurement needed to be taken. Renegotiation of the current IFMS contract also needed to happen, as per the AGSA’s recommendation, which NT was negotiating with Oracle on the current contract. The negotiations included the consideration of a cloud solution due to modernised technology.

The NT was also in discussions with Oracle on the payment of the current year's licence support and maintenance fees, pending a decision on the cloud solution. It was anticipated that negotiations would be finalised in the first quarter of the 2023/24 financial year (FY). In terms of the rollout, implementation of the pilot system would be initiated in 2023/24, and the IFMS would be rolled out in 2024/25. 

The Committee was disappointed with the presentation by the National Treasury, as it did not reflect on the progress that had been made, nor did it respond to the Committee’s November request that all the stakeholders meet within 14 days and take the matter to Cabinet if needed, and to respond to the Committee in 90 days on whether the IFMS would continue to be implemented.

The Committee was more interested in the details of the implementation of the pilot system in the 2023/24 financial year and its rollout in 2024/25, and wanted to hear in practical terms the details of the implementation and how it was going to happen. It also agreed to hear the outcomes of the Special Investigating Unit's (SIU’s) investigation into the R1.1 billion shortcomings in the IFMS after the conclusion of the investigation in May.

Meeting report

The Chairperson welcomed Members and congratulated former SCOPA Members,   Ms N Tolashe (ANC) and Ms B Swarts (ANC), for being elected as Deputy Ministers by the President during his Cabinet reshuffle on Monday. He welcomed National Treasury, the Department of Public Service and Administration (DPSA) and its Acting Minister, Mr Thulasi Nxesi, and the Special Investigating Unit (SIU) to the meeting. He had also received an apology from the Minister of Finance, who could not attend the meeting.

The Integrated Financial Management System (IFMS) was a perennial headache in terms of the audit outcomes, and the Committee had agreed with the Minister of Finance that there should be a broad meeting of all the relevant stakeholders on the matter.

Minister’s opening remarks

Minister Nxesi said the stagnant implementation of the IFMS had led to several challenges and had delayed transformation. Through the DPSA, the IFMS was linked to the entire human resources management (HRM) system, and once its issues were resolved, several areas within the Department could be resolved. Former Minister Ayanda Dlodlo had previously withdrawn the Department from the programme before her departure, but Minister Nxesi, after receiving an update on the merits of the system, had written a letter to Minister of Finance, Mr Enoch Godongwana, informing him of the DPSA’s commitment to collaborating with the National Treasury on the IFMS programme. The DPSA saw the IFMS process as necessary, but it did not want endless mismanagement and wanted the programme to be implemented as soon as possible. The DPSA was abiding by the Cabinet decision regarding the implementation of the IFMS.

Progress report on IFMS by National Treasury

Mr Ismail Momoniat, Acting Director-General (DG), National Treasury (NT), said the Auditor-General of South Africa (AGSA) regarded IFMS spending as fruitless and wasteful for five consecutive years since 2017/18. National Treasury had pointed out that the IFMS project was implemented jointly with the DPSA and the State Information Technology Agency (SITA), but the NT bore sole responsibility for spending and audit. The NT had consistently regarded IFMS spending as a contractual commitment, and not fruitless and wasteful.

It had committed to SCOPA to close the audit process for its 2021/22 financial statements, even as it was in dispute with the AGSA. For 2021/22, the AGSA had agreed with the NT’s submission that IFMS licences were capital work-in-progress, hence the NT had believed that the support and maintenance should be treated the same. AGSA’s view was that either the NT declared in a note that it was fruitless and wasteful expenditure, or its financial statements would be qualified. A legal review between the NT and AGSA was still in progress for the future audit cycle. The NT was engaging with Oracle to renegotiate the contract, to take account of the AGSA’s concerns.

Ms Laura Mseme, Chief Operating Officer (COO), NT, said Treasury had received a qualified audit. The AGSA was of the view that the Department did not record the R68 million payment for technical support and maintenance as fruitless and wasteful expenditure, and that the historical balance had been incorrectly removed, resulting in an understatement of R400 million in the disclosure note. In the NT’s view, the payment was not made in vain, as failure to do so would result in legal and financial implications for the Department. To date, none of the expenditure had been regarded by the AGSA or any of the forensic investigations completed as suspicious or inappropriate from a criminal law perspective.

This payment was made annually to ensure automatic access to updated versions of licences, software and security patches and specialised technical problem-solving in preparation for the full implementation. If the licence support and maintenance fee was not paid, discounts would be lost, and penalties and back-payments would be incurred. The Department was still engaging the AGSA through exercising its rights in respect of the audit objection process, as well as obtaining legal advice with the sole objective of clarifying the principle of fruitless and wasteful expenditure and its treatment, in the interests of government–wide treatment of such large co-managed multi-year projects.

Mr Shabeer Khan, Head:Office of the Accountant-General, said they had no choice but to implement the IFMS to modernise the financial management system within national and provincial governments. The importance of modernising and automating government’s financial, procurement, human resources, planning, monitoring, and reporting systems, had become more urgent, given the limited resources and skills available to support and maintain the current modified cash-based legacy systems at an increasing cost. The current legacy systems were archaic in functionality and inflexible in processing, as such they could not be modernised to fully meet the needs of government, and suitable service providers had become reliant on the higher tier commercial off-the-shelf (COTS) products, with custom and bespoke development within such systems becoming ever more uncommon.

The implementation of the IFMS depended on stabilisation, meaning investigations needed to be completed and steps to address the recurring challenges with service provider procurement needed to be taken. Renegotiation of the current IFMS contract also needed to happen as per the AGSA’s recommendation, over which the NT was negotiating with Oracle on the current contract. The negotiations included the consideration of a cloud solution, due to modernised technology. The NT was also in discussions with Oracle on the payment of the current year's licence support and maintenance fees, pending a decision on the cloud solution. It was anticipated that negotiations would be finalised in the first quarter of the 2023/24 financial year (FY). In terms of the roll out, implementation of the pilot system would be initiated in the 2023/24 FY, and the IFMS would be rolled out in the 2024/25 FY.

Minister’s comments

Minister’s Nxesi said it had been 17 years since Cabinet approved the IFMS and to date, it had not been implemented. The lack of progress in implementing it was negatively affecting the mandate of the DPSA and other departments in fulfilling their mandates and promoting modernisation and progress. “We need and are desperate to promote the use of technology and automation in all the related public administration business processes so that we can manage public services and resources better,” he said.

The issue of the IFMS was delaying and preventing the Department from promoting modernisation. He appealed to all the parties involved in implementing the IFMS to pull in resources to implement the programme. As much as Treasury was investigating some institutions, it must be able to fast-track the implementation of the programme and not focus only on finance, but also look at the impact of not implementing the programme in other departments.

The Chairperson said 17 years ago, when Cabinet approved the IFMS, he was still writing his Matric examinations. SCOPA in the 5th Parliament had met four times on issues regarding IFMS implementation, and the Standing Committee on Appropriations had met twice on the matter. In the legacy report, the Department had said it would be ready to start the process in November, but it seemed there was no political will to implement the programme because 17 years was a very long time, so there was a deliberate effort to not implement it.

Discussion

Mr A Lees (DA) said this was not a progress report, but a report on a lack of progress. He made an example of how during the Committee’s study tour of India, he had learnt how the Prime Minister of India had put concentrated efforts into implementing information technology in the country, and noted the improvements that had been made in the country in a short period. Considering the population of India compared to South Africa, a lot would improve in a short space of time if the IFMS were implemented. If money had been stolen, there must be investigations, and they must be concluded as quickly as possible so that the rollout of the IFMS could proceed.

Mr S Matiase (EFF) agreed that the non-implementation of the programme for 17 years pointed to a lack of political will. He wanted to know how much was projected to be spent on the programme, considering that R1.2 billion had been spent on phase 1. On the rollout of the IFMS, how far were the SIU’s investigations regarding corruption, and what was the point of renegotiating with the same contractor that had failed to implement the project for the last 17 years? What was the total cost involved in the rollout of the IFMS in the 2024/25 financial year?

Ms B van Minnen (DA) reflected on how she was recently approached by a couple who had a chronically disabled 27-year-old daughter who required 24-hour care and needed access to one of the South African Social Security Agency (SASSA) grants, but they had been unable to get access to the grant because their SASSA card was stolen, and their grant had been issued to someone else in another part of the country. This was the reality for many people in the country. The problems were not all necessarily based on finances, but access to other administrative services, including getting identification. India had been a very good wake-up call for the Committee, and South Africa should be in a much better position to implement information technology (IT) systems.

The Chairperson said technological development should not be used just as a slogan for winning votes, but must be implemented for the betterment of people’s lives. The Department could get all the clean audits, but what mattered was whether they translated to practical deliverables which changed the configuration of the societal reality. The Committee was more interested in the details of the implementation of the pilot system in the 2023/24 financial year and its rollout in 2024/25. It wanted to hear in practical terms the details of the implementation and how it was going to happen -- it was past what should have happened. Where were they now, and how were they moving forward?

Minister’s response

Minister Nxesi understood the frustrations of the Committee, and said the entities engaging on the IFMS needed to bring a full project management plan to the Committee to provide detailed steps that would be taken to implement the programme, including the projected amount to be spent on the entire project rollout. Young South Africans who were experts in the IT field needed to be recruited for this specific project. 

National Treasury’s response

Mr Momoniat said the project needed to be implemented and the barriers preventing the implementation of the project needed to be overcome as soon as possible, whether deliberately created or not. There was a fear within government to make decisions because they did not want the AG to flag them for irregular expenditure, which was the reason the NT was engaging with AG to try and resolve the existing irregular expenditure matter.

The Department had a contract with Oracle, and they needed to honour it because they may be taken to court if they did not. The R68 million payment had not been made in vain, as failure to have done so would have resulted in legal and financial implications for the Department. This payment was made annually to ensure automatic access to updated versions of Oracle licences, software and security patches. If these fees were not paid, discounts would be lost, and penalties and back payments would be incurred. Treasury was seeking a legal review on the matter.

On the implementation plan, he said the Department needed to think about how it planned to implement the IFMS and have a detailed implementation plan. They were trying to get a more credible budget to ensure that the rollout was more potent and to spend more time on recruitment. The Standing Committee on Finance would do an oversight over progress on the implementation of the IFMS system on 29 March.

The Chairperson said that in November, SCOPA had asked all the stakeholders to meet within 14 days and take the matter to Cabinet if needed, and to respond to the Committee in 90 days on whether the IFMS would continue to be implemented. The Committee had never received a response. He wanted to know if the stakeholders had met, and what had been decided at the meeting.

Mr Lees agreed with the Chairperson, and said the meeting should have been a response to what the Committee had requested.

The Chairperson said the correspondence was sent on 25 November, and the response was expected to be received on the matter at the end of February.

Mr Momoniat said the matter had not been taken to Cabinet because they first needed to figure out the roles of the various players, but the IFMS had been endorsed to continue by the various stakeholders. He had had several meetings with Oracle to look at how the IFMS programme could be rolled out, and some of the challenges they had faced thus far. As the implementation plan was developed and formalised with Oracle, it could be presented to the Committee and the Department.

The law said the programme must go through the State Information Technology Agency (SITA), and if they ignore this, they may get into trouble with the AGSA. The NT had asked for an exemption from SITA regarding procurement, but there had been no response to their request yet, and this was one of the challenges they were facing because it affected the speed of the implementation of projects.

Mr Matiase said the meeting should have been a response to what the Committee had requested from the NT and DPSA in November. The performance of South Africa in implementing the IFMS in relation to the examples of India and Kenya showed the failure of leadership in the country. This was problematic, because if there had been decisive political and administrative leadership, the country would not be facing the problems that it was currently facing.

The Chairperson said the meeting had been set for March because the 90-days of the Committee’s request would have concluded at the end of February, so the Committee was expecting to hear the progress made in that regard.

Minister Nxesi conceded that the DPSA and Treasury needed to provide a detailed report to the Committee, and asked for an extended period for them to bring a much more detailed presentation to the Committee.

Ms B Zibula (ANC) was disappointed that the Department and Treasury had not provided sufficient information, and asked for a timeframe for when they planned to return with the requested information and a detailed plan for the implementation of the IFMS.

Mr Khan said a much more detailed plan would give the Committee a sense of the progress made regarding the IFMS. Implementing the pilot project was key to implementing the IFMS because if the pilot was successful, it would determine how quickly a government-wide implementation of the IFMS would roll out.

Mr Nyiko Mabunda, Acting DG: Human Resource Management and Development, DPSA, said the Department had requested the NT to fast-track the rollout of the e-Recruitment part of the HR project, and was hoping that it would be rolled out within the first quarter of the next financial year. The DPSA was aware that the NT was involved in negotiations with licence suppliers for the move towards a cloud-based system, and they had committed that the way forward would have been determined by April.  

The Chairperson said there needed to be an integrated progress provided by the DPSA and NT on the IFMS. In every meeting on the IFMS, the NT had mentioned progress being made, but there was no sight of any progress, and the problem was that the programme was being handled on an ad hoc basis, which was not gaining traction as a tool to be used for the future.

He said the responsible stakeholders must come back to the Committee and report to it on how the project would be fully implemented, because it was not the first time the Committee had heard reasons for its non-implementation. The exemption that the NT had applied for with SITA must be followed up on so the process could move forward. The Committee would schedule a meeting in April to hear the response to its request, as well as on the pilot project and the implementation plan alongside the roles and responsibilities of the relevant stakeholders.

Briefing by Special Investigating Unit

Mr Leonard Lekgetho, Chief National Investigations Officer, SIU, said because of the AG’s report on the IFMS, a proclamation had been issued that the SIU should investigate its shortcomings and the R1.1billion spent on it. The investigation that was undertaken was at an advanced stage and would be concluded by May.

The Chairperson suggested that the Committee should not compromise the integrity of the investigation by presenting its preliminary findings, and should rather table the findings when the process was concluded.

He thanked the Minister, the delegation from the DPSA, and the delegation from the National Treasury and other stakeholders. He noted that the Committee would communicate with them soon.

He said the Committee would consider the request of Mr B Hadebe (ANC) to invite the former chief executive officer (CEO) of Eskom to appear before it on Wednesday morning, and the Committee would decide on the matter on the same day. The Committee would also consider the first draft report of its India study tour.

The meeting was adjourned.
 

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