South African Management Development Institute & Department of Labour: Financial Statements 2006/07 hearings

Meeting report

South African Management Development Institute (SAMDI) Financial Statements: Interrogation
Mr T Bonhomme (ANC) said that the Auditor General’s (AG) report had been quite positive. He said that there were vast improvements in the statements in relation to the South African Management Development Institute (SAMDI). However, referring to the issue of their fixed assets, he pointed out the fact that internal control was weak. In year 2006/07 it was found that there was inadequate monitoring control and there was an understatement of R753 000. In year 2005/06 insufficient control of internal movement of assets was also identified. He asked what has been done to address these weaknesses.

Dr Mark Orkin, Director-General, SAMDI, said that the Institute had prepared background materials on related issues and governance. He said that there were no repeated matters from the previous financial year. Matters raised in 2005/06 were different to those raised in 2006 /07. There were no unresolved issues from one year to next. He explained that in accordance with the cash system they used, the practice had been to put items on the asset register as they arrived, whereas the AG said they should be added to the register as they were purchased. Sometimes items were purchased, but then only arrived during the following financial year.  These items were therefore not included in the register. The seniority of the people handling the asset register had been increased.

Mr Bonhomme referred to the Training Trading Accounts. There were problems relating to internal control over year 2005/06, during which unallocated receipts amounted to R740 840. Secondly there were weaknesses in internal controls over account receivables. He asked what had been put in place to ensure that this was eliminated. 

Dr Orkin said that these matters were separate. With regard to the issue of unallocated receipts, he said that the problem had been identified as a lack of an adequate computer system to deal with these. In the second matter, he said that SAMDI rendered services for which they were paid. While internet payment was not a problem, payment by cheque was problematic, due to the inadequate information provided by the person writing out the cheque. The amount of unallocated receipts dropped from R800 000 to R80 000, but this had been done after the report was already completed. In addition, they were now able to obtain images of both sides of the cheque with the help of more modern methods. This provided them with more detail about the party effecting payment.

Mr Bonhomme referred to receivables and said that the AG had expressed concern with regard to timeous debt collection and with the non-adherence to general accounting practices. He referred to the R4.3 million which remained outstanding for more than a year and asked if this impacted on the cash flow for training entities. He inquired about the failure to allocate debtors to amounts.

Dr Orkin said that this was indeed a problem, which he had addressed soon after joining the organisation. He had found it to be problematic too, given that he had come from an environment that was very ‘cash-flow conscious’. He attributed the problem with regard to debt (especially historical debt) to lack of modern technology and added that this had since been addressed by replacing manual systems with automated systems. SAMDI was busy following up with the debtors. It was in the process of analysing debt, effecting system changes and chasing debt. In fact part of the reason for the surplus in the trading account was improved debt recovery.

Mr Bonhomme referred to the AG’s finding that there had been inadequate monitoring with regard to amounts payable. He said that creditors had to be paid within 30 days. He asked what was being done to address this.

Dr Orkin responded that the finding had been based on a single incident. The supplier had in fact invoiced SAMDI late, which meant that by the time they had invoiced the receiving party the amount had already been paid. The problem was merely that the supplier had been too slow. Since many of their users were Government departments, SAMDI would be able to prevent this from happening in future by going through the inter-department letters, which contained information on moneys owing.

Mr Bonhomme referred to page 142 of the Annual Report, which dealt with vacancies. He also referred to the vacancy rate of 24.4% in 2005-06. He asked why there was such a high vacancy rate and if this impacted on performance.

Dr Orkin responded that the vacancy rate was average. It was being dealt with consciously and deliberately. In accordance with the mandate to effect a transition to a training academy SAMDI did not fill the vacancies, as this would allow them to fill positions with persons from this institution. They would not let vacancies rise to a level where they would compromise performance and would therefore use temporary personnel where necessary.

Mr E Trent (DA) asked if these vacancies were funded posts.

Dr Orkin answered in the affirmative.

Mr Trent then said that this meant that the vacancies formed part of the budget. This meant that the budget was either inaccurate or that SAMDI was putting away cash reserves which were supposed to be used to fill these posts.

Dr Orkin agreed, but added that this was a matter of temporary phase-ins. This transformation was a temporary situation, after which SAMDI would move toward filling all the funded posts. Where funded posts remained vacant, the allocated money was used either for interviewing temporary people or meeting other staffing requirements.

Mr Bonhomme asked if the restructuring of SAMDI into a training academy was on track.

Dr Orkin said that this process was very complex within the public service, as there were regulations and frameworks that had to be complied with. They were, however, moving according to their time-table and were busy populating their new organogram. They were not waiting for training to happen before running their deliverables. There was the induction of 100 000 people to the public services. They were also moving to new premises, which was challenging. The Information Technology (IT) was being stabilised in order to effect this move.

Ms Alice Muller, Business Executive: Office of the Auditor-General, said that there had been constant improvement in SAMDI in the past few years, which she attributed to Dr Van der Nest, who had studied on Audit Committees, and who could add value to the discussion.

Dr D Van der Nest, Chairperson: Audit Committee, SAMDI,  said that the success of SAMDI could largely be attributed to the attendance and involvement if the Director General in the audit committee. He emphasized the structure of the agenda in terms of risk management and highlighted the importance of management’s role in keeping track of their proposed improvements as well as their implementation plans. The involvement of senior management and the accounting officer in the audit committees was vital to their success.

The Chairperson concluded that SAMDI was living testimony to the fact that one could get things right and make fundamental and drastic changes to the way in which funds were administered. He was pleased with their progress and said it was important for those who got it right to show others how it was done. The issues on which the AG reported related to the management functions of supervision and control. The absence of these would mean that there would always be deviation and non-compliance. This seemed to be the one area that needed some work by SAMDI. Overall, the Committee was very pleased by the progress made by SAMDI.

Department of Labour (DOL) Financial Statements 2005/06
The Chairperson said that it was not the first time the Committee had needed to engage with this Department. He acknowledged that there were issues raised in the Department that were resolved but there remained outstanding issues as reflected in the AG’s report. He welcomed Acting DG to his new position

Mr P Gerber (ANC) asked why the report had not been signed by the previous Director-General.

Mr Les Kettledas, Acting Director-General: Department of Labour, said that he had been under the impression that the report had been signed. He did not know why it was not signed.

Mr Gerber referred to the situation where one Director General (DG) left and another had to come in and answer for what the previous person had done. He felt that in future, where a DG had left, that person should in fact be called in to answer for matters falling under his responsibility, and should therefore accompany the new DG. Mr Gerber referred to the fact that the Chief Financial Officer (CFO) of the Department of Labour (DOL) was at the level of Chief Director, whereas in other departments, he was at the level of DDG. The previous DG had said that he was not satisfied with that and had said that it would be receiving attention. He asked if anything had been done about it.

Mr Kettledas replied that once he started his Acting position, he spent two weeks on the audit issues, one of which was the question of the level of the CFO in the Department. He had asked the Human Resource Manager to examine the role in other Departments with regard to its level and job description so that he could make a recommendation to the Minister in this regard. He was hoping to get the information in due course.

The Chairperson requested that the Committee too be provided with the information on this matter.

Mr Kettledas responded that it would be included in the next report.

Mr Kettledas, having checked up on this in the meantime,  brought to the Committee’s attention that the report had in fact been signed by the previous DG. He referred the Committee to page 17 of the report.

Mr Gerber referred to page 2 of the Annual Report. With regard to the National Skills Development Strategy, he referred to the heading “Achievements” and asked if DOL was satisfied with the level of learners entering the programme. He asked why there was such a high drop-out rate.

Mr Kettledas replied that the reason many learners entered the programme and not all of them finished was that all did not enter or complete the programmes within the same financial year. Sometimes there were six to twelve month programmes. There could also be an overlap, for example where the completion date went beyond the current financial year.

The Chairperson asked if DOL could separate learners who were dropping out from learners who were not completing within the same financial year they enrolled. One would need a more accurate picture on this matter.

Mr Kettledas said that this would be included in the next report.

Mr Gerber referred to page 65 of the Annual Report and the heading “Governance Committees”. He said that the statement that the AG was required by Treasury to appoint an audit committee as a subcommittee of the AG, was inaccurate.

Mr Kettledas agreed and said that this would be corrected.

Mr Gerber asked what the reason was for the increase in the percentage of vacant posts. These posts amounted to R131 million in salaries on average. He asked what DOL was doing to fill these posts.

Mr Kettledas answered that the DOL had started a verification exercise. It was looking at the organisational structure and also required each manager to verify each employer in the organisation. Thus it was in the process of checking that people who were said to be in the directorate were in fact there. Thus far it was found that 792 posts were vacant, 67 were frozen, and 6 462 were filled. This was still not satisfactory as there was still a need to determine whether the DOL did in fact require the vacant posts or if they could be abolished. There was a possibility that posts had been created but not filled, and a need to determine which of the vacant or frozen posts still in fact were required.

Mr Gerber asked how long the posts were required to be advertised internally before they could be advertised to the public.

Mr Kettledas replied that they were advertised internally for one month, after which they were advertised externally for another month. Only those positions up to level 6 had to be advertised internally first.

Mr Gerber referred to the Labour Policy and Labour Market Programmes. He asked why the under spending for capital assets was so high. Also, he asked why the under spending for the transfer and subsidies under the Social Insurance Programmes was so high.

Mr Kettledas said that where these amounts referred to capital works, they were the responsibility of the Department of Public Works (DPW).

Mr Chris van der Merwe, Chief Financial Officer: DOL, agreed, adding that a number of the projects had expired and for many of the projects new contractors had not yet been appointed.

The Chairperson asked how this figure had increased so much from the previous financial year. He asked where the bottlenecks were.

Mr Kettledas responded that the under spending on capital assets was because DOL only paid the amount when invoiced by the Department of Public Works. They could not enter into these transactions themselves.

Mr Gerber asked why DOL had ceased to pay the RSC levies.

Mr Kettledas said that this was no longer required. All outstanding levies had been paid to date.

Mr Gerber said that for the purposes of the Internal Audit, 29 posts had been filled and 17 remained vacant. He asked how many of the vacant posts had since been filled.

Mr Kettledas replied that fourteen had been filled.

Mr van der Merwe said that this was a problem that existed in other Government departments as well. Very often a position would be filled, but the employee would resign a few months after joining the Department. There was therefore a need to examine the level at which other Departments were paying their auditing staff.

Mr Gerber referred to the problems associating with the capturing of leave on to the system, the administration of leave forms and leave forms that had been completed inaccurately. He also referred to the issue where leave was not approved in time and asked how this was being addressed.

Mr Kettledas responded that much had been done on this issue. The DOL was now up-to-date with its processing. In addition the issue of leave was now a key performance area for managers in their performance agreements. Thus they were now accountable for non compliance.

Mr Gerber insisted that this issue had been deteriorating over the past few years.

Ms Muller said that there was a problem in leave not being approved in time. If the employee then went on leave s/he would be breaking the rules even though s/he had submitted the form on time. She asked how this was dealt with.

Mr Kettledas said that it was unacceptable for an employee to take unauthorised leave. However this issue was being addressed by making it management’s responsibility to prevent such occurrences.

The Chairperson asked what would happen if the person went on leave because the manager failed to approve it on time.

Mr Ketteldas said that non-performance in this area was being dealt with at management level. DOL was also meeting all managers and heads of labour centres to discuss these issues, and also their responsibilities in terms of the AG’s report. He said that these issues had to be dealt with at the lowest level of management.

Mr Gerber said that 129 labour centres were mentioned in the report. The previous DG had mentioned 133. He asked if four had been closed.

Mr Kettledas explained that people sometimes included satellite offices as labour centres even though they were intermittent and not permanent offices.

Mr Gerber referred to the AG’s statement that the fixed assets were not sufficiently supported by a fixed asset register. He asked if there was improvement in this regard.

Mr Kettledas said that there was a process in place in terms of which a register was drafted. A team had been established to visit the provincial offices to verify assets, conduct stocktaking and reconciliations. The target date for the completion of this process was the end of April.

Mr Gerber referred to the fact that there was no dedicated asset management unit and that the DOL had thus far relied on internal staff to perform this function. DOL had said that this function had not been outsourced, due to challenges with service providers. He asked for more detail on what these challenges were.

Mr Kettledas said that this unit was being put in place. There was funding for such a unit, which would be in place by April. He did not have information as to why the process had been delayed.

Mr van der Merwe also did not know the reason for the delay, but said that they had received bids, which were adjudicated upon the Department. There was approval for a Standing Bid Committee in July 2006, but the Acting DG only approved this in December. If this had happened earlier the unit would have been appointed earlier.

Mr Gerber referred to debt, which was outstanding for more than three years.  If this were to be written off DOL would not do enough to ensure that they would get paid.

Mr Kettledas said that each case would be decided on its merits. On the advice of Legal Services, R1.1 million of irrecoverable debt had already been written off. The DOL was pursuing the recovery of the rest. This would be done via the State Attorneys’ Office, who would decide what to recover and what to write off. This process was under way. DOL would provide updated information to the Committee in due course.

Mr Gerber referred to the staff debt that had to be written off. He asked what was done to recover these outstanding amounts. He asked if this were dealt with by sending staff a letter, or deducting amounts due from their salaries. He also asked how staff who had left the Department were dealt with.

Mr Kettledas replied that this was dealt with by deducting the debt from the staff member’s salary. Where the staff member was leaving it could be recovered from pension monies due. Where the staff member had already left the employ of the Department they were sent a letter informing them of the debt owing, after which the State Attorney would follow up.

Mr Gerber asked if it was possible that the R9 million owed by staff had prescribed.

Mr Kettledas said that DOL would get information on what was prescribed and what had not. Many of these amounts were small, but would still be investigated. He had asked for information on which of these debtors had left the DOL, which were leaving and which were deceased.

The Chairperson could not understand how an employee continued to receive his/her entire salary while owing the Department money. Also, if he/she left the employ of the DOL, the Chairperson could not understand how these people could still manage to claim their pension without the debt being recovered. He asked where the challenge lay in simply deducting the money.

Ms Muller said that the root of the problem was simply lack of internal control and insufficient supervision and monitoring. This should have been followed up on a monthly basis.

The Chairperson agreed that this was a simple matter. Somewhere in the system, one should have been able to see that the person owed the DOL money.

Mr Kettledas agreed that this was an area that had to be tightened up. There was clearly lack of synchronisation of information within the DOL, which was why the Finance section was not aware of the debt.

The Chairperson said that this applied to other Departments too.

Mr Gerber referred to the under-utilisation of 72% of subsidised vehicles. He asked for clarity on this system. He referred to the situation where the employee purchased a vehicle that was subsidised and asked if this vehicle would also have to be used for departmental work.

Mr Kettledas explained that there were employees whose jobs inherently entailed driving. The formula at present was that 70% of the kilometers traveled had to be for business purposes. The DOL had 430 subsidised vehicles, but had to withdraw six of them for not meeting the criterion of 70% business purpose, even if the utilisation had been 69%. The Department of Transport was considering a more flexible situation with a range of options as to proportional use. The extent to which one was subsidised would therefore depend on the range in which one fell (which was determined by how much one used the vehicle for business purposes).

Mr Gerber referred to the heading “Prepayments and advances” on page 94. He asked what the reason was for the decrease from R45 million in 2005/06 to R8 million in 2006/07.

Mr van der Merwe answered that receivables reflected were monies the Department recovered from Unemployment Insurance Fund (UIF)  and Workmen’s Compensation Fund. Three funds within the Department ran through the PERSAL programme and then came on to the DOL’s systems. DOL then had to recover funds from the Compensation Fund and UIF. In the previous year DOL had been three months in arrears, but this year they were up-to-date in re-advancing the Department for what they had expended.

Mr Gerber referred to the heading “Irregular Expenditure” on page 108. He referred to the old item of R927 000 from 2005/06, which had not been approved by the Tender Sub-Committee and was therefore subject to investigation. He also referred to the heading “Expenditure in contravention with Tender Board Regulations”, which was also under investigation. He asked for a progress report, what this amount was for and how far the investigation was.

Mr van der Merwe replied that the R927 000 was in respect of a skills conference. He could not remember what the second item was for. He referred to the item “Overtime not approved timeously” and said that this had been covered in discussions on leave where overtime was worked and not approved timeously.

Mr Gerber requested that these answers be provided in writing.

The Chairperson agreed. The last item, which referred to leave not approved timeously, again highlighted the importance of the management function.

Mr Gerber referred to the heading “Statement of transfers to non-profit organisations” on page 119. With reference to subsidized work-centres for people with disabilities, he said that with all the items, the adjusted appropriation amount had been equal to or less than the actual amount transferred. In this case R36 million had been allocated, while R45 million was transferred. He asked from which other programme the excess amount had been taken.

Mr van der Merwe said that toward the end of the financial year, the subsidised Work Centres for people with disabilities had run into financial difficulties. DOL had to bail them out since they could not pay their creditors. The Acting DG at the time had approved the movement of the funds. He could not remember from which programme the funds had been moved. DOL had not exceeded their overall budget although they had exceeded the estimated amount for that programme.

The Chairperson asked what the cause of the difficulty was that required a bail-out of almost R10 million.

Mr van der Merwe said that the arrangement with Sheltered Employment was that DOL subsidised their operational losses and capital equipment. Since Sheltered Employment had lost their preferential procurement status, their sales had diminished. In order to ensure that 1 100 disabled people kept their jobs, DOL would have to keep increasing their subsidy year after year unless it was possible to again make them the preferential providers to the State.

Mr M Stephen (DA) referred to staff debt that had prescribed after the three-year period. Prescribed debt was not recoverable but was also not extinguished. He felt that once the debt had prescribed, the State should inform the person of the amount owed and the fact that the debt had prescribed, but was not extinguished.

Mr Kettledas agreed, saying that that was the reason the matter had been handed to the State Attorneys. They would do the recovery in full compliance with the law. He agreed that they would not operate as if they were a rogue organisation. He assured the Committee that this matter would be cleared.

The Chairperson said that the issue of synchronisation was important as it meant that no case would have to be referred to the State Attorney. There was a need to be stricter with regard to what was expected from management.

Mr Trent referred to the Internal Audit Committee, saying that while transversal systems had inherent limitations and deficiencies, one had to take into account human error in the system.

Ms Muller responded that the AG did an assessment of the transversal systems. The purpose of the assessment was to determine their auditory line - to determine the extent of their testing. It was not a reason for the qualification. In the DOL there should be enough compensating controls to ensure that there was compliance with what the department had to perform.

Mr Kettledas said that the last sentence of the paragraph headed “Effectiveness of internal control- Department of Labour” on page 47 should be removed.

The Chairperson said that Departments should ensure that documents were complete and accurate before being submitted to Parliament for public consumption.

Mr Trent referred to performance indicators and suggested that while many were measurable, some were not so clear. He suggested that DOL tried to keep their performance targets as measurable as possible.

Mr Trent referred to the item “Beneficiary Services” on page 29, where it was stated that although the target for Compensation Fund claims processed was 75%, only 35% were in fact processed. He asked why this figure was so low and why this was not achieved.

Mr Kettledas said that the problem was that these claims could only be processed once all the relevant documentation was received.

The Chairperson interrupted saying that the stated target was the payment of 75% of claims processed and paid within 90 days of receiving complete documentation.

Mr Kettledas said that this would be examined as it represented a lag in the system. Targets had been set in this regard. However even in instances where forms had been completed additional information would still often be required at a later stage.

Mr Trent asked if and how often the DOL went through their targets. He asked if they conducted a specific exercise to determine if they were meeting their targets.

Mr Kettledas answered in the affirmative, saying that they had to do this before they could draft their next work plan.

Mr Trent asked if this exercise was working.

Mr Kettledas replied that it was. It was being done on a quarterly basis.

The Chairperson pointed out that the applicants for Workmen’s Compensation were very often in dire need of the money. It was the Committee’s duty to focus on the most vulnerable people in society. The area of compensation too was related to supervision, as one had to determine at what point the person realised that they were not meeting their targets and then what steps s/he had taken to address this.

Mr G Madikiza (UDM) referred to the National Skills Programme. The AG had noted that management did not implement a comprehensive process over the awarding of social development contracts for these projects at provincial level. Also they did not comply with Treasury regulation on Supply Chain Management (Regulation 16.8.6) .He asked how DOL ensured that the contracts awarded were free of corruption, given that no competitive bidding had taken place.

Mr Jeffrey du Preez, Chief Director: National Skills Fund, DOL, said that in the deliberations with the AG it emerged that DOL had been using a process different to how it should be in that there was no Bid Specification Committee. However fraud and corruption did not only happen when there was non-compliance. With regard to the fact that the Fund had not fully aligned their procurement procedures with Treasury regulations, he explained that in accordance with their social development funding window, there was no price competitive bidding because there was a fixed price for all the funded courses. There was therefore no disadvantage to the State in terms of them being able to get courses at a lower rate.

The Chairperson asked if they felt that the concerns expressed by the AG were not legitimate.

Mr du Preez responded that DOL had already indicated that it was not completely in agreement with the nature of the finding. However they had agreed that until such consensus had been reached they would take the steps to address the concerns of the AG. He referred to the fact that there was a data base with training providers and said that the processes included seeking quotes from at least three training providers. Thus, even though there was not a Bid Specification Committee, this did not mean that there was a lack of formal processes.

The Chairperson said that the AG had not seemed convinced by this argument. He had in fact reported that DOL had not issued an invitation to tender for projects that had exceeded the threshold value.

Mr Madikiza asked whether DOL had applied for exemption from the Treasury Regulations, since they felt that they did not need to adhere strictly to these requirements.

Mr du Preez said that they had started to look at the areas that had to be addressed in order to ensure compliance with Treasury regulations. They had been advised that if special circumstances existed that meant that they could not comply fully with regulations, they would have to request the Accounting Officer to obtain an exemption from Treasury by motivating the reasons for this exemption. They were however following the approach whereby they were attempting to ensure compliance with regulations.

A Treasury official confirmed that Mr du Preez was correct in saying that the DOL could ask the DG to apply for exemption.

The Chairperson said that he imagined that every accounting officer should be aware of this. All that was necessary was that the Accounting Officer had to apply to National Treasury.

Mr Kettledas said that he would do so now that it had become his responsibility.

Mr Madikiza referred to the fact that commitments to the amount of R745 million were not accurate and complete. He asked why assurance with regard to accuracy and completeness of commitments could not be obtained.

Mr Kettledas said that this related to the accounting system at the time. DOL was now developing an accrual – based accounting system which would ensure that the commitments would be correctly reflected on the financial statements.

The Chairperson asked if the Department had an exemption from accrual system all along. He asked why it was only switching to an accrual system now.

Mr du Preez said that this had first been raised in the 2005/06 financial year. Although the National Skills Fund (NSF) had been operating as a programme, the Accountant General felt that it should be a public entity. The Accountant General therefore gave the exemption for the past two years. However it was felt that although they were using the cash based system they had to disclose the commitments. Thus, while the legal status of the NSF was being decided, they would switch to accrual system to be able to comply with their requirement of disclosing commitments.

The Chairperson said that the legal status had been uncertain for some time. He asked what the progress was on this matter.

Mr Kettledas responded that the necessary amendment to the Skills Development Act was being drafted and would be taken through the normal processes.

Mr Madikiza referred to the AG’s reference to inadequate filing and lack of monitoring in order to ensure the accurate commitment of funds. He asked on what basis the DOL would refute these allegations.

Mr du Preez said that this was not disputed, but attributed it to the fact that the old system meant that they had to manually keep track of accruals. There was also disagreement regarding what a commitment was. The DOL was now were developing a system to keep record of commitments.

The Chairperson said that inadequate systems created the possibility of failure but it was the human factor that was central to the issue. The accrual system would not be of much assistance if the employees were not performing.

Mr Madikiza referred to the fact that there had been material corrections to financial statements during the auditing process. He suggested that the shortage of skilled officials with requisite accounting knowledge was the root cause of the problem.

Mr du Preez agreed.

The Chairperson said that it was not necessarily wrong to revise figures during the process of auditing, but it did not create a positive picture. He said that this should not occur since the AG’s office and National Treasury were available for consultation throughout the year.

Mr van der Merwe explained that the National Skills Fund operated on a Basic Accounting System (cash system). There was an entanglement with other departmental transactions in the Basic Accounting System, thus the two systems were separated so that they could run on their own systems. The adjustments arose from the contamination between the two types of transactions, as it became difficult to identify what were DOL and what were NSF transactions.

Ms Muller said that the separation of the transaction did simplify the process, but this year the majority of the adjustments were not as a result of this contamination. They were as a result of the failure to record NSF transactions correctly. This pointed to a lack of monitoring and supervision of financial statements before they were submitted for audits.

Mr Madikiza referred to the issue of governance (page 153, paragraph 14). Policies and procedures for certain funding windows were in draft format. Also, there were no manuals for several funding windows. He asked if the reason for this was lack of capacity.

Mr Kettledas replied that all these policies and procedures had been approved. Only one still had to be submitted to the AG office.

The Chairperson asked why this took six years.

Mr Kettledas could not explain why it had taken six years. He said that, just as regulations needed to be in place when a law was passed, these procedures had to be in place to guide implementation.

Mr Madikiza said that the DOL was accused of non-compliance with the prescripts of the operational manuals with regard to the Manpower Authority of Bophuthatswana. He asked what they were doing to correct this.

Mr Kettledas said that regulations were amended to transfer the funds to the social development funding window and the funds that had been committed had already been disclosed on the financial statements for 2005/06. This would continue to be disclosed on the financial statements of the NSF. The uncommitted funds had been transferred to the social development funding window. An operational manual was completed for this funding window as well.

The Chairperson referred to the social development window and said that a quarter of a billion rands were disbursed by this window. He asked how one could ensure that the disbursements were done free of corrupt practices if they were done in an environment where there was no strict monitoring. One had to be sure that the people at the bottom benefited appropriately. There was therefore a definite need to tighten procedures.

Mr Madikiza referred to the comments by the AG that the planning process and conclusions of the Internal Audits were not properly documented. He asked what the reason was for this.

Mr Kettledas said that unlike previous financial years, the AG had this time placed reliance on the Internal Audit.

Mr Madikiza said that all the issues raised had more to do with supervising and monitoring. Thus emphasis should be on the human factor.

Mr Kettledas reiterated that management sessions were going to be held to inculcate these practices. He added that these sessions would also be used to address issues that had been raised in the audit report.

Mr Madikiza referred the number of vacancies and asked what was being done to enhance their recruiting effort. In addition, he asked what impact the vacancy rate had on their performance.

Mr Kettledas reiterated that the DOL was in the process of verifying vacancies to determine which posts should be filled or abolished. They hoped to conclude this process by the end of March.

Mr Madikiza referred to under spending with regard to furniture and equipment for new employees. He asked how one could under spend in this area, and how DOL could employ more people without giving them the proper tools to do their work.

Mr Kettledas said that it was not that the persons did not have furniture, but that they sometimes felt that their furniture was too old. Sometimes persons requested new furniture and the DOL would deny the request, based on the fact that the furniture was still in a good condition.

The Chairperson said that since this item was included in the budget, it either meant that the employees lacked tools or that the DOL was guilty of poor budgeting.

Mr Gerber referred to page 173 and asked why the outstanding levies for the previous year were for one month but for this year they were for two months.

Mr du Preez responded that this was due to the lag period at the end of the financial year. There was a delay at this stage, which affected the timeous transfer of money.
 
Ms L Mashiane (ANC) referred to the fact that procedures in the implementation of supply chain management procurement had not been followed by Sheltered Employment Factories.  She asked what had been done to improve non-compliance.

Mr Kettledas said that this was being addressed. A composite advertisement was being developed inviting prospective suppliers to register on the Sheltered Factories database.

The Chairperson asked why there was no compliance in the first place.

Mr Len Larson, Acting CEO: Sheltered Employees Factories, said that the two major bids involved the procurement of fabric and wood. There were a limited number of suppliers who got each of these very specific types of fabric and wood. In the case of the former there were only three suppliers. Both these materials exceeded the threshold of R250 000, but he had omitted to apply for exemption to the Accounting Officer.

The Chairperson asked why he had omitted to apply.

Mr Larson said that it was due to lack of knowledge.

The Chairperson said that this was cause for concern, since it raised the question as to how many other matters there were on which he had insufficient knowledge.

Ms Mashiane said that the Sheltered Employment Factories (SEF) had not concluded a valid transport contract to date. She asked whether there was a process in place to appoint a transport contractor.

Mr Kettledas said that the tenders had been advertised and bids evaluated. A decision as to whom to award the contract would be made soon.

Ms Mashiane said that the employment test for all assets had not been completed as required by the accounting standards. There was also insufficient monitoring of accounting records relating to inventory in transit at year end. She asked what had been done to appoint skilled officials to see that this was done.

Mr Kettledas said that the management committee of SEF had instituted a special project to create a credible asset register to reconcile and verify the location and value of the assets, and to determine which assets had to be written off as obsolete or redundant. Asset registers had been completed, assets were bar-coded, and physical verification was completed in all factories. A policy was in place and factory managers had to reconcile asset registers quarterly and institute corrective action where anomalies were identified. They identified assets to be written off. The authority to write them off would be obtained before 31 March 2008. Re-valuation of assets had commenced and would be disclosed in the Annual Financial statements for the year ending 31 March 2008.

Ms Mashiane referred to paragraph 14, page 127, which dealt with the issue of misstatements identified by the AG. She asked what was being done to ensure that only skilled officials did this work.

Mr Larson responded that they had instituted a skills development exercise to ensure that people in supply chain management, and finance particularly, had the necessary skills. Misstatements could be attributed to the fact that management had considered certain leases to be operational leases, whereas the AG felt that these should be financial leases. This had a huge impact on the depreciation of the assets. They were now accounting for the leases accordingly.

Ms Mashiane referred to the non-compliance with applicable legislation on page 127. She asked for how long this would continue before being rectified, since this issue had been reported last year already.

Mr Kettledas answered that the SEF had never insured any of the assets as it was understood to be Government policy, and DOL has confirmed that. There were however measures in place to safeguard the assets, which included proper warehousing and proactive management to ensure effective control.

Mr Gerber referred to page 127 and asked what obsolete stock was being referred to.

Mr Larson answered that over a period of about fifteen years various bits of fabric and goods that were manufactured from this fabric had built up as a result of provinces or hospitals changing logos. This stock was mainly to textiles, and getting rid of it had presented a challenge due to the fact that logos were printed on the stock.

Mr Gerber referred to the SCOPA resolution which had not been resolved the previous year. It had related to the vacant post for a Head of Finance. He asked if this had been resolved.

Mr Larson replied that it had not been resolved.  The SEF were however using external consultants to take them through the process. They had obtained approval and the budget for this position and others that were required. They hoped to attend to this early in the financial year.

Mr Trent referred to the fact that no inventory in transit was identified countrywide while the financial statements reflected inventory in transit of R856 631.

Mr Larson said that their system at that time was such that they accounted for inventory already in stores and in transit but not yet dispatched to the customer. Thus they were not able to tell the AG what exactly was inventory in transit as their accounting system did not allow them to separate the two. This was now resolved.

Mr Trent said that a few SCOPA resolutions had not been resolved. These should be addressed to ensure that SEF was actually doing something about what was being discussed in Parliament. The issues included:
-lack of knowledge about prescripts and regulations, where SEF still needed assistance to complete their financial statements.
-the vacant post of head of finance
-the fact that the AG could not place reliance on internal audit findings submitted.

Mr Larson said that they had already discussed the issue relating to the vacant post for the head of finance. With regard to lack of knowledge and skills, he said that this issue was constantly being addressed in the areas of finance and procurement and supply chain management especially. It had been a traumatic transition to Generally Accepted Accounting Principles (GAAP)  for which they required external assistance, and would continue to rely on with the permission of the DG.

Mr Trent asked if they looked at resolutions adopted by Parliament and actually responded to them
 
Mr Kettledas answered that DOL had responded to the resolution in September last year. It had also responded to the resolution of 13 November, which was deposited at Parliament in January this year as DOL was required to do.

The Chairperson thanked the presenters, the National Treasury and the AG. There were issues that had pleased the Committee, but it remained concerned about the pace of progress. He highlighted monitoring and supervision as key issues arising from the AG report. He supported a speedy final appointment to the role of DG, in order obtain permanence in the position. This would serve to increase accountability.

The meeting was adjourned.