Department of Correctional Services, National Agricultural Marketing Council & SA Wine Industry Trust: Audit Report hearings

PUBLIC ACCOUNTS SELECT COMMITTEE
7 November 2007
DEPARTMENT CORRECTIONAL SERVICES, NATIONAL AGRICULTURAL MARKETING COUNCIL &  S A WINE INDUSTRY TRUST: AUDIT REPORT HEARINGS

Chairperson: Mr T Godi (APC)

Documents handed out:
Department of Correctional Services Annual Report for the financial year 2006/07

Audio recording of meeting [Part 1][Part 2]

SUMMARY
The Committee was to have interrogated the South African Wine Industry Trust, but had received a letter noting that Members of the board were overseas and could not appear. The Committee was concerned that the Trust had not appeared before this Committee for nine years, that the Auditor General was unable to access the financial statements and that effectively there was no audit report. The Chairperson pointed out that they could be summoned before Parliament.

The National Agricultural Marketing Council was asked about funding from SA Wine Industry Trust, the amounts lying in trust that had not been audited, the function of the Council, and whether it was able to verify information, how the Council would decide on what to report to the Minister, and the relationship with other bodies, that seemed to create a loophole. The Council had also been concerned about the Trust, and had reported to the Minister.

The Department of Correctional Services was asked to explain the non-availability of documents regarding assets and medical expenditure, staff debts, the reasons these were being written off, whether reconciliations were performed, and the problems in attracting and retaining staff. The lack of properly qualified financial staff was questioned, as was the compensation for employees,
the consultants and contractors. Further questions related to the operating leases, the loss of state vehicles, and the corrective action being taken, claims against the Department, and the qualifications on asset management. The Committee questioned the manual reconciliations and the problems of interface between the systems, IT systems, the medical aid reconciliations, and problems around contributions to deceased members. The Department was asked to pay close attention to the areas where it received qualifications.

MINUTES
South African Wine Industry Trust (SAWIT)
The Chairperson informed the members that he had received a letter of apology from the South African Wine Industry Trust (SAWIT) the previous afternoon. He said that the reason for not being able to attend the meeting was that some of the board members were overseas.

Mr Gerber commented that SAWIT had not been before parliament for a period of nine years and it seemed as though they were playing hide-and- seek with the Committee. Mr Gerber said that according to the trust deed, the CEO could have come to the meeting without his team. Lastly, he said that the Auditor-General had been denied access to the financial statements of SAWIT, which raised more concern and added that even if they came before the Committee it would be useless because SAWIT had no financial statements.  He asked why that organisation was so secretive.

Mr H Bekker (IFP) asked whether there was anything stated in the letter about the nature of SAWIT’s board members overseas trip. He said that it did not make sense that they were undertaking overseas trips despite their apparent financial difficulties.

The Chairperson responded that there was no mention of the nature of their overseas trip. He noted that parliament had the authority to call in anyone to appear before them, and said that this line would be followed with SAWIT.

National Agricultural Marketing Council (NAMC)
Mr Gerber asked whether the bodies that were part of the wine industry received any money from SAWIT.

Mr Ronald Ramabulana, Chief Executive Officer, NAMC, responded that he was not sure about this year, but in previous years, including the last year, the bodies had been receiving money from SAWIT.

Mr Gerber asked for the details of the money that the various bodies had been receiving from SAWIT. He then asked what the progress was in terms of the recommendations by the Agricultural Trust and whether there had been any reporting since the recommendations.

Mr Ramabulana responded that the Act did not mention the trust. He said that the NAMC as a facilitator to the Minister put forward recommendations but they had no right to call and ask any industry trust if they had submitted financial statements to the Auditor-General (AG). He said that there were individual engagements between trustees and the Minister.

Mr Gerber commented that R1.5 billion was lying in the trusts that were not audited and asked whether this figure was correct.

Mr Ramabulana responded that at the end of the year, the NAMC requested trusts to tell them how much they had in terms of assets, and the figure of R1.5 billion was what they received. He said that they relied on this information and had no other way of verifying this information.

Mr Gerber (ANC) said that he did not understand how the assets of SAWIT increased from R6 million to R170 million in one year and suggested that this be checked out. 

Mr E Trent (DA) said that he was confused about there being no statutory requirement for the trusts to report, and yet they reported to parliament. He said that surely an organisation would not do something that was not a statutory requirement.

The Chairperson requested that the Committee not enter the debate raised by Mr Trent.

Mr M Stephens (DA) asked what the relationship was between SAWIT and the NAMC if SAWIT just provided the NAMC just with figures all the time.

Mr Ramabulana responded that according to the Agricultural Marketing Act, there was no relationship. He said that what the NAMC did in terms of advising the Minister was have SAWIT just report to them.

Mr Stephens asked, in light of the above response, why then SAWIT reported to the NAMC.

The Chairperson asked what could be done in order for the Committee to get closer to the NAMC and get more information from them.

Mr Masiphula Mbongwa, Director-General: National Department of Agriculture,  responded that the Department was looking to devise a mechanism to strengthen their relationship with the various bodies. He said that they would try to find different mechanisms to ensure adequate disclosure.

The Chairperson commented that the Department had also realised that the relationship between the Department and the trusts created a loophole. He then asked how far the review process was.

Mr Mbongwa responded that the review process was finalised, and mentioned that the implementation would have to be closely monitored because it would affect the MEC.

Mr Stephens asked what the NAMC advised the Minister on.

Mr Ramabulana responded that they advised the Minister according to the legal mandate as stated in the Agricultural Marketing Act.

Mr Stephens asked whether the NAMC had advised the Minister to re-look the board of trustees of a trust, because they were not exercising their fiduciary duties by having a loss on capital assets.

Mr Ramabulana responded that the NAMC was also concerned about such losses being incurred. He said he was not in a position to talk about what was said in the report, because the report had not been adopted nor processed by the Minister.

The Chairperson asked when the report was submitted to the Minister.

Mr Ramabulana responded that the report was submitted in March and the NAMC had still not received any comment about it.

Mr Trent asked whether the Minister had made any recommendations what NAMC should focus on, or whether it just decided on what was relevant to report.

Mr V Smith (ANC) responded that officials could not be asked about documents that were with the Minister. He said that SCOPA should engage with the Minister itself.

Mr Gerber  commented that he was not pleased with the Audit Committee’s board members’ non-attendance of meetings. He said that normally there were no such comments in an audit report about the Audit Committee and asked if there had been any improvements in this regard.

Mr Ramabulana responded that some members of the Audit Committee resigned, hence their absence from meetings. He said that it was not that people were not attending meetings.

Mr Gerber commented that it was not correct for the NAMC to report on the Audit Committee members’ attendance in the way it appeared,  because the report was a public document and it reflected badly. He suggested that in future reports, there must be an explanation detailing the reasons for non-attendance.

Department of Correctional Services (DCS)
Ms N Hlangwana (ANC) said that the audit report stated that documents regarding assets and medical expenditure were not available and also that record-keeping of staff debt and medical expenditure were not adequate. She asked what plans were put in place to ensure that this did not happen again.

Commissioner Vernon Petersen, National Commissioner of Correctional Services,  responded that the DCS had been operating as a militarised organisation and was now moving to a Public Services Act organisation, and this process was not complete. He said that the changes had been keeping the Department busy as they were also trying to get staff ready for the move. He however emphasised that that could not be used as an excuse. The Department had been looking at strategies in handling the internal control issue. He said that the Department had had meetings with the Auditor-General (AG) for recommendations and advice. The Department had also negotiated with the office of the AG to not only point out the internal control weaknesses but to also make recommendations for improvement. The AG had now provided the Department with a training manual for staff members.

Ms Hlangwana said that it was found that staff debts had not been reconciled and she was concerned that there could be fraud in this regard. She commented that there needed to be on-going monitoring of asset and debt management.

Comm Petersen responded that the Department concurred with the findings of the AG in this regard. He said that a major part of this debt related to the Judge White Commission and part of the Department ’s strategy was to restore them.

Ms N Hlangwana asked why the Department was not writing off these amounts by collecting the money.

Comm Petersen responded that part of the strategy was writing off the debts, which had already taken place, and the other was speeding up collections. He said that the Department was also conducting processes of checking these registers regularly for a better tracking system.

The Chairperson asked whether monthly reconciliations were currently being done.

Comm Petersen responded that the Department had a task team in place. They categorised the staff debts and had reconciled the Judge White Commission and had also been able to recover about R15 million. He said that they did have challenges holistically in terms of other debts, in that monthly reconciliations were not being done on other categories.

Ms Hlangwana commented that the Department reported that it was facing challenges in terms of recruiting social workers and asked if there was any policy or strategy to retain health care personnel and also to recruit more.

Comm Petersen responded that they received R60 million and R54 million last year from National Treasury and it was meant to finance health care personnel posts. He said that the Department had had problems of outflow of professionals and this happened mostly when the Department phased out payments for overtime worked on weekends. The Commissioner said that they had looked at remunerating staff differently in order to attract staff and retain them.

Mr Smith said that there was a 30% vacancy rate. He said that this problem related to the fact that the Department did not have financially trained people.

Mr Smith said that there was under spending reported in the appropriation account and said that it could not be correct that the Department did not have financial resources if they were saving R580 million. He said he believed that it was not a resources problem but rather that the Department did not have financially trained staff.

Comm Petersen responded that they did have challenges in the financial management training and supply chain management. He said that the Department was implementing a programme of training because finance skilled people were normally in lower level positions. The under spending occurred in personnel and infrastructure. He said that there had been financial injections from National Treasury and savings from outgoing personnel.

Mr Smith commented that the only qualification that the Department had last year, which was not repeated this year, related to housing guarantees. Mr Smith said the Department was doing better but they also need to look at other qualifications because it was not about how many qualifications they received but rather the impact of even one qualification. Mr Smith then referred to compensation for employees and said that this had increased by R500 million. He asked for the reason for this large increase in light of the Department’s report that they only had 4000 more people.

Comm Petersen responded that the Department was moving towards a 7-day stipend that required the Department to employ approximately 10 000 staff. The increase was also due to implementation of the White Paper and staff requirements for the new prisons. He added that if the Department had not phased out overtime for weekends, it would have been R1.2 billion for that particular expenditure. The Department had received 10 300 intakes of staff but this was affected by resignations.

Mr Smith commented that the Department employed people and pays an additional amount and yet they still had consultants and contractors, the amount for which had increased to R53 million. He asked what kind of work was being done for this amount.

Mr Alfred Tsetsane, Chief Deputy Commissioner: Corporate Services: DCS, responded that they were using consultants in the Information Technology (IT) department and work was being done in the Infrastructure department . He said consultants were used in areas where the Department could not normally appoint the correct people, because of the technical intensity of the work. Mr Tsetsane added that there was training on junior and middle management also done externally.

Mr Smith asked why the operating leases went up by 105%.

Ms Nandi Mareka, Deputy Commissioner: Finance DCS,  responded that that amount related to funds sitting under the Department of Public Works. A catering contract was under inventories and it was suggested that they put them under special payments.

Mr Smith asked what the R10 million for venues and facilities requested by the Department was for.

Mr Tsetsane responded that most of that amount related to training for junior and medium management to roll-out the White Paper in times when they needed bigger venues.

Mr Smith said that there were material losses of R3 million and approximately R1 million of that was a loss of state vehicles. He asked what the cause was of this and whether the Department was taking any corrective action. .

Ms Mareka responded that where people had transgressed, they had tried to find ways to get money from them and that the Department had disciplinary measures in place. The challenge was that the State Attorney was sometimes too eager to write off the amounts. The Department had been advised to look at Treasury regulations and to have a clause that covered the employer.

Mr Smith (ANC) suggested that the State Attorney should also come before SCOPA at some stage because it seemed that this office was not adequately protecting the interests of the State.  He said that maybe National Treasury should be present at that meeting too.

The Chairperson asked whether any disciplinary measures had been taken.

Comm Petersen responded that in case of negligence the Department did take disciplinary action, which was also based on the findings of the case.

Mr Smith asked what the claims amounting to R1.6 million were against the Department .

Ms Mareka responded that these claims against the Department were various categories of claims. She said that the Department would forward the details of these claims to the Committee.

Mr Smith said that irregular expenditure amounted to R137 000 because of a service profiling leadership on the intranet. He asked whether they took out profiles within government and why it was costing them R137 000 to do that.

Ms Mareka responded that the statement used the word “intranet” incorrectly, and that it should have rather read as “internet.”

Mr Trent commented that the Department had received a qualification for asset management for the past two years. In relation to buildings and fixed structures, he said that additions were meant to be capitalised and transferred to the Department of Public Works, according to National Treasury, and asked why this was not done.

Comm Petersen responded that DCS wrote to the Department of Public Works to inform them that they were not reflecting it in the Department of Correctional Services accounts.

Ms Mareka added that they had engaged National Treasury because there had been no guidelines with respect to accounting for this.

A delegate from National Treasury added that when a Department engaged National Treasury, National Treasury would take it to the team that dealt with the matter and then a practice note would be issued.

Mr Trent commented that the AG said three different IT systems were being used for asset management,  and had also said that there were no proper reconciliations performed in the three systems. He asked for an explanation of why the Department was going to introduce a LOGIS system that was going to have a short life span.

Comm Petersen responded that DCS had attempted to reconcile the three systems, only to be frustrated by the basis on which information was recorded in those systems. That was the reason for moving to the LOGIS system.

Mr G Madikiza (UDM) asked what challenges the Department was facing with respect to the manual reconciliation that started in March 2006. He asked how DCS were addressing this issue and when it would be put to rest.

Comm Petersen responded that the challenges faced were that the systems were different, thus making it difficult to do manual reconciliations. He said that the Department was hoping to be viable in 47 centres in February. He added that work would have to be done using the months of December and January, and emphasised that this was a multi-year project, but the Department would do their best.

Mr Madikiza asked why the Service Level Agreement was signed in September, which was late. 

Mr Jack Shilubane, Deputy Commissioner: Information Technology, DCS,  responded that the Service Level Agreement was used to measure state level IT and could impose penalties based on it. He said that in that particular year the Department had issues that they were not pleased with, and they were not comfortable signing. This was seen as a means of safeguarding the Department .

Mr Madikiza asked whether the Department would agree that some issues were not really IT related but rather were problems that related to humans with respect to monitoring and evaluation.

Mr Shilubane responded that the question posed was a tricky one to respond to, as IT supported most of the processes that the Department did.

Mr Madikiza commented that the audit report stated that assets were only counted annually and shortages were not followed up. It was also stated that documents with respect to assets, staff debts and staff expenditure were not properly managed and updated. He said that the Department could not blame IT for that, and asked who was responsible for such.

Comm Petersen responded that those problems were due to lack of staff and lack of supervision.

Mr T Bonhomme (ANC) asked whether the problem of the Department being unable to verify payments made to Medical Aids was rectified.

Comm Petersen responded that this related to retired members and that these payments were administered by Government Pension Payments.

Mr Bonhomme referred to contributions made to deceased members and said that there seemed to be corruption in this regard. He asked how much money was involved and if any of the money was retrieved.

Comm Petersen responded that the Department had subsequently checked and it involved eight people. The Medical Aid Scheme was at fault and the Department had had discussions with the Scheme informing them they must pay. He said that at that stage the Department did not have a database, but they were resolving that.

The Chairperson said that it was discovered that life certificates did not include dependents’ information, and asked how the Department was dealing with this.

Mr Alfred Tsetsane responded that they had given continuation members until February to sort this out. The Department received proof of life certificates from 5 000 members already. He said that the process was frustrated by the submission of wrong addresses. He said that the Department now had a separate mailbox where they engaged these separately.

The Chairperson thanked the Department for their attendance and also thanked the Chairperson of the Portfolio Committee on Correctional Services for attending the meeting. He said that the Committee hoped that the financial results of the Department for the next period would be better and that the Department must pay close attention to the areas where they received qualifications.

The Chairperson of the Portfolio Committee on Correctional Services thanked SCOPA for their invaluable input, and assured the Members that the Portfolio Committee’s mandate for meetings next year would be based on the issues raised at this meeting.

The meeting was then adjourned.