National departments consistently incurring fruitless and wasteful expenditure: AGSA briefing

Standing Committee on Appropriations

26 August 2022
Chairperson: Ms S Buthelezi (ANC)
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Meeting Summary

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The Standing Committee on Appropriations (SCOA) convened virtually for a briefing by the office of the Auditor-General on national departments that consistently incurred fruitless and wasteful expenditure over the past five financial years.

Members heard that over the past five years, fruitless and wasteful expenditure to the value of R1.5 billion had been incurred by 41 national departments. 21 of the 41 departments have been labelled as consistent delinquents. Amongst the highest contributors to this are the Departments of Defence (R460 million), National Treasury (R339 million) and Basic Education (R106 million). The expenses mainly occurred in the IT area for payment of software licences without the software being used, e.g. at National Treasury and paying for unoccupied properties by the Defence department. Other expenses include leakage due to poor project management skills, cancellation of travel costs and damages to state buildings.

The Committee held the view that the absence of clearly defined deliverables in performance contracts of officials was contributing to the lack of accountability which had a direct link to poor service delivery and the escalation of costs. The Auditor-General recommended that the Committee instead play an oversight role in aligning the mandates and targets as outlined in the Annual Performance Plans of departments. The Committee should monitor the impact of targets on service delivery.

The lack of consequence management was of concern to the Committee. Investigations to hold officials accountable for fruitless and wasteful expenditure are seldom finalised. The Auditor-General advised the Committee to harmonise their oversight role with investigating agencies such as the Special Investigating Unit (SIU) and the Directorate for Priority Crime Investigation (DPCI), known as the HAWKS. The agencies should provide feedback on the status of cases to strengthen the oversight role of the Committee and the work of the office of the Auditor-General.

The Chairperson listed three issues on which the office of the Auditor-General was expected to provide feedback: the report on vacancies in key positions and the impact of vacancies on service delivery, Material Irregularities intervention detail, and the cost escalation report.

Meeting report

Chairperson’s opening remarks
The Chairperson said a report from National Treasury on the 2021/22 expenditure of the different departments presented the background for this briefing. Underspending stood out as a sore thumb with huge implications and denied people services. Money appropriated by Parliament should be used for its intended purpose. It was opportune to engage the Auditor-General (AG) on this matter during women’s month, as women are mostly affected by challenges to access services.

Auditor-General of South Africa (AGSA) presentation
Ms Bongi Ngoma, Chief Financial Officer (CFO), AGSA, said the Auditor-General could not be part of this engagement as her attendance was required in another meeting.

The office of the AG was on a journey to implement a new strategy to strengthen all role players in the accountability ecosystem and provide better services for citizens. Fruitless and wasteful expenditure (FWE) harms the state and its citizens if left unchecked.

Fruitless and wasteful expenditure (FWE)
Over the past five years, FWE to the value of R1.5 billion had been incurred by 41 national departments. 21 of the 41 departments have been labelled as consistent delinquents. Amongst the highest contributors to FWE are the Departments of Defence (R460 million), National Treasury (R339 million) and Basic Education (R106 million). The expenses mainly occurred in the IT area for payment of software licences without the software being used, e.g. at National Treasury and paying for unoccupied properties by the Defence department. Other expenses include leakage due to poor project management skills, cancellation of travel costs and damages to state buildings.

Material irregularities
The practice of issuing notices for Material irregularities (MIs) was implemented on 15 October 2021. As at 15 April 2022, 60 notices of irregularities valued at R8.6 billion had been issued to the national government. The bulk of the MIs related to non-compliance in procurement processes, payment for goods and services not received, or payment to incorrect beneficiaries.

Infrastructure projects
Project management issues were causing delays in the completion of projects resulting in buildings with quality defects and the escalation of costs in excess of the budget in some cases. The backlog occurred mainly in the departments of Health, Education and Human Settlements which impact access to health care, schooling and housing for citizens.

AG’s call to action
The Committee was tasked with holding all role players in the accountability ecosystem to account for the use of public funds. Compliance with legislation was needed to avoid leakages from the fiscus. The control environment must be strengthened to turn the tide on consequence management. Implicated officials should be held accountable and lost funds should be recovered.

(See Presentation)

Discussion
The Chairperson said the Committee appreciated the AG’s role in the accountability ecosystem and wanted to be a strong partner. The role of the Committee was dependent on the AG sharing information. He was pleased that this briefing presented the opportunity for information sharing. He found it worrisome that the AG could not state if there had been an improvement or decline in the situation.

Mr A Sarupen (DA) supported the comments by the Chairperson on the role of the AG. He said weak project management had broader consequences. The presentation was unclear on whether project management capacity was improving or worsening. He asked how frequently recommendations are being followed up and what remedial actions are taken for non-compliance. He wanted to know which management function posed the biggest MI weakness and what incentives were in place for accounting officers to execute their duties competently.

Mr A Shaik Emam (NFP) thanked the AG for the fantastic work. He asked if the additional powers granted to the AG regarding the amendment to the Public Audit Act were sufficient. He agreed that the escalation in costs was a massive problem, especially in construction projects. He wanted to know what measures should be implemented to prevent abuse at construction sites. The matter of repeat offenders is consistently being raised. He asked if the process to hold repeat offenders to account could be escalated. The criminal justice system should be aligned with departments to prevent offenders from getting away with criminal behaviour. He requested the AG to provide the Committee with the names of specific culprits, e.g. accounting officers at local government, so that action could be seen to be taken.

Mr X Qayiso (ANC) appreciated the detailed report because it would enable the Committee to progress in support of the office of the AG. He drew attention to a report received in a previous AG briefing where Members shared a number of concerns. At this juncture, the same concerns were still present. He asked to what extent interventions were taking place to address political instability in municipalities and if an improvement had been noticed since the previous report. He proposed that, in future, the Committee introduce a pre-condition to demand government departments give feedback on under expenditure before the presentations are shared. To start, departments must report on progress on recommendations in the AG report before submitting funding requests. Performance contracts do not include areas related to under expenditure, school backlogs or non-payment of service providers. He asked for the view of the AG on performance contracts being attached to the aforementioned areas. Officials had been taking advantage of the absence of deliverables in performance contracts. He advocated for areas of critical concern to be included in the performance contracts of officials. He asked how many implicated officials had undergone the section 38 disciplinary process. He wanted to know which factors contributed to the improvement in FWE from R625 million in 2017/18 to R232 million in 2018/19.

Mr N Kwankwa (UDM) said the biggest challenge in ensuring consequence management was the lack of guidelines to hold officials accountable. The responsibilities of accounting officers should be clearly outlined in performance contracts. It became the responsibility of the AG to flag irregularities because of system weaknesses. He acknowledged that the problem was also due to failure by the Committee to do proper oversight. National Treasury should be proactive in procurement and finance management and should find a way to play a complementary role to the AG. He was pleased to hear that the AG was using the additional powers regarding the amendment Act. He requested the AG to update the Committee on the progress from an activity point of view and to indicate if more powers were needed. It was important to document the lessons learnt in improving the situation. He found it difficult that officials can incur FWE by booking flights and not pitching up at the airport. Expenditure of this nature is recovered from the salaries of Members of Parliament who do not pitch for oversight visits.

The Chairperson remarked that the issue of poor project management skills had been raised previously in general, for example, the escalation of costs at Kusile and Medupi. It was unacceptable to have a 100% escalation of project costs. He could not remember receiving a response in terms of training to improve the project management skills of officials. The Committee needed to follow up on the matter as there was no indication that something is being done. A related matter was the lack of contract management skills in government. This matter should also be followed up with the Department. He viewed the lack of project and contract management skills as causal factors for the escalation of costs. He asked what impact the Preferential Procurement Policy Framework Act (PPPFA) had on cost escalation. He asked what the main factors were for late payment of suppliers. He was of the opinion that only big companies are paid interest on late payments and that smaller BEE companies were being prejudiced. He wanted to understand the reasons for the high management turnover of auditees. It has been a culture in government to suspend officials and later do investigations. He found the purging of staff by new management, using trumped-up charges with no evidence, problematic. He asked what consequences the AG would recommend for officials who suspend staff that are later found to be not guilty. He asked the AG to comment on what could be done to discourage the practice of purging. National Treasury was very high on the list of departments contributing to FWE. This was discouraging as it was expected of National Treasury to play an oversight role. The Integrated Financial Management System (IFMS) issue has not been resolved. He asked for a full report on money spent on the IFMS and wanted to know if anyone had been held accountable for the lack of implementation.

Ms Ngoma said the AGSA noted the actions taken by the Minister to address recommendations in terms of project and facilities management capacity and leakages on leases which had been escalating higher than the inflation rate. She reported a mixed bag of results concerning the follow-through on recommendations. There were encouraging signs regarding actions taken by accounting officers in response to notifications and recommendations. Pockets of areas of delays were reported in situations where there is instability in the position of accounting officers. The appointment of new accounting officers often results in delays depending on the stage of the irregularity.

Ms Ngoma advised the Committee to harmonise their oversight role with that of the SIU and HAWKS to ensure consequence management takes place for repeat offenders. The agencies should be invited to give feedback on the reasons for the delays and the status of cases. Collaboration with other role players would help the Committee to get an understanding of bottlenecks and strengthen the work of the office of the AG. Reports showed that consequence management is implemented where there is stability in management positions.

Ms Ngoma said she would welcome the support of the Committee to hold departments to account in cases where underspending and lack of service delivery are reported. A third of all key positions were found to be vacant which was a major contributing factor to the lack of accountability and the instability in critical management roles. Including deliverables in performance contracts would be ineffective in holding officials to account if controls are not formalised. Instead, the AG was putting a spotlight on the alignment between the mandates of departments and the targets as outlined in the Annual Performance Plans (APPs). In many cases, APPs were found not to be aligned with the mandates of departments. She advised the Committee to play an oversight role in this regard and to determine the impact of targets on service delivery.
 
Ms Ngoma undertook to submit a detailed follow-up report on measures implemented to address MIs. The five resolved cases would be documented and shared with the Committee. She highlighted Supply Chain Management (SCM) as an area for which departments needed to account. The implementation of SCM controls was dismal. Government must appoint capable, skilled and ethical officials. Improved environments are associated with stable management in key roles which is a recipe for success. She undertook to submit a detailed report on IFMS. In conclusion, she said the country had great frameworks but had a problem with implementation which if corrected, would go a long way to ensure communities get services.

The Chairperson noted that his question on cost escalation had not been answered. He asked for a comment on the statement that the PPPFA had a lot of loopholes. He sought clarity on whether underspending does not result in audit findings.

Ms Ngoma replied that underspending does not result in findings but stated that there was a link between underspending and service delivery. She called on the Committee to focus on the impact of underspending on service delivery. She said the AGSA does monitor areas of cost escalation and that PPPFA is reported in the infrastructure grant. She linked poor project management skills to the significant escalation in costs. In some instances, service providers with the lowest cost win the bid but do not deliver. The result is that service providers without skills get appointed because of the attractive lower costs.

Chairperson’s closing remarks
The Chairperson listed three issues on which the AG was expected to provide feedback, i.e. the report on vacancies in key positions and the impact of vacancies on service delivery, MIs intervention detail, and the cost escalation report. He requested the support staff include other areas that the AG needed to report on and to ensure that proper follow is done. He said the Committee and the office of the AG had similar mandates. The clients of the Committee are the auditees of the AG.

He asked the AG to focus on State Owned Entities (SOEs) for the next engagement. The Committee needed to get an understanding of the challenges at SOEs. Agencies and SOEs would be invited to share challenges in delivering the government reconstruction programme.

Announcement
National Treasury is scheduled to brief the Committee on Tuesday, 30 August 2022.

The Chairperson thanked Members for availing themselves for this meeting considering that it was taking place on a Friday.

The meeting was adjourned.

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