Auditor-General’s Report on Justice Department: Director-General’s briefing

Meeting report

PUBLIC ACCOUNTS STANDING COMMITTEE
17 August 2005
AUDITOR-GENERAL’S REPORT ON JUSTICE DEPARTMENT: DIRECTOR-GENERAL’S BRIEFING

Chairperson: Mr F Beukman (NNP)

Documents handed out:
Department of Justice and Constitutional Development briefing:
Cover Page
Voted Expenditure per Programme and Lowest Level Item for 2002/2003 financial year
Expenses per Programme
The Office of the CFO: Performance Enhancement Programme – March 2003

SUMMARY
The recently appointed Director-General of the Department of Justice and Constitutional Development, Advocate Menzi Simelane, and his Chief Financial Officer, briefed the Committee on the financial management of the Department. Members quizzed the Director-General on the recruitment and retention of quality staff, his approach towards the re-engineering of the National Prosecuting Authority, and the institutional and financial relationship between the latter and the Department.

The Chief Financial Officer focussed on the reasons behind incidences of unauthorised expenditure, about which the Treasury had recently alerted the Committee. A major theme of his presentation was the government-wide problem of real-time electronic connectivity in the administrative systems. The Auditor-General had suggested that the creation of capacity at regional centres was the best way of overcoming this problem in the medium term.

MINUTES

Director-General’s briefing
Advocate Menzi Simelane, the new Department Director-General who had been appointed on 1 June, introduced himself to the Committee. He noted that the Department had a history of having to explain its financial conduct to the Committee, and hoped that future interactions would be much more positive.

Advocate Simelane highlighted that the Department had received an unqualified audit from the Auditor-General’s (A-G) office for the second financial year in a row. The Department might very well have turned the corner in terms of how it managed its finances. He undertook to take further measures to improve the financial management of the Department, especially in terms of those issues relating to the matters of emphasis contained in the A-G’s report.

With respect to monies-in-trust, financial statements had been prepared and submitted to the A-G’s office where it was currently being scrutinised. Advocate Simelane warned the Committee that the results of the review would in all likelihood not be very favourable, as it was the first time it had been done since 1959 and there were transactions and funds that could not be explained. He committed the Department to putting in place a framework to prevent similar issues from arising in the future before the end of the year.

Financial Officer’s briefing
Mr Alan McKenzie (Acting Department Chief Financial Officer) stated that the instances of unauthorised expenditure alluded to by the National Treasury in its briefing to the Committee a week before, were all reflected in the published financial statements of the Department.

The reasons for the over-expenditure in the Department were a lack of capacity and inadequate financial management. Mr McKenzie quoted the following excerpt from the Department Management Report, for the year ended March 31 2003. "Although Management is striving towards improving financial management within the Department, it is concluded that there is still control weaknesses due to the following: inadequate management; non-compliance with rules, regulations and laid-down systems; lack of accounting knowledge and understanding, and discipline and disciplinary action against offenders; lack of accountability, responsibility and financial management capacity; inadequate training, lack of supervision and negligence."

Mr McKenzie said that of the country’s 750 courts, only 100 had ‘Open Net’. This meant that 650 courts literally mailed their invoices to a regional office or to Pretoria. Only once the documentation had been received at these centres, was it processed, which made control by the Department very difficult. Broadly-speaking, this situation still existed today. Whatever improvements had resulted had come about through manual measures. The Department had yet to put real-time systems in place.

Currently, there was a controlled system of management and monitoring in place, whereby the CFO’s office physically visited each court on a monthly basis. They then produced the Transaction Process Monitoring Unit’s (TPMU’s) reports. This was run from a control room that worked like a railway station — complete with red lights and green lights. The connectivity issue was thus a real problem.

Mr McKenzie told the Committee that the Department had implemented the BAS system a year ago. Previously, the CFO had refused the implementation of this system as it did not support a dial-up process, but now it did. However, while the call centres had been issued with computers and officials had been trained, it had not been possible to switch all of these computers on. At April 2004, only ninety computers had dial-up capability, with another 270 to go before implementation was complete. This was because the State Information Technology Agency (SITA) had insufficient capacity to support their dial-up connectivity. Hence, situations arose like the one in the Graaff Reinet cluster where there was only one computer with dial-up connectivity throughout the region. In 2002/03, the Department had paid R97 million to fix this problem, but nothing was ever done. Where before the Department had not been allowed to seek alternatives to SITA, it was since agreed that the Department could work through Telkom to try and find a solution. The matter has since been handed over to National Treasury. Mr McKenzie suggested that SITA be made to account to the Committee for what they did with the money.

Mr McKenzie informed the Committee that the D-G took the decision to switch to a commitment accounting system in the Department. This meant that if there was no budget for something, it could not be bought. This had forced Department functionaries to allocate their budgets properly. The only instance in which over-expenditure would be tolerated was personnel. To offset extra personnel costs, the Department had been cutting back on goods and services. Aside from this, the Department also had to repay the write-off of its suspense accounts.

Mr McKenzie addressed concerns over the Department’s high expenditure during March 2002/03 by explaining that the Department did not spend its annual budget at the rate of a twelfth a month. This situation was unlikely to cease either, as many payments were only made on the last day of the financial year. An example of this was services rendered to the Department by the Department of Public Works (for buildings and maintenance), the Department of Health (psychiatric observation of defendants as required by the court) and the Government Garage. For 2003/04, these figures had totalled R87 million and R25 million respectively.

Another example was the accounting relationship between the National Prosecuting Authority (NPA) and the Department. In 2002/03, the NPA had additional expenditure of R142 million. This was the first year in which the Accountant-General had granted the NPA the authority to produce their own financial statements. This required that separate sets of accounts had to be prepared for the Department and the NPA first, after which they would then be consolidated. In 2002/03, the Department was still on the FMS system, while the NPA was on the BAS system already. Consolidation therefore had to happen by journal entry that could not support a continual late payment system. It was for this reason that a large catch-up payment had to be made on the final day.

Then there was the issue of connectivity. Due to the slow receipt of documentation from regional centres, CFO staff physically went around the country to collect everything for capturing before financial year-end. This meant that up to three months of outstanding accounts had to be dealt with in March. Finally, Mr McKenzie noted that for 2002/03, an additional R27 million was necessary for witness protection, and an additional R30 million for telephone costs at the NPA.

Discussion
Mr F Beukman (NNP) noted that in most cases, departments who had received qualified reports from the A-G were struggling with recruiting, appointing and retaining financial management staff. He asked Advocate Simelane, as its accounting officer, to explain what steps he envisioned to improve the situation in the Department of Justice and Constitutional Development.

Mr E Trent (DA) asked for information on the Department’s current situation with regards to the number of prosecutors it employed and the salaries they were paid.

Advocate Simelane acknowledged that the number of vacancies in the Department was significant and that it constrained capacity in a number of areas. Overall, close to thirty per cent of the positions in the Department were vacant. He had requested detailed reports from each of the branches of the Department with regards to the number of approved posts, the number of positions filled and the number of vacancies available and the number of consultants they used. Though the information was still incomplete, some explanations had already surfaced. In certain instances positions remained vacant as appointments were delayed until the job grading process that the Department was currently undergoing, had been fully completed. This would be addressed immediately as some of the positions that were vacant had been graded already, and could thus be filled.

Job grading of prosecutor positions had recently been completed. Here the major constraint however, related to levels of remuneration. Negotiations were currently underway between the Department and the National Treasury, as well as the Department of Public Service and Administration. Treasury’s position was that the job grading of all legal positions within the Department should be addressed first and should be consistent with and relative to each other before any review of remuneration packages could be considered. However, in the budget proposal that it submitted to Treasury, the Department had specified an amount for increasing the numbers of personnel, including the number of prosecutors it employed.

In terms of the general management of the Department, the idea was to create a situation where there were suitable understudies for all key senior management positions. The Chief Financial Officer had been appointed on contract until the end of March 2006 and succession planning for this key position was currently under consideration. The filling of all key vacancies would have to be prioritised in this way to prevent the wrong appointments being made at the wrong time.

As a result of all the lack of capacity within the Department, it was also making great use of outsourced expertise. A moratorium had been placed on the renewal of contracts with external consultants, except where this would result in a collapse of service delivery. It was envisaged that the Department would be in a much better position in this regard by the end of September. The important thing to remember, however, was that the new approach would have to be phased in to allow for the consequences of each move to be measured carefully.

Mr Beukman noted that the NPA was going through a re-engineering process and requested more information on Advocate Simelane’s planned approach in this regard.

Advocate Simelane responded that, while he was familiar with this process, he had requested a detailed briefing from the NPA and the Minister on the extent of the transformation of the former by the end of August. This was necessary it related not only to issues of equity, but to issues of approach, corporate governance, stakeholder relationships and performance. Of major importance was the necessary foresight when it came to any new expenditure that the transformation might have. Past criticism of the NPA was that, while it focussed on dealing with criminal issues and prosecuting, the necessary backroom systems were not in place, suggesting an overall lack of expenditure in these areas.

Further issues of concern related to the institutional relationship between the NPA and the Department. While the NPA was, in fact, a branch of the Department, there was a lot of duplication in terms of corporate functions such as finance and human resources. This had cost implications for which the Department’s accounting officer (the D-G) would have to account for and as such would had to be scrutinised closely. This was already done in terms of the internal audit function. Where before the NPA had its own internal audit function, the Department’s internal audit function now rendered this service to the NPA as well.

Mr Trent noted that in his March 2004 management report, Advocate Simelane had stated that the legislative framework was problematic in as far as it related to the institutional relationship between the NPA and the Department and the financial management of the former by the latter. He also noted that the NPA had made a submission in the 2003 financial year to the Minister of Justice for an amendment to the Public Finance Management Act (PFMA) so it might be recognised as a constitutional institution. He asked whether any progress had been made in this regard.

Advocate Simelane responded that the legislation in question had established the NPA and the Directorate of Special Operations (DSO). The legislation implied that the DSO should "in a sense" and from an "operational perspective" be treated differently from the NPA. Furthermore, while the National Director of Public Prosecutions (NDPP) accounted for the performance of the NPA, the D-G had to account for the expenditure of the Department as a whole — including the NPA.

For instance, if the NDPP wanted to conclude a performance agreement with his Chief Executive Officer (CEO), the agreement should be subject to the approval of the D-G as it was with the latter that the "buck stopped". The nature of the NPA as an institution, and its geographical separation from the Department made this situation untenable. Current thinking in the Department and the NPA itself was that the latter should be re-created as a constitutional (Chapter 9) institution and the NDDP and his CEO should be allowed to account for its performance and expenditure.

Mr Trent further noted that, in the said report, Advocate Simelane had stated that the NPA had made a submission to the Minister of Justice for this issue to be addressed as far back as 2002/03.

Advocate Simelane responded that there had been no active discussion in pursuit of an immediate solution since then. In the meantime, the Department should work towards the elimination of duplication in corporate support and the standardisation of systems where the NPA in particular was concerned.

Mr S Fakie (Auditor-General) stated that the Special Investigations Unit (SIU) had a similar problem. They applied the remedy of making an application to National Treasury to allow the head of the SIU to account for its expenditure, rather than their relevant D-G. The D-G, therefore, only had responsibility for transfer payments. Mr Fakie suggested that until the review of the situation between the Department and the NPA had been completed, the D-G should consider applying a similar remedy.

Mr D Gumede (ANC) asked for an explanation of the Department’s strategy to attract and retain scarce skills.

Advocate Simelane responded that the historically poor image of the Department — both as an employer and as a service provider — was a significant hurdle in the attraction and retaining of scarce skills. Sometimes, the image of the Department was also tainted by functions of government not necessarily directly related to it, e.g. correctional services or safety and security. As soon as the Department had improved its relationship with the public, it would certainly be easier to attract better quality employees. Currently, the Department was re-evaluating its activities so that work could be structured in such a way that employees would be attracted by the issues and the environment that they would be dealing with, and focus less on remuneration.

Mr Trent asked about the types of expertise that were currently being sourced from external consultants, and wanted to know how and in which areas the Department could rapidly wean itself from the use of external expertise.

Advocate Simelane responded that there were consultants in every area of activity in the Department to the point that they constituted full but temporary units. Advocate Simelane indicated that, as a historically under-funded Department, the Department of Justice had difficulty in catering for all the demands of new legislation being passed. This was because the parallel processes of the provision of funds and human resources to deal with the demands of new legislation were never catered for particularly well. In the pursuit of immediate compliance with these new provisions, the Department would then buy in services and expertise. These external contractors tended to remain in the establishment due to a lack of further action from the principals of the Department. This was where much of the over-expenditure of the Department emanated from.

A good example of such new legislation was the recently passed Child Justice Bill, which made provision for intermediaries and diversion processes etc. What this meant on the ground was that there needed to be people in place to deliver these services and drive these processes - people for which the Department had no budget. The Child Justice Bill was not an isolated case either. Other examples included the Sexual Offences Amendment Bill and the Clearance Bill, both of which would be passed imminently. It was, therefore, likely that this situation would be repeated many times over in the future and imperative that a solution be found as soon as possible. Though the savings on the many vacancies in the Department had in part offset the costs of outside expertise, it was still not enough. In the short term, the aim was thus to reduce the use of consultants only to the extent that could be provided for from the savings from Departmental vacancies.

Discussion
Mr S Fakie stated that his office had some knowledge of a duplication of costs for services rendered to the Department by SITA, but that he did not have the specific details at hand. He further stated that it was common practise for such transactions to be governed by service level agreements, and that this should have been employed in trying to recover the funds if the service was not provided. Mr Fakie conceded that working through National Treasury was also a viable course of action. His office would follow up the issue in its next audit of the Department, if it had not been done already.

Mr McKenzie told the Committee that the whole issue with SITA had been thoroughly documented and was open to scrutiny. Approval had to be obtained from Treasury in order to pay for the service in advance. At the outset, SITA had stated that they could not provide the service without prior payment.

Mr Fakie acknowledged the difficulty the Department faced in having to deal with so many offices. However, this was not unique in the context of government, as the underlying problem was one of limited bandwidth at SITA. This was something that would require a substantial capital investment, and negotiations were already underway between SITA and Telkom. Mr Fakie further commended the Department’s efforts in trying to address the problem from their side.

Mr Fakie related that it was the understanding of his office that the Department had decentralised much of its administration a number of years ago. He recalled that there had been a serious slump in the Department’s audit reports at that stage, as the necessary skills were not in place in the branches to handle the new decentralised responsibility. Against this background, Mr Fakie wanted clarity on two issues. Firstly, he wanted to know why it was still necessary for documentation to be manually posted to a central base for capturing if this function had been decentralised years ago. He asked whether it would not have been more cost effective to spent effort on equipping localised centres with computers and skilled personnel that could complete the capturing function. This would have avoided the current situation where hard copies had to be sent to and fro all the time. Secondly, Mr Fakie questioned why unauthorised expenditure at branch level only came to light after the fact, if each of the decentralised branches were supposed to have its own budget in the first place.

Mr McKenzie told the Committee that information used to be sent in electronic format on 1.44mb data discs. This was, however, no longer possible as the current system, BAS, was not a stand-alone system and only supported dial-up connectivity. Decentralisation of the administrative process had taken place. According to this system, the Chief Magistrate ran the budget and took final responsibility at the individual court. With the adoption of the new Constitution, provisions for the independence of the judiciary meant the Chief Magistrates could not be involved in this process. Hence, a management vacuum was created at court level. Accordingly, the regional office concept was brought to an end. It was then decided that court managers would be appointed, but roll-out was still some way off.

Mr Fakie indicated his understanding of the limitations of the BAS-system. However, since BAS was only taken into use from April 2004, and the period his question related to was 2002/03, Mr Fakie felt unsatisfied with Mr McKenzie’s answer.

Mr McKenzie acknowledged that the FMS-system was still being used in 2002/03. He related that not all the local sites always sent their data discs in every month. This should not have been the case, but the lack of capacity in the Department was quite significant at that stage.

Ms A Dreyer (DA) noted concern over the lack of connectivity in the Department and lamented the wastefulness of having computers in localised sites which could not be switched on because of the lack of delivery from SITA. She sympathised with the delegation from the Department in respect of the difficulties that they faced in this regard, but emphasised that some sort of time-line implementation plan needed to be put in place to ensure that positive action was taken.

Mr McKenzie responded that the issue of connectivity was a national crisis and so needed to be addressed at a higher level. Thus far, the Department had obtained the approval of SITA to address the issue with Telkom, outside of the assistance of the former. Mr McKenzie expressed the opinion that a wireless connectivity grid would in all probability provide a suitable solution at a third of the price of trying to establish a hardwire connectivity grid. He urged the Committee to push for the creation of a government task team to deal with the issue effectively.

The meeting was adjourned.