Department of Mineral Resources 2010/11 Annual Report: hearing

Meeting report

The Chairperson welcomed the Director–General of the Department of Mineral Resources, Dr Thibedi Ramontja, and the delegation from the Department. He explained that the point of the engagement with the Standing Committee on Public Accounts (SCOPA) was to exchange information, and to deal with a few ‘grey areas’ in order to assist the Committee to fulfill its responsibility to the legislature. 

Mr D George (DA) observed that neither the Minister nor the Deputy Minister of the Department was in attendance, and asked whether the Committee had received any word from the Ministry about that.  The Director–General (DG) said that both had sent apologies due to ‘other pressing engagements’.

The Chairperson replied that that statement did not explain much.  The Committee had written to both the DG and the Minister to invite them to the meeting.  The Chairperson had not received a response from the Minister indicating the ‘other commitment’ that was keeping her from attending the meeting with SCOPA.  The Committee had received an indication from other sources that there was an event at the mines in Limpopo that she was attending.  The Committee had responded to officials in the Department that the Minister had a Deputy, who would be welcome to attend in the Minister’s stead, but had not received word about whether the Deputy Minister could make it to the meeting or not.

The Chairperson did not expect the DG to provide an answer explaining the absence of the Minister or her Deputy, but it was the Committee’s understanding that accountability to Parliament by each Department, in terms of the Constitution, was political.  It was important for political leadership to attend SCOPA meetings, in order to lead the accountability process.  The only other Department that had acted in the same way towards SCOPA in the current year was the Department of Defence and Military Veterans.  In all other instances, a clear understanding was shown by the various departments that administrative leadership had to be accompanied by political leadership when accounting to the Committee.  The myth had long been debunked that the Public Finance Management Act, 1999 (Act No. 1 of 1999) (PFMA) provided that the DG alone was responsible for accounting to the Committee, and to Parliament.  It was ‘unacceptable and unnecessary’ for the Ministry to avoid this responsibility.  Further, it did not send a correct message for the political leadership to fail to take the trouble to write a letter to the Committee explaining their absence.  The Chairperson would communicate with the House Chairperson about the ‘unfortunate situation’, and they would discuss the way to address it.

Dr P Rabie (DA) agreed with the Chairperson and said that because the Department of Mineral Resources was one of the most important departments in the country’s development, it was especially important for the Committee to be able to engage with it properly.  The situation that SCOPA faced that day should not recur in future.  While the Department was still relatively young and had made some commendable progress, there were some financial irregularities that needed to be satisfactorily explained to SCOPA. 

He pointed out the section entitled ‘Receivables for Departmental Revenue’ on page 110 of the Annual Report, which explained that there was a misstated revenue balance of R72.2 million as a result of omissions in respect of payments received and not recorded, amounts due not being raised, and incorrect interest calculations on outstanding balances.  He asked why this had happened, and how.

Mr Nthupheni Ragimana, Chief Financial Officer (CFO), agreed with the findings of the Auditor–General (AG) in this respect.  He explained that the issue had arisen as a result of the absence of an appropriate electronic accounting system.  The Department had not had a proper system in place to manage receivables.  There had been no system to ensure that the correct numbers were being recorded in time.  Recently, the Department had put an accounting system in place that would accurately record all revenue and receivables from various disparate sources.  The Department was now confident that the amounts that were received would be automatically counted by the system.  That would address issues relating to the calculation of interest.  The Department had also put a procedure document in place which effectively set out what should happen when a new client came into the picture.  All of the new processes were now in place, and the Department felt confident that it would overcome the challenges it had faced in this respect.

Dr Rabie referred to page 111 of the report, which set out the situation relating to revenue.  He asked why the Department had been unable to provide appropriate audit evidence to support the journal entries of R50.4 million that had been debited to revenue. 

Mr Ragimana replied that it was an historical issue that the Department had been facing.  The collection of royalties was now governed by the new Mineral and Petroleum Resources Royalty Act, 2008 (Act No. 28 of 2008).  There had been a state of confusion between the Department, the South African Revenue Service (SARS) and the National Treasury (NT) about how the system should operate.  The Department had a different understanding from that of SARS and the NT, but had rectified that after discussing the matter with those entities.  There was an amount of roughly R50 million in the financial year under consideration that could not be allocated to revenue because of the uncertainty.  That outstanding amount could now be paid in the current financial year.  When the AG had compiled his report, the Department had not been in a position to explain why the journal entries had been debited to revenue.

Dr Rabie referred to the situation relating to payables, as set out on page 111.  He remarked that there was a substantial amount of money at stake, and asked the Department to give clarity about the state of affairs as noted by the AG. 

Mr Ragimana explained that findings 8–11 of the AG’s report were all linked, as they emanated from the same root cause.  Because the Department had been unable to complete a proper register of its debtors, that lapse had affected all of those related areas.  ‘Payables’ as used in the context of the report referred to a ‘suspense account’.   Because the receivables balance was incorrectly reflected, that had impacted on the ability to properly assess revenue. 

Dr Rabie pointed to the item dealing with contingent liabilities on page 111, and pointed out that one of the Department’s responsibilities was to reclaim abandoned mines.  He asked how far the Department had progressed with that policy and with its application. 

The DG said that the matter of derelict mines was an historic one.  The information that had been gathered in relation to derelict mines had been captured. The estimated value was R30 million.  The AG had not been satisfied with the methodology that had been followed by the Department in conducting that survey.  As a result, the Department had subsequently appointed an actuarial scientist to look at the matter, which would soon be quantified.  There was already a preliminary report in existence that would be finalised over the course of the next two weeks.  The next time the Department engaged with the AG, it would be able to provide the correct figure.

Ms T Chiloane (ANC) pointed out that there had been material losses to the tune of R5.8 million as a result of assets that could not be verified during asset control processes, and asked why the assets had not been verified during the financial year.

Mr Ragimana replied that there were a number of reasons which had contributed to this state of affairs.  The main contributor was the fact that the Department had relocated from its previous head office in April–May 2010, which was the same period during which the AG had come to audit the Department’s financial statements.  After the relocation, when the Department had conducted its own verification process, it had picked up that a number of assets were missing.  Despite all of the measures that had been put in place to prevent loss, there had still been a shortage.  At that time, the Department thought that some of those assets had been stolen or lost.  In the current financial year, however, they had been able to locate close to R2 million of the assets that had been missing.  The problem had arisen as a combination of the move and the Department’s need to update its asset management system.  Some duplications had also been picked up in the asset register, and there were cases in which the same asset had been tagged twice with different tags. 

The Chairperson referred to page 150 of the report and asked whether those assets had been written off.

Mr Ragimana replied that according to the guidelines for reporting, writing off the lost assets was the only way that the Department could account for them. 

Ms Chiloane asked whether the asset register was now in a satisfactory state, to which Mr Ragimana replied in the affirmative. 

Ms Chiloane asked whether the Department had been able to identify the person who had been responsible for managing the assets during the move, and if so, what disciplinary steps had been taken.

Mr Ragimana said that the R2 million that had been recovered related to those cases in which there had been a duplication in tagging, or in which the asset had been lost completely.  An amount of around R3,3 million in lost assets could be linked to the move. The amount of R45 000 referred to fixtures in the old building that could not be taken along on the move.  Overall, however, the figure reflecting the loss had since decreased.  On the question of accountability, he said that the Department had engaged with the people who were responsible for security risk management in the Department in order to look at what went wrong.  Their report had stated that the issue had more to do with the manner in which the relocation had been coordinated.  There had been a lot of activities happening at the same time, and in the process, some assets had left the building without being properly accounted for.  It was difficult to place the responsibility on one particular individual. 

Ms Chiloane moved on to the question of accruals, and pointed to those accruals had occurred as a result of the Department’s failure to pay its debts within the 30-day payment period as required. She asked why those debts had not been paid within the allotted timeframe. 

Mr Ragimana replied that the Department recognised that the issue of paying invoices within 30 days was an important matter.  The Department had gone into its system in order to identify what the problems were, and had found that the major problem was that the confirmation process – in which the responsible line manager had to sign off on the invoice in question before it could be paid – was causing delays.  The Department had subsequently re-engineered the process so that approval would take place before the supplier even provided the invoice to the Department.  That new approach should cut the turnaround time by more than half.  The Department had previously operated on a system in which its various contracts with service providers had been kept in different locations.  Now that the Department had centralised its system, all contracts were kept in the same place and kept track of according to the same system.  Those revised processes should help to the Department to manage its responsibilities towards its creditors in a more efficient manner.

Ms Chiloane remarked that it was unacceptable that the procedure confirming that service had been received should have taken over 30 days.  In terms of the PFMA, it was also illegal.  She asked what constituted the amount of R41,1 million in accruals, as reflected on page 112 of the report.

Mr Ragimana replied that it would be difficult to give a comprehensive breakdown at that point in time. 

Ms Chiloane suggested that the Department should submit a report with that breakdown to the Chairperson’s office. 

The DG said that the Department would do so.  Mr Ragimana said that the key contributor to the amount of R41.1 million was that of invoices relating to the Department of Public Works.  That amount had been significantly reduced in the current financial year.

Ms Chiloane moved on to expenditure management as set out on page 112 of the report, and pointed out that according to the findings of the AG, the accounting officer had not taken proper steps to prevent irregular expenditure, and did not immediately upon the discovery of irregular expenditure, report it to the relevant treasury as required by the PMFA.  The AG had also noted that payments due to creditors had not always been made within 30 days of receipt of invoice.  She asked what controls had been put in place to prevent a future recurrence of irregular expenditure. 

Mr Ragimana said that the cases that the Department had reported on in its financial statement had primarily been those identified by the AG, and had not been picked up by the Department’s internal systems.  At the time, the Department had been under the impression that all of the proper procedures were being followed.

The Chairperson asked why the Department made assumptions about such important financial controls, and why discovery of the irregularities were only discovered by the AG.   

Mr Ragimana explained that the Department had an incorrect understanding of the NT regulations, and that there had been an ongoing debate around the interpretation of the Treasury Regulations when the AG had visited the Department.  It was unclear whether the Department had been dealing with an operating lease or a finance lease. The Department had been under the impression that it had been an operating lease, but the AG had interpreted it as a finance lease.

Mr S Thobejane (ANC) raised concern that the DG was directing all of the questions to the CFO, and asked why. 

Dr Ramontja replied that he had only taken up the post as DG in November 2011, and had not been around at the time the Department had been audited.  The CFO had been dealing with the matters the members were asking about.  He worked with the CFO as a team. 

The Chairperson said that he hoped that the DG could appreciate the concern that had been raised.  So far, since January 2012, SCOPA had come across only one DG who had been able to say that they had been in their position for the entire period that was being reported on.  It was frustrating for the Committee.  If the Minister had been present at the meeting that day, she may have been able to provide more clarity as to why a particular decision had been made.  The fact that the Minister was not present, and that the Committee was dealing with a new DG, limited the scope for accountability.

Ms Chiloane referred to page 161 of the report, and asked what plans were in place to recover the irregular expenditure. 

The DG replied that the Department was currently investigating the matter by means of an internal investigation. 

Ms Chiloane said that the Committee would like to be briefed about the findings of that investigation when it was completed. 

Dr Thibedi replied that the investigation should be finished in roughly two months, and undertook to provide a report to the Committee. 

The Chairperson referred to page 162 of the report which listed the disciplinary steps that had been taken against those responsible for financial irregularities.  He asked the Department for more information about why certain disciplinary action was taken in some cases and not in others. 

The DG said that the Department would compile a full report, which it would provide to SCOPA.  Recovery processes were currently underway and condonation had been requested from the AG in one instance.

Ms Chiloane asked the DG, as accounting officer, whether any disciplinary action been taken against officials in terms of the Public Management Finance Act (PMFA).  She remarked that as accounting officer, it was the DG’s responsibility to take disciplinary action.  She asked who the officials were against whom action had been taken, and who was currently under investigation. 

The DG replied that in cases in which there were irregularities, the Department undertook investigations and took action accordingly.  The Department would come back to the Committee with a detailed report about who was implicated and what disciplinary action was being taken, once the investigations had been completed.

Ms Chiloane made reference to page 162 of the report, and asked whether the Department had been able to recover money from those officials who had resigned, or whether the Department had written those amounts off.  She wanted to know what positions had been held by those officials. 

Mr Ragimana obtained the Chairperson’s permission to include that information in the promised report.  He said that the instances of financial irregularities had only been discovered after the officials had resigned, so it had not been possible for the Department to recover those amounts from their pensions.

Ms Chiloane said that it should not be the case that officials who had acted incorrectly were allowed to leave without having to pay for the financial losses they had incurred.  She asked what plans the Department had in place to ensure that the same problem would not happen in the future.

The DG said that the Department had analysed the situation and looked at the problem areas.  The issue of revenue had been identified as a problem, but the new IT system that had been put in place would assist to alleviate it.  In the past, the Department had not had the benefit of a CFO or proper senior management.  Now that situation had been remedied, he assured the Committee that the Department was taking the issues seriously, especially those of revenue and contingent liabilities.  A task team had been set up, and it met on a weekly basis to deal with the issues relating to financial management and controls.  As a result of the implemented changes, the system had improved.  The move was a once-off occurrence and would not happen again in the foreseeable future.  The Department was working hard to improve the situation.

Ms M Mangena (ANC) asked about the officials who had resigned, and wondered whether they were currently holding similar high positions in other government departments.

The DG replied that the Department would follow up on that question and provide that information in the report it would send to SCOPA. 

Mr Thobejane referred to page 162 and asked how the Department expected to recover the R131 million from the offending official.  The Chairperson wanted to know how that official had benefited from the amount that the Department expected to recover.  He asked why there seemed to be an inconsistent application of disciplinary procedures and remedies. 

Mr Ragimana replied that the Department had not had a proper procedure document to guide its disciplinary procedures. 

The Chairperson remarked that it was not suitable to ask officials to pay back the money they had mismanaged when they should in fact have been fired.  The way that the CFO was answering the Committee’s questions showed there was some apprehension about explaining exactly how the disciplinary procedures had occurred.  He did not, however, want to cast aspersions on people who were not present.

Mr Thobejane referred to page 112 of the report, which said that payments due to creditors had not always been settled within 30 days of receiving an invoice.  The CFO’s explanation of that state of affairs was unsatisfactory.  That rule was contained in a law, and the officials at the Department should apply the law instead of try to negotiate around it.  If the Department felt there were areas of the law that needed to be amended, there were channels for them to deal with that.  The CFO’s explanation was worrying, as it showed that the officials who were responsible for applying the law were not in fact doing so, and were looking for ways around it instead. 

The DG agreed that officials had to adhere to the law.  He reiterated that the management of the Department had been strengthened, and that the issues under discussion were now manageable due to its improved systems.

Mr Thobejane said that while that was good in terms of the current financial year, it did not affect the situation for the year under review.  The Committee wanted to know exactly who the offending officials were and what had happened to them. 

The DG said that the Department’s previous system had been to blame for the financial irregularities.

Mr Thobejane responded that maybe the accounting officer was not aware that it was his duty to ensure that there was a working system of financial controls. 

The DG agreed that that was his duty as an accounting officer, even though he was not the accounting officer at the time.  There was now a very strong team in place to ensure the same problems would not happen again.

The Chairperson said that the CFO was the person who had signed off on the report, and that his responses to members’ questions should be more authoritative, rather than tentative.  He told the DG that one of the attributes of leadership was succession.  Until 2009, when the Department was still operating under its former name, it had one of the longest-running DGs in place. One of the major problems that had been discovered by the AG was that of inadequate record keeping.  Record keeping did not require serious skills.  If basic record keeping did not happen, it spoke to issues of leadership and management.  If people in the Department were not doing their job properly, it pointed to a gap in the human resources plan, which again led back to the question of leadership.  If people working in the Department detected a gap, they would take advantage of it, and the result would be irregular expenditure.  He pointed to the fact that page 147 showed that the amount spent on operating leases had doubled in one year, and asked why. 

The DG explained that the doubling was due to the new building that the Department had moved into in 2011.  He added that the increase could be attributed to the fact that a number of offices had been moved, in addition to the main office.  There were also a number of leases in place for furniture and IT equipment.  Additional amounts had been incurred by settling old invoices with the Department of Public Works.

The Chairperson referred to the amount spent on computer services, as set out on pages 147-8 of the report, and noted that the amount paid to the State Information Technology Agency (SITA) had jumped significantly from the previous financial year. He wondered how it was possible that SITA could provide such services, considering that it was a ‘sick and crumbling entity’.  There were additional funds spent on external IT services on top of the amount paid to SITA.  He asked what SITA’s role was.

Mr Ragimana said that SITA provided the Department with services for networking that ran from the SITA mainframe. 

The Chairperson asked what new service SITA had put in place. 

Mr Ragimana said that the main reason for the large increase was the payment of long overdue invoices, which was linked to the issue of accruals. 

The Chairperson referred to the accruals section of the report, and the Department’s explanation that it had not been paid in time.  He asked whether, if they had been paid in time, there would still have been unauthorised expenditure.  The inconsistency in the Department’s explanation and the financial statements showed that either someone had been acting in bad faith, or else the Department was simply dysfunctional.  If invoices were accruing at the Department, he wondered what the people who were responsible for processing them were doing.  The R8 million amount for SITA was not linked to the R41,1m of accrued invoices.  He asked who was supervising the people who were supposed to be processing invoices, and what checks and balances were in place to ensure they did their job.  The payment of invoices within 30 days of receipt was an important matter, and the shortcomings in that respect did not give a good picture of the Department at all. 

The DG acknowledged that there were lapses in the Department.  He apologised, and undertook to do his best to address those lapses.

The Chairperson referred to page 146 of the report, dealing with compensation of employees.  In a review of a year in which there were ‘lapses’, performance bonuses had nearly doubled.  He asked whether there was a system dealing with the payment of performance bonuses, and remarked that surely it must have been a ‘lapse’ that people were paid bonuses despite poor performance. 

The DG replied that there was a system.  What had happened was that the performance bonuses had not been paid the previous financial year (2009-2010), and so they had been carried over and paid in the 2010-2011 financial year.  The Chairperson responded that in the 2009-2010 financial year, the Department had received a qualified audit for more or less the same issues as in the year under review.  He wondered why performance bonuses had been paid, and remarked that it did ‘not make sense’.

The Chairperson referred to the assets that had been written off, as listed on page 150 of the report, and remarked that asset management was a fundamental challenge that was consistently raised in government.  He had heard the DG’s explanation that assets had gone missing during the relocation, but wondered why the Department had set the date for the relocation to coincide with the planned audit.  It spoke to an absence of proper planning, and he struggled to accept that things were so haphazard within the Department that there was no control, supervision, or monitoring, with the result that officials could simply help themselves to movable assets.  That state of affairs spoke to poor leadership and a lack of planning.  These assets in question were public resources, and to casually say that valuable assets had been lost and were unaccounted for could not be acceptable.  The move was not a reasonable explanation for the loss of assets, and he struggled to understand how it had happened. 

The DG admitted that the amount was a large one and that it was a serious matter.  The move had happened when it did because the lease on the former premises had lapsed. 

The Chairperson remarked that the move was almost like a ‘disorderly retreat’ in which people departed under fire.  He asked for clarity on the exact amount that was still outstanding.  He asked whether a criminal investigation was under way to find out which truck had failed to deliver the specific assets to the offices where they were required.  The Department should not be so casual about the loss.  It was a pity that the AG was not present to verify that some of the lost assets had since been recovered. 

The DG undertook to investigate the matter. 

The Chairperson asked Dr Ramontja, as the accounting officer, why the matter had not been causing him grief.  It could never be acceptable for millions of rands of assets to disappear ‘just like that’. 

Mr Ragimana said that the Department had been obliged to write off the missing assets for the purpose of finalising its financial statements.  The Department had, to date, been able to account for roughly R2 million of the total R3 million outstanding.  The Department acknowledged that there were problems.  According to its processes, the Department first had to find out what other assets would show up before it embarked on an investigation about those that were truly missing. 

The Chairperson pointed out that it had been a long time since the move had taken place, and asked why the matter had not been attended to sooner.  The move had been handled in an unsatisfactory manner.  He wondered what kind of leadership acted that way.

Mr Thobejane referred to page 217, which reflected the amounts spent on external consultants, and said that he hoped that the figures reflected there were incorrect.  He asked whether there was a human resources specialist who dealt with issues relating to recruitment.  If consultants were being paid to do work that people were employed by the Department to do, it meant that the Department was effectively paying double salaries to two people to do the same job.  People were already being paid within the Department, and yet its work was being outsourced at a considerable rate. 

The DG said that the amount was so high because of the expense involved in using agencies to put out advertisements.

The Department’s Human Resources and Corporate Services Manager, Ms Pat Gumede, said that the Department had done comparisons, and found that it was cheaper to use agencies to advertise.  Those agencies had discounts and received rebates from the newspapers in which they placed advertisements.

 Mr Thobejane said he was more interested in speaking about the issue of hiring additional people as consultants to augment the workload of people who were already hired to do the same work.  He was not sure that it was convincing for the Department to say that it was cheaper to use agencies.  The issue of outsourcing in government departments had a long way to go, as it seemed that many officials were sticking with the consulting model.

The Chairperson agreed with Mr Thobejane’s points.  He asked whether the various government departments could not apply their minds and sit down with the newspapers in order to work out a solution.  That type of decision-making would require the patriotism that involved always taking the best interests of the country into account.  The Committee was happy that the amounts spent on consultants had gone down, but the amount should still shrink further.

Mr George asked what process the Department would follow to report back to the Committee as promised, given the fact that neither the Minister nor the Deputy Minister was present that day. 

The DG replied that the delegation would brief their principals about what had transpired at the hearing, and what undertakings had been given by the Department.

The Chairperson thanked the DG and the delegation for their participation that day. There had to be continuous progress on how departments spent the money that was allocated to them.  The Committee was ‘not happy’ that neither of the political principals had attended the hearing, and had not even bothered to even communicate that information to SCOPA.  If was ‘baffling’ that in cases such as this, in which the Minister could not make it, no one actually knew where the Deputy Minister was or thought of the Deputy Minister as a good second option.  Mr George said that the Committee needed to think about how to make a change in this habit.  At some point, the Committee needed to draw a line.  He proposed that the next time a delegation came to SCOPA without political leadership, the Committee send it back.

The Chairperson thanked the official from the National Treasury for attending the hearing just in case guidance was needed from that body.  The Committee understood that the AG’s Office had been unable to attend due to logistical difficulties, but appreciated that there was usually representation by the AG’s Office at SCOPA meetings. 

The meeting was adjourned.