DSD action plan in response to AGSA audit findings & recommendations; with Minister

Social Development

31 August 2022
Chairperson: Ms N Mvana (ANC)
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Meeting Summary

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The Department of Social Development and its entities briefed the Portfolio Committee in a virtual meeting on their action plans in response to the audit findings and recommendations of the Auditor-General of South Africa.

The Minister of Social Development provided a political overview of the Ministry's view on the findings of the Auditor-General, and gave an assurance that the Department appreciated and understood the role of the AG, and would adhere to their findings and recommendations.

In the past three years, the National Development Agency (NDA) has made improvements, as the number of audit findings dropped from 38 in 2019/20, to ten in the 2021/21 financial year. The number of findings had been reduced mainly because it had strengthened its supply chain management processes.

The South African Social Security Agency (SASSA) received an unqualified outcome with findings for the 2021 financial year. The AG had found that there had been a slow response to improve the controls at the Agency owing to vacancies in key positions over a long period, and instability was experienced whenever employees left the organisation. However, 93% of the audit recommendations had been implemented. The outstanding findings involved the slow implementation of consequence management and unresolved improvement of information communication technology (ICT) security firewalls.

Members expressed concern over the non-compliance on supply chain management (SCM) issues and irregular expenditure, saying there should not be constant reports of irregular expenditure and non-compliance. What consequence management action had been taken? Other issues raised by the Committee included the high cost of the Department's leased accommodation, the failure to pay service providers within 30 days, and the vacancies in critical positions that had not been filled. They also criticised the inaccurate and outdated database used by the Department, which had resulted in many deserving beneficiaries not receiving their social grants.

 

Meeting report

Ms Lindiwe Ntsabo, Committee Secretary, said an apology had been received from Adv Nathi Mjenxane, Parliamentary Legal Advisor, Constitutional and Legal Services Office (CLSO), due to capacity constraints. He had requested that his agenda items and matters requiring his expertise be deferred to another meeting.

Members shared a concern that legal advisors were not present for the amendment bill, and said this was a constant problem and must be addressed, as it affected the progress of the Portfolio Committee.

A request had been made for a variation from the agenda so that the National Development Agency (NDA) could make its presentation before the South African Social Security Agency(SASSA), as the NDA's was briefer. The meeting also included the action plan in response to the findings and recommendations of the Auditor-General of South Africa (AGSA).

Minister's overview

Ms Lindiwe Zulu, Minister of Social Development, saluted the women of South Africa in light of "Women's Month." She said government took responsibility for making efforts towards the emancipation of women for 365 days, and not reserving it only for the official "Women's Day."

The Ministry spared no effort to meet the Auditor-General (AG), to adhere to their findings and recommendations. The role of the AG was appreciated and understood. In the past three years, the NDA had made improvements in terms of the AG's findings, which had dropped from 38 in 2019/20 to ten in the 2021/21 financial year. Over the past three years, it has received unqualified audits. It had strengthened the functions of its supply chain management (SCM) processes, and consequently, the number of findings had been reduced.

Similarly, SASSA had received an unqualified outcome with findings for the 2021 financial year. The Auditor-General found that:

There were slow responses to improving the controls at the Agency owing to vacancies in key positions over a long period.
Instability was experienced whenever employees left the organisation.
93% of the 2021audit findings had been completed.
The outstanding findings were due to the slow implementation of consequence management, and the unresolved improvement of information communication technology (ICT) security firewalls.
As of 31 July 2022, there were 221 irregular expenditure cases amounting to R512 million awaiting condonation by National Treasury.
There were 187 outstanding cases amounting to R448 million where corrective action needed to be finalised.

These actions were being consistently monitored.

The Minister said that her office ensured the Department was accountable and respected all due processes.

DSD action plan in response to AGSA findings
Mr Linton Mchunu, Acting Director-General, Department of Social Development, said that in response to the financial misconduct policy adopted by National Treasury on irregular spending and fruitless expenditure, all senior managers go for ethics training.

The Department received a clean audit for the 2021 financial year. Appreciation was expressed to all stakeholders for ensuring this was realisable.

Concern had been expressed over the repeated findings involving asset verification, ICT and supply chain management (SCM). Much stronger controls had been put in place to address these challenges.

A financial misconduct policy had been issued, in line with National Treasury's framework for irregular, fruitless and wasteful expenditure, to the employees within the national DSD.

Preventative control guides were developed by the AGSA and were issued to all senior managers, directing them to implement the guides. It has facilitated, coordinated and provided guidance and advisory services in terms of audit queries through the implementation and monitoring of audit action plans.

The Department had developed an audit strategy to address the audit findings.

Mr Juan Smith, Chief Financial Officer (CFO), said the DSD's audit outcomes had been a clean audit for 2021, but AGSA had nonetheless highlighted challenges in the supply chain, the procurement process and internal controls. There were 57 audit findings in 2021, and since then, there have been audit steering committee meetings every fortnight to circumvent further occurrences, and 48 of the findings have been resolved.

He said SASSA had relied on information from various sources to verify if people qualified for payment of the R350 grant, but the database it had received was not the same as the one that the AGSA had received. SASSA had engaged the organisations to ensure that the information that it received would be the same as what AGSA received

Regarding asset verification that had not been performed, the disposal committee met in March and the disposal process was finalised on 31 March. National Treasury had approved it on 14 June, and this was received by the Department on 4 July. The disposal had been done.

NDA audit outcomes

Mr Bongani Magongo, Acting Chief Executive Officer (CEO), National Development Agency, said the NDA had achieved an unqualified audit opinion with findings for the 2020/21 financial year. This reflected an improvement in the 2019/20 audit outcome regarding performance information and detecting instances of non-compliance. There were also no material instances of non-compliance with SCM legislation. The quality of submitted financial statements had remained good.

The AG had not identified any material findings on the usefulness and reliability of the reported performance information for Programme 2 (Civil Society Organisation Development), which was the main operational programme.

Effective and appropriate steps were not taken to prevent irregular expenditure amounting to R29 471 760. The majority (92%) of the irregular expenditure was caused by payments/accruals on the Volunteer Programme, which had been implemented without the approval of the Board. The key accounting structure of the NDA had to comply with the regulatory requirements of the Agency and the Public Finance Management Act (PFMA).

Main challenges:

Mr Magongo said there had been service delivery challenges. During Covid, there was a lot of pressure, emergency planning execution, and funding. This resulted in a lot of irregular expenditure. Interventions had to be put in place to reduce irregular and fruitless expenditure. In this regard, training was provided for staff for revised procedures in supply chain matters, and processes to improve irregular expenditure was taken seriously.

The key risk areas of non-compliance with the PFMA and supply chain management (SCM) legislation required attention. Although management had controls in place to detect and report irregular expenditure, there were still non-compliance findings related to non-compliance with the PFMA and SCM legislation.

Management did not adequately review compliance with operational policies and applicable legislation to prevent irregular expenditure. Senior management was urged to ensure that all officials implemented the internal controls, and that consequence management was swiftly taken against transgressors.

Mr  Phumlane Zwane, CFO, NDA, said gave a summary of the 2021 audit outcomes:

R29.47 million of irregular expenditure was disclosed in note 29 to the 2020-21 annual financial statements, mostly related to non-compliance with the grant funding policy and the NDA Act, related to the Volunteer Programme.
R39.18 million was disclosed in note 27 to the 2019-20 annual financial statements, mostly related to non-compliance with SCM legislation. This referred to competitive bidding processes, of which the Unemployment Insurance Fund (UIF) sub-contracting was the major contributor.
R18.1 million was disclosed in note 28 to the 2018-19 annual financial statements, mostly related to non-compliance with SCM legislation. This involved tenders and requests for quotations (RFQs), mainly regarding office space leases and information technology (IT) communication costs.

Management had put in place controls to monitor compliance of SCM processes with legislation, detect and prevent irregular expenditure, and employed measures to cancel recurring non-compliant contracts and replace these through processes compliant with SCM legislation. This was largely achieved through the appointment of a compliance officer in the SCM unit in November 2020, and the re-training of SCM staff and bid committee members to ensure strict implementation of SCM compliance controls.

SASSA audit findings

Ms Busisiwe Memela, Chief Executive Officer, SASSA, highlighted key issues arising from the AGSA audit report. These included:

Irregular expenditure -- long outstanding cases not resolved and finalised within a reasonable time.
Fruitless and wasteful expenditure -- long outstanding cases not resolved and finalised within a reasonable time.
Lack of external quality assessment (EQA) of the internal audit unit.
Network security: firewall assessment -- firewall rules were not adequately restricted, and allowed access to clear-text protocols.
Updated R350 grant exceptions as of 31 March 2021

She described the challenges around the audit findings as the complexity of cases; cases being investigated by third parties; a backlog of cases affected investigations, as some officials were no longer with SASSA; the postponements and additional information required during hearings; and a major configuration/change which impacted a number of system environments within SASSA, such as Oracle, biometrics, etc.

Mr Tsakeriwa Chauke, CFO, SASSA, recommended that the Portfolio Committee take note of SASSA's progress in the 2020/21 audit action plan and the nature of the irregular expenditure dases submitted to National Treasury.

Discussion
Ms L Arries (EFF) expressed concern over the non-compliance with supply chain management (SCM) issues and irregular expenditure. There should not be constant reports of irregular expenditure and non-compliance in the context of SCM issues. What consequence management actions had been taken?

Was there enough money to fund the additional staff to be appointed by the NDA? As the Member recalled, the NDA's budget did not have enough money.

What consequence management had been instituted by the NDA on the overpayment of allowances against the issuers and receivers of incorrect allowances?

Ms A Abrahams (DA) said the Department had mentioned a director who had resigned from a company that had been awarded the money. Could it be clarified where the official had resigned from, and whether the R50 000 had been paid back? If a person resigned from a company, other people within the same company still would receive the money.

What was the total outstanding amount on unpaid invoices within 30 days?

The Department had mentioned its intention to hire an official to manage contracts. If there was no official in the Department managing contracts, who had been managing this role thus far?

How much money was lost when the fast-track contract was cancelled, if at all?

SASSA had referred to the purchase of laptops -- what had become of the desktops? Had the laptops replaced desktops? Was the disposal committee working on donating these desktops?

With the R3.15 million worth of services rendered that National Treasury would not condone, was no money lost and did the Department receive the full value of services for that amount?

Would the NDA be paying for the new independent loss control committee that would be implemented?

She asked the NDA to elaborate on the office leases, as 64% of these comprised the bulk of irregular expenditure. Had the NDA and SASSA been engaging the Department of Public Works and Infrastructure on what government buildings were available, instead of paying exorbitant amounts on office leases?

The National Development Agency had mentioned that students were trained on the new venture creation course -- what was the course on? How many learners were trained for this R30 million?

Turning her attention to SASSA, she asked about the R525 million in irregular spending. Who were the companies that were implicated -- it was important to know this, especially if services were rendered and money was received?

The AGSA had flagged SASSA's vacancies, so what was being done to fill these critical vacancies that were constantly vacant? Referring to the table showing statistics on officials undergoing disciplinary procedures, she asked if only three officials were responsible for all 120 cases in KZN, as there was mention of only two or three officials undergoing disciplinary procedures.

Were the names of employees who resigned whilst undergoing disciplinary hearings given to the Public Service Commission (PSC), because people should not be able to be rehired if they were not undergoing full disciplinary action?

Ms B Masango (DA) said that during the presentation of both agencies, the report back stated "completed" or "resolved" -- what did this mean in real terms and what did it involve? For instance, the NDA had miscalculated overtime, so when it said "completed", did it mean the money that was incorrectly paid had been recouped and returned into the coffers of the NDA, or those that were underpaid, were they refunded their dues?

What was the implication of the denied applications by the National Treasury?

On the National Development Agency's processes, at the commencement of an investigation, were the affected individuals/ officials suspended immediately, or did they wait for a certain stage in the investigation, or was it until law enforcement agencies were involved?

She expressed concern over the network security for the presentation, where there was a need to change from one protocol to another (HTTP to HTTPS). Did SASSA not have an internal information technology (IT) unit to pick such challenges, as they seemed quite basic? Most of the Agency's work was done online and the implications of missing such network security were concerning.

There was a consistent issue that kept coming up on the database used for the assessment and processing of applications for the Social Relief of Distress (SRD) grants. A scathing remark from AGSA stated that the database was sometimes inaccurate and outdated - from the outset. However, it seemed there was no resolution of the database issue, because the relief fund database that determined whether people got the funds was inaccurate and did not address the need to help people at the lowest level of hardship and poverty. This was disheartening. The database even made inaccurate conclusions, such as saying one was not eligible for the grant as they were receiving an Unemployment Insurance Fund (UIF) payout, yet this was a person who had never been employed. Something needed to be done to resolve the problem and help people facing hardship and poverty.

Ms P Marais (EFF) also expressed concern over the inaccurate data issues in allocating SRD grants, as people were hungry for the grants. 

When NPOs applied for funding, what criteria were used by the DSD to approve the applications, as it seemed to be giving the same organisations grants year after year?

Security guards at SASSA offices were also an expenditure, so would it not be better to in-source these officials so they were part of the wage bill of the Department? This would result in the DSD saving money, instead of paying a company for security guards to render their services.

Mr D Stock (ANC) was concerned about the lack of consequence management, an area that cropped from one financial year to the next. The Department always insists the issues are receiving the necessary attention when the Members ask questions. This ultimately affects the Department's AGSA findings.

The decrease in audit findings from previous years by the NDA was commendable. Regarding the loss committee that had been established, what were its brief terms of reference, who made up the steering committee, and how was the steering committee being remunerated? Was it through a stipend or a procured service provider through the NDA's supply chain process?

Regarding the irregular expenditure of R175 million and a number of audit findings from the past ten years, were disciplinary processes initiated or were criminal cases opened outside the institution? If so, were any staff members or senior officials implicated? What were the remedial actions and the results of these cases?

With SASSA's findings on irregular expenditure, he made a plea to the Department to conclude the outstanding 104 cases before the end of the financial year to improve the audit findings.

The CFO of SASSA had indicated that the issue involving the updated R350 grant exceptions as of 31 March 2021 had yet to be concluded as there was a difference of opinions on which data had been used to qualify the beneficiaries. However, when the information went to the AG, a completely different set of data was used. Could SASSA's leadership clarify why the AG used a completely different data set? This was an area of great interest, as a different data set would have had a material effect on the audit findings.

The Chairperson supported Mr Stock's concerns over the use of different data sets.

Responses by DSD and agencies

Mr Mchunu said that the issue of an official resigning as a director in a company under investigation would be followed up, and feedback would be provided once available.

The factors involved in invoices not being paid within 30 days (which totalled R2.1 million), were twofold. Sometimes service providers submitted bank account details that differed from invoicing to payment time. This was similar to when invoice/quotation amounts differed from the order generated. The Department, in such instances, usually needed to investigate such discrepancies, which took time. A verification process also needed to be conducted to ensure services were rendered. Therefore, this was not a capacity issue but a time issue due to the verification processes before payment could be made.

Looking ahead, the Department was trying to improve its capacities for contract management, and intended to hire one or two people to realise that improvement.

No money had been lost through the fast-track process. The Department had wanted improvements to ensure the services were up to its requirements and the supplier could not deliver, hence the termination of the contract.

The procurement of laptops had occurred at a time of need amid the COVID-19 pandemic, where tools of the trade for people to work from home, such as laptops, were urgently required. Some desktops were also outdated and had to be upgraded. The Department had therefore elected to procure laptops as it did.

There had been no loss to government due to the R3.1 million requested for condonement from National Treasury. All services were received, and the prices paid were also reasonable. The R3.1 million had been because no quotations had been sourced for the laptops' procurement. Issues over tax clearance and directives had accompanied this.

Regarding consequence management for irregular expenditure, these matters were referred to both the Labour and National Treasury departments. The DSD had done its due processes through the investigation and loss committees. All that was left was for the officials to be referred to the Public Service Commission.

Consequence management had been implemented to recover funds from certain irregular expenditures. The amounts involved were about R530 000 in the 2021 financial year, which was in the process of being recovered.

In the public sector, with every exit from the service, there was a duty to settle any outstanding financial matters before payments were processed. Sometimes an official resigns to take a post in another government department. In those cases, the public service regulations instruct that the file must be transferred to the receiving department to proceed with the matter. The department was given support and evidence.

When an official left public service completely, the department proceeds with the matter until the presiding officer makes a determination. In this process, any payments were withheld until a determination was made.

There had been a few instances where officials resigned with pending cases, and matters took time to conclude, so the department could no longer withhold payments. If that happened, the department was obliged to pursue the matter and recoup any money owed. Part of the challenge faced by the Department was having officials who tended to stall the disciplinary hearing process by submitting sick notes, and were absent or unable to attend the hearings. The presiding officer was duty-bound to adhere to the considerations of officials who could not attend. This tended to delay the process and the finalisation of the disciplinary actions.

NDA

Mr Magongo said certain requirements had to be followed for consequence management for irregular expenditure, set out in the National Treasury's frameworks. There was one process for irregular expenditure, and one for fruitless and wasteful expenditure. The requirements to follow for consequence management, had to be in line with two things: firstly, the internal disciplinary process, and whether the irregular expenditure had elements of criminality and investigations were required; secondly, there was a need to observe and respect officials' rights to due process, which meant that many a time the cases took longer to conclude. The NDA needed to look at effective alternatives that would include an objective assessment, refer cases for investigations, and make binding recommendations as required by the framework.

An advertisement had been published with strict requirements for loss committee personnel, such as adequate academic and work experience. Four officials had been appointed in this regard, and were being paid within the National Treasury guidelines for paying non-executive officials.

Ms Karen Muthen, Chief Financial Officer, said the additional staff appointed were asset managers and compliance and supply chain officers. To ensure national procurement, the SCM division needed to be adequately staffed.

The overpayment resulting from incorrectly paid allowances had been recovered from the official involved, followed by consequence management against the officials and human resources personnel who had made these payments.

No losses had been incurred concerning the amounts submitted for condonement to National Treasury. A market analysis was conducted where prices were extrapolated to get retrospective prices determined to be reasonable. The information provided indicated that the services were contracted at a market-related cost. The condonement application was actually approved by National Treasury for R98 million, which had since been removed.

She said that across all provinces, there were examples of office leasing that were irregular. It was important to note that these were historical leases contracted in the 2014/15 financial year, which continued for three years. The Agency had approached the DPWI to compare leasing costs in the respective provinces, and interestingly the bid responses were lower than state leases offered by the DPWI.

The meaning of "findings that were completed" was mainly related to actions that the NDA had completed. "Resolved" referred to findings disputed by the Agency and referred to National Treasury by the Auditor General for resolution.

No criminal matters had been referred to the SAPS because of irregular expenditure, as the Agency suffered no losses in this regard. National Treasury had accepted the NDA's evidence in this regard.

Ms Susan Khumalo, Chief Operations Officer, said that in 2018/9, the NDA had been appointed through a competitive procurement process to provide a course on new venture creation programmes. This was for an amount of R142.2 million. The Agency had partnered with the Regenesys Business School to provide the 12-month accredited course, focusing on business, entrepreneurship, and skills development for Unemployment Insurance Fund beneficiaries and non-beneficiaries. 2 000 beneficiaries had been targeted.

However, during the 2018/19 financial year, the Ag had found the contract between the NDA irregular in failing to follow the competitive procurement process required by the Public Finance Management Act. Subsequently, the Agency terminated the contract and appointed new service providers to continue implementing the new venture creation programme. With these new service providers, the beneficiaries had been reduced by five, to 1 995.

Mr Magongo said the Agency had not concluded any regulations requiring the actions involved in investigating and suspending employees. These were usually taken as a result of the recommendation of the loss control committee, when an official had conducted gross mismanagement of funds, or in instances where there was an element of criminality.

SASSA

Mr Abraham Mahlangu, Chief Information Officer, responded to the network security issue. He said the URL line raised as an audit issue, was an internal facing URL -- it was not external facing. As such, there was no external intrusion risk present. The Agency worked hard to ensure the internal redesign was not susceptible to external security threats. It runs intrusion, detection, and vulnerability testing regularly, focusing on external environment access. However, one needs to be alert to matters of cybersecurity and access.

He said static data compared to dynamic data could be resolved only by a consensus of government rules on data extraction. To minimise discrepancies, static data should be accessed by all departments and agencies on the same day. If the non-static database was used, there ought to be time to ensure no data disparities.

Commenting on the absence of a data framework for entities who were data hosts, he said there should be one template for data extraction and exchange. A recommendation had been put forward to the Auditor-General, and hopefully, a hearing would be allowed in this regard.

Mr Tsakeriwa Chauke, CFO, said the cases amounting to R512 million were not losses. Losses could not be recommended for condonation by the National Treasury. If there was a loss, that case would need to move to a recovery process and follow a loss control policy. Cases sent to the Treasury were not fraud-related.

For Treasury to refer to a loss and condone it, the following needed to happen:
Confirmation that the entity suffered no losses;
Confirmation that the case was not of a fraudulent nature;
Confirmation of preventative measures to curb any recurrence of the act; and
Disciplinary measures needed to be taken.

He confirmed that the cases in Gauteng and KwaZulu Natal all involved the same officials.

Ms Busisiwe Memela, Chief Executive Officer, referred to the filling of the critical high-level posts, and said the Agency had filled a minimal number of posts where it felt that the vacancies were impacting delivery.
The budget for high-level posts had been allocated at the service delivery level so that money would not be lost in the future.

A critical post committee had been formed to ensure a holistic decision on which posts to fill or not. This committee reported to the executive committee.

Mr Jerome Mkhize, Manager at SASSA, said the crux of the data matter was that this was a government-wide programme that requires all the departments to align data sharing, and have agreements to that end. This would enable the government to have sensible data across various institutions. Until government departments and their agencies were able to get into a data management agreement with the AGSA, this would be an impossible target. The Agency was in consultation with the AG on the matter.

Consequence management was a continuous process, and the natural response to the AG's findings was corrective measures, strong controls and consequence management. On issues not finance-related, officials had been previously dismissed in the Department, proving the organisation took consequence management seriously.

About 37 staff members had been found wanting to make financial disclosures. The Department had addressed the issues with the Public Service Commission, and these staff members were sanctioned.
23 of them had received letters of reprimand, because the Department could not always jump to dismissals, as there were processes for disciplinary action. This should allay Members' fears that no consequence management had been implemented.

The Department was on a continuous improvement programme. The corner had not been turned yet, but issues were being addressed.

Ms Masango referred to the data protection issue. She questioned why the Department would subject the applicants for social development grants to relying on a flawed database that disadvantaged the intended recipients.

Ms Memela responded that SASSA had consulted with the AG to resolve the information management issues. It also looked at other mechanisms that would ensure fewer errors. When considering the future implementation plans of such grants, the key for the country and government as a whole was to look at ways of managing databases differently. This was so that clients were not asked for information that was already in government. Government had to have an integrated system, whilst respecting the provisions of the Protection of Personal Information Act.

The meeting was adjourned.
 

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