Social Development Portfolio Audit Outcomes; DSD, SASSA & NDA 2020/21 Annual Report; with Minister

Meeting report

Department of Social Development portfolio audit outcomes

The AGSA commended the management and the accounting officer of the Department of Social Development (DSD) for maintaining clean audit outcomes. This had been achieved because of oversight of adequate preventative controls and sound governance structures, timely implementation of prevention and controls, and monitoring and compliance with legislation. The entities had effective governance strictures.

A total of R105 million in irregular expenditure had been identified, of which R73 million had been incurred by SASSA. The irregular expenditure was from a failure to follow competitive processes (SASSA), expired lease contracts in use, cleaning and sanitation contracts not following tender processes, payment of R29 million by the National Development Agency (NDA) in stipends to volunteers without approval of the delegated official, and R3 million by the DSD for failure to follow a competitive process. Fruitless and wasteful expenditure identified amounted to R3 million. This included R1.9 million from the DSD due to car damage and no-shows on accommodation, flights or car hire, and R1 million from SASSA for penalties and no-shows at hotels.

Regarding compliance with legislation, overall there were processes in place to investigate irregular and fruitless and wasteful expenditure. An area of concern, however, was on the timely finalisation of investigations to allow consequence management to be implemented in the Department and its entities.

See presentation attached for further details           

Discussion

Ms L Arries (EFF) commented on the penalties for staff not showing up to hotels. What consequence management was there, and who would be held liable for those expenses? It was a lot of money that must be reimbursed. There was also R1.9 million of fruitless expenditure from the DSD. Could they give a breakdown on flights and accommodation and undelivered goods? There was only one amount showing, and it was not clear how the R1.9 million had been lost. The compliance officer needed to be held accountable for the R105 million in irregular expenditure recorded in slide 18. Slide 37 showed that 727084 potentially ineligible social relief of distress (SRD) applicants had received R254 million. There was a recent situation where the system of SASSA had removed applicants who were eligible for child grant support. Was this a true reflection? Slide 26 showed a R316 million over-payment had been made to a supplier in 2014. This was seven years ago, and interest on this would amount to a lot. How would this be dealt with?

Ms B Masango (DA) thanked AGSA for the presentation and the Department for the encouraging audit outcomes. Some of the information presented was concerning.  The performance report for SASSA programme two indicated that the indicator for social grant applications approved differed materially from the supporting evidence provided, and the accuracy of the reported achievements could not be confirmed. How much did this translate to? Was it possible that SASSA could have reported to the public about paying millions in grants to people when that was not accurate?

On internal controls, the AG reported that there was a concern about effective leadership in SASSA. What did that translate to in terms of consequence management or improving the situation? What was AGSA’s recommendation? At the start of the presentation, Ms Uviwe Ruxwana, Senior Audit Manager at AGSA, had commended the Committee on the audit outcomes, but did this translate to service being given to the citizens? People who contacted the Committee or write on social media would not believe it if they were told that the DSD had done well in its audit outcomes. This was because they were trying to apply for grants but were told to apply every month and be taken though a rigorous process and a lengthy database, but were later declined because they were already receiving support from the Unemployment Insurance Fund (UIF) or other social grants. Yet this was the same system that approved people who were on the database because they were employed by the government! The good work that appeared to have been done in the books must translate to actual provision of services on the ground. How did the AG’s scope of work extend to ensuring that the time taken to do successful investigations was shorted, and have regular reporting? It was ridiculous that some of the investigations took many years without being concluded. 

Ms M Sukers (ACDP) asked why the NDA was rated highly for effective leadership in the presentation, given the findings on poor expense management and irregular expenditure. How did this rating apply to the NDA? Members had received communication in the previous year of allegations of fraud and irregular expenditure at the NDA in a number of emails forwarded to some Members. There had been a request for the Chairperson to address the matter. It was forwarded to AGSA the previous year. What was the status of the investigation, if any?

Ms A Abrahams (DA) said her questions were technical in nature, and requested AGSA to provide a copy of the management report that had more detail than the slides that were presented. The current environment was challenging -- for example, the R1.32 billion in irregular expenditure broken down between the Department and the entities. There was a breakdown of the service providers, which was probably Cash Paymaster Services (CPS), but it was not written in the slides, hence the request for the management report.

Some of SASSA clients were entitled to receive SRD payments -- for example, after experiencing a fire. It was discovered that in 2019, one informal settlement in Cape Town was entitled to receive that grant, which was approved, but they did not receive the money. This was an ongoing challenge two years later. About 80 residents did not receive money initially, and there were still 30 or 40 individuals who had not yet received their money. Had the AG picked up this matter? There were probably other approved SRD clients who were victims of floods, fires and other disasters who had not received their money.

Ms G Opperman (DA) said she had four questions and had submitted the rest for written replies. From the April 2018 audit, there had been a material financial loss of R74 million for SASSA in payment for social assistance fees for services not rendered. What was the response of the accounting authority? In 2014, there was an overpayment of R16 million to service providers. What was the status of that investigation? The NDA had paid R29 million in stipends to volunteers without approval from a delegated official. Who paid them? Who did not sign and why? The Department did not follow tender processes for cleaning and sanitation contracts which had resulted in irregular expenditure. What was the value of this contract? How was it allocated, and to whom?

Ms J Manganye (ANC) said when AGSA looked at the books of the Department, the NDA and SASSA, could they confirm that there was an internal audit? It was confusing.

Ms L van der Merwe (IFP) was in agreement with Ms Masango -- audits must always translate to performance or service delivery on the ground. It was no good having good reports and audits, yet people experienced challenges to access the services. Every year, AGSA flagged vacancies in key positions, especially for acting positions. The Department must be asked to present a report to the Committee before the end of the year. Members want to see progress. The Department must be asked for a report on the recovery of money regarding the R350 grants, where ineligible people were paid. This was an outstanding matter without much progress. Did the audit pick up that there were approximately 177 000 government officials receiving the old age grant, disability grant, and child support, which was irregular because they were not eligible?

On the investigation on material irregularity (MI) of the R350 grants, it was said that this money could not be recovered from grant recipients because it would be a mammoth task to try and do so. Once the loss had been calculated and the investigation was completed, who would the money be recovered from? Would it be the SASSA CEO, the DG, or the CFO? Members were concerned that investigations were taking too long. Was there a way to empower the AG through legislation to prescribe timeframes within which investigations must be finalised?  Or was it simply for the Committee to enforce timeframes for the investigations? It did not reflect that the system was committed to holding officials accountable for their failures and wasteful expenditure if an investigation took two to four years to be finalised.

Every year, when reports were received, there was talk about car damages and no-shows for hotel bookings, but there was no sense that those funds were ever recovered from the implicated officials. There had been previous mention about “serial-offenders” who kept having bookings and not showing up for them. The Committee must strengthen its oversight. There were many of these repeat findings. Could the AG guide the Committee on the way forward?

Ms K Bilankulu (ANC) said there was a recommendation about filling vacancies to stabilise the leadership. This issue was in every report of the Department. What would AGSA’s advice be for the Department to take this as a critical issue? Most of the problems highlighted were because of a lack of manpower, and filling such vacancies would ensure that things ran smoothly.

The Department should be commended for the management of their finances. While there were challenges of irregular and fruitless expenditure, there was a difference between the current and previous financial year. There was progress. From the investigations on the R350 grants, it appeared that some government employees also received the grants. Would the Department have a new database, or would they wait for the investigation to the concluded to ensure that they were paying the eligible clients?

The Chairperson asked about the no-shows at hotels. The Department must correct this. The irregular expenditure was alarming. The clean audit outcome was commendable. AGSA had done a sterling work to warn the Committee of the hiccups. Other questions would be asked to the Department directly during their presentation, since the AGSA was only alerting the Committee on what to look out for.

AGSA's response

Mr Lourens van Vuuren, Business Unit Leader, AGSA, asked that the requests for the management report and names of individuals be put in a formal letter addressed to the AG so that the information could be collected and presented to the Chairperson. Some of the questions would be best responded to by the entities.

AGSA had highlighted filling vacancies as a risk area, because vacancies had an impact on controlling lines and the entity achieving its objectives. The Committee could address this from an oversight point of view with the executive and accounting officers.

AGSA did not have a mandate to prescribe timelines for investigations. There were some Treasury regulations that referred to timelines, but each entity had its own policies regarding disciplinary action and investigations which had their own timelines. AGSA had highlighted this as a risk area because investigations should be dealt with swiftly. If they take long, it results in a position where it would not be successful due to several factors -- like witnesses no longer available, or employees leaving the organisation. The Committee must address this with the executive and accounting officers.

Regarding who would have to pay back the money for the R350 grants, an investigation was being done by the Fusion Centre into directors of companies who had claimed it. An investigation was being done into government employees who claimed it, and the money would likely be recovered from them should they be found guilty. For the others, it falls under the material irregularities (MI) that AGSA had identified, and the accounting authority would have to investigative and determine who would be liable for the losses.

All entities have an internal audit function so that they comply with the legal requirements for an internal audit.

The questions on NDA stipends, and the contract for cleaning services, may be included in the letter from the Chairperson. SASSA could give feedback on the R74 million and the R350 grants.

AGSA was not aware of the SRD funds outstanding to the victims of the settlement fire in Cape Town, so it could not comment.

The payments to government employees and benefits which have been stopped was reported in the new financial year, and was not subject to the current audit presented. As such AGSA could not comment on whether the grants had been rightly stopped.

There had been a meeting on the allegations of fraud at the NDA between AGSA and the former board, who had committed to take the matter forward, and this matter would be included in the handover notes to the new board. The Committee could follow-up with the new board on further action to investigate the matter. AGSA reports when consequence management is not exercised so that appropriate management could be taken.

Ms Uviwe Ruxwana, Senior Audit Manager, AGSA, responded to the question on why NDA leadership was indicated positively in the presentation slides in green, even though there were issues. There had been a lot of non-compliance in the NDA in the previous financial year involving supply chain management, expenditure management relating to irregular expenditure, and performance information, which the audit had picked up. In the current financial year, there had been improvements in compliance compared to the previous year. The non-compliance in the current year was related specifically to irregular expenditure, mainly due to stipends paid without approval, which could have been due to pressure because of the Covid pandemic. The NDA had implemented processes for identifying irregular expenditure since this was picked up by AGSA. This was an improvement from the previous year. What was critical now was for the entity to avoid incurring any irregular expenditure.

An AGSA official responded on the R316 million and the interest portion. The court had indicated that the company must pay back the R316 million plus interest from the date the payment was made. The rules of interest were that one could not pay more than the capital amount. Multiplied by two, the total amount to be repaid would be R632 million. It would have to be limited to this amount. On the R254 million reported as being paid to potentially irregular recipients, management would have to investigate to determine whether they were ineligible, as there could be reasons. Databases work with particular dates, and it would have to be determined whether the individual was indeed ineligible at the time, and investigations should be done to determine if they were entitled to the grant.

In the SASSA performance report, and the indicator of the number of social grants approved, SASSA had reported an achievement of R1.379 million in social grants approved, against a target of R1.2 million. When auditing, AGSA selects a sample to test whether the R1.379 million is accurate and complete. AGSA selected some of the newly approved beneficiaries from the files and tested to determine if they had been included. It had picked up errors on four beneficiaries that were not included. Management was asked to correct this, as it had to do with system errors in the Black Industrialists; Scheme (BIS). The report from management had still more errors, so AGSA was sticking to the opinion that they were not too sure if the R1.379 million reported was accurate because of errors in the sample.

There were two ways of looking at SASSA's leadership issues. Firstly, there had been a decline in performance information, and there were continuous findings on compliance with legislation. AGSA was concerned that if this was not dealt with, it could result in material findings on SCM. The weaknesses were of concern, and management would need to take the recommendations and necessary action to improve in the environment.

AGSA had received a response from the accounting authority on the R316 million and the R350 grants. These were being evaluated. Once this was done, AGSA would communicate whether the actions taken by management were satisfactory or if further recommendations needed to be provided.

The NDA could respond on the R29 million stipend that it paid, but it was not the full R29 million that had been paid. The stipend was only the major portion. The cleaning and sanitation amount at SASSA was included in their financial statement under the note on irregular expenditure. The amount was about R13.5 million, and this was in Gauteng and the Eastern Cape. SASSA could give more details on the non-compliance that had led to this amount.

Payments made for grants were not looked at in the current year, but had been done in previous financial years. Exceptions were identified as not being valid in the previous years for foster care grants. There had been discussions with management, and the Department would be able to give further details of investigations that were done. AGSA would consider looking into SASSA's policy and documentation for approving beneficiaries in the next financial year.

The AGSA was not aware of SRD payments not made to beneficiaries. Normally with an SRD audit, a sample is selected and tested against the supporting documentation. Errors are evaluated based on the impact on the financial statements. The SRD grant was a high-risk area, and the samples were usually big. AGSA would continue to consider risks and payments around the SRD.

Discussion

Ms Sukers asked why the leadership was described as effective, yet the internal controls were weak.

Ms Manganye clarified her question about the effectiveness of the internal audits. If internal audits were effective, they were supposed to reflect issues before they were raised by stakeholders outside the Department and the entities.

Mr Van Vuuren said that during the audits, an internal audit and risk assessment of the entities was done. These two were combined, as indicated under governance on slide 30. The internal audit had been given a green rating for all the entities. Internal audit also did an annual risk assessment and, like the external audit, it did not focus on everything -- it was also risk-based.

The meeting was adjourned for a ten-minute break.

Minister's remarks

Ms Lindiwe Zulu, Minister of Social Development, said she appreciated the presentation by AGSA and the questions from Members. She welcomed Mr Bongani Magongo, Acting CEO of the NDA, since the term of the previous CEO had been completed.

She thanked Members for taking part in the preparations for the local government elections that took place during the recess. This may have been the most demanding election, and was a rigorous test for the country’s democracy. During the campaign, Members were able to recognise different social development challenges in the communities. She appealed to them to analyse social development policies which could be directed to Parliament.

The programmes on ending violence against women and children were important and should be all year round, not just on days of commemorations. During the reporting period, the Fundraising Amendment Bill was tabled in Parliament. This would result in enhanced institutional efficiency in disaster situations, and improve responsiveness to disasters. The Children’s Amendment Bill was also introduced to Parliament in August 2020, and aimed to strengthen the child care and protection system. In preparation for implementation of the White Paper on social development, the Department had developed a draft implementation plan. The process was on track, with a few issues that needed to be addressed.

With COVID-19, the need for the services of the Department was highest in living memory. The pandemic had worsened the challenges of poverty, unemployment and inequality. There was also increase in gender-based violence and femicide (GBVF), abuse of children, substance abuse, and post-traumatic stress disorders. In this period, SASSA had administered about R18 million in social grants to the most vulnerable, including top-up grants. The special Covid-19 grant was developed, international and multilevel partnerships were established, accommodation provided for the homeless, and digitisation of business and service points. The annual report showed the commitment towards realising Cabinet’s seven priorities.

She thanked the Chairperson and Members for their relentless guidance, and acknowledged the Acting Director of the Department and the management of SASSA and the NDA, the Council for Social Services, and all staff. Their collective commitment was leading the country closer to an inclusive society.

DSD Annual Report 2020/21

The DSD presented its programme performance against its pre-determined objectives and expenditure during the 2020/21 financial year.

2020/21 was one of the most difficult financial years as a result of the COVID-19 pandemic. In line with the revised APP, with the reprioritised budgets, the DSD had achieved 48 of the 59 set targets. The key to the revisions had been the Department's ability to respond to the heightened demands for services, such as responding to food security needs for the most vulnerable in society, the provision of psychosocial support services, the provision of sheltering services, the provision of income support to the millions of 18-59 year olds who had lost their jobs as a result of the pandemic, and adapting to the new normal, including digitising and automating several of services within the COVID-19 confines.

The DSD had received the presidential early childhood development (ECD) Stimulus Relief Fund of R496 million to supplement the income generated by the ECD services through subsidising the cost of employment, helping to restore the provision of ECD services, supporting their continued operation and reducing the risk of permanent closure. A total of 28 283 applications from ECD services were received, with a 126 283 workforce for this programme. More applications were received from female ECD operators, with majority of them being African.

The target of monthly transfers of funds to SASSA was not achieved, since the DSD did not “transfer” the funds, but the funds were provided in monthly “allocations” to SASSA to pay social grants. In addition to the social grants, the DSD provided an additional R50 billion social relief package, comprising a Caregiver Grant of R500 per month to each Child Support Grant (CSG) caregiver, from June to October 2020 inclusive; a COVID-19 Social Relief of Distress Grant of R350 per month to adults aged 18-59 with no income, from May 2020 to April 2021, and a top-up of existing grants -- the Old Age Grant, Disability Grant, Care Dependency Grant and Foster Child Grant -- which were each topped up by R250 per month from May to October 2020 inclusive.

Overall, the DSD had received an unqualified audit outcome with no findings, which was also referred to as a “clean audit opinion.” Although the Department received the unqualified audit outcome with no findings, AGSA had highlighted serious concerns around the management of several areas, including assets management processes -- mainly the disclosure and completeness of the asset register -- the quality of financial statements, although not material, SCM processes, performance information outcomes, and information technology (IT) systems.

The DSD had recorded a significant improvement in performance during 2020/21, where 81% of its set targets were achieved, as compared to a 49% achievement of targets in 2019/20.

See presentation attached for further detail

The Chairperson said that since the meeting was behind schedule, the meeting would adjourn for lunch for one hour and reconvene at 2pm.

SASSA Annual Report 2020/21

The meeting was reconvened.

The Chairperson welcomed SASSA for the presentation. Since the meeting was behind schedule, she suggested taking all the presentations by SASSA and the NDA, followed by questions at the end.

SASSA presented its performance against its set objectives, in line with the Agency’s annual performance plan which was revised and re-tabled in July 2020. Its annual performance for 2020/21 resulted in 37 of its 50 targets (74%) being achieved. For details of the performance against the targets in Programme One (Administration) and Programme Two (Benefits administration and support), see the attached document.

Highlights of SASSA's social assistance programme included:

• A total of 1 379 634 social grant applications were approved, representing a 115% achievement against the annual target;
• The number of social grants in payment increased from 18 290 592 at the end of March 2020, to 18 440 572 at the end of March 2021, at a cost of R199 billion -- a growth of just under 1%;
• 550 919 children below the age of one were in receipt of the children's grant.

For payments of social assistance, the target was to reduce long queues and ease the burden on the national payment system (NPS). SASSA released social grant payments in a staggered manner, separating the payment dates for older persons and persons with disabilities from other social grant beneficiaries. This reduced crowd volumes at access points like ATMs, and reduced pressure on the NPS and the South African Post Office (SAPO).

In programme 1 on Administration, SASSA had requested National Treasury to write off R278 million, but this had been rejected. Additional motivation had been re-submitted for consideration, and feedback from Treasury was awaited. There was a backlog of financial misconduct cases, as only. 434 out of 1 228 (35%) of the cases had been finalised against the 75% annual target.

SASSA received an unqualified audit opinion for 2020/21. Irregular expenditure recorded for the year was R20.3 million. This irregular expenditure was due, among others, to the extension of other contracts and lease payments, cleaning and sanitation, and procurement with less than three quotations.

See presentation attached for further detail

NDA Annual Report 2020/21

The National Development Agency presented its annual report on the 2020/21 financial year, which included programme performance information, the annual financial statements, and audit outcomes. (See attached document for details).

The audit outcomes reflected an improvement in performance information, detection of instances of non-compliance, and no material instances of non-compliance with SCM legislation. The NDA achieved an unqualified audit opinion. It reported that the Covid-19 pandemic had had an immense impact on its work, which had resulted in revising its APP to align with the new reality of fewer in-person engagements. It had introduced a Covid-19 flagship programme called the "Volunteer Programme" to combat the effects of Covid-19.

The NDA had undertaken a process of identifying historical irregular, fruitless and wasteful expenditure for condonation by National Treasury. Treasury had declined to condone the total value of R96.1 million, resulting in the indicator not being achieved. This was retained in the 2021/22 financial year. It fell short of administering consequence management due to lack of capacity in the HR and legal units. The units had since been fully capacitated with personnel in the 2021/22 financial year to fast-track implementation of consequence management.

The NDA continued to support civil society organisations (CSOs) with income generation. A significant number of CSOs were assisted with linkages to business opportunities worth R4.5 million.

See presentation attached for further detail

Closing Remarks

The Chairperson requested that the meeting be adjourned. It would reconvene on Friday 12 November at 08h00 for follow-up questions. The meeting would be for only 90 minutes since public hearings would begin at 10h00.

The meeting was adjourned.