Audit oucomes of DIRCO: input by AGSA, Committee Staff & Department of Performance, Monitoring and Evaluation; Stats SA briefing on intra-Africa trade

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International Relations

15 October 2014
Chairperson: Mr A Masango (ANC)
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Meeting Summary

The Department of Performance, Monitoring and Evaluation (DPME) briefed the Committee on the performance of the Department of International Relations and Co-operation. The DPME used a Management Performance Assessment Tool (MPAT) to check on whether things were being done correct or better by a department. The assessment process started with self-assessment and validation within a Department followed by external moderation and feedback from the DPME. Thereafter the department had to institute an improvement plan and monitor it. The Committee was given insight into the MPAT Annual Cycle. The briefing continued with specifics on the DIRCO. He noted that the majority of issues were upheld and that there was good understanding, hence it was felt that the DIRCO would improve. The 2013 MPAT scorecard showed that strategic management in the DIRCO was not too much of a concern. On governance and accountability there was concern about the lack of management structures. Low scoring on ethics within the DIRCO was a further concern. Human Resource Management (HRM) was an area of concern as it was a crucial area within any department. There was a disjuncture in terms of what was contained in the DIRCO’s Strategic Plan and whether the DIRCO had the capacity to deliver the service. Within HRM, management performance was a concern. On financial management the DIRCO was complying and doing well, except on demand management. In conclusion key lessons from the analysis of data and good practise were that there needed to be commitment. There needed to be accountability in leadership and consistency of purpose as well as a professional service culture. On management practises aligned policy, planning and performance review systems were needed. Furthermore organisation, structures, processes, resources and norms needed to be in place.  It was believed that MPAT had a notable influence on improving management practice.

Committee Members raised concerns that perhaps the MPAT was following a one size fits all approach in assessing departments. It was also felt by members that department officials were flouting the law as there was no consequence for inaction. Did the MPAT take into consideration specific mandates of departments, did it assess the entire department and did it take into consideration external factors that impacted upon departments. It was furthermore asked whether it was true that South Africans had a low work ethic. It was pointed out that service delivery protests were taking place all over SA, was the protests taking place because municipalities were genuinely not delivering or was there something else behind the protests.  The point was made that perhaps not enough transformation was taking place in the public service, especially at middle management level. There seemed to be a lack of willingness to hand over capacity at that level.   

 

Statistics SA briefed the Committee on intra-Africa trade regarding price and expenditure patterns in the continent. The data presented upon was from the International Comparison Programme. It covered total country economy or Gross Domestic Product, household consumption, gross fixed capital formation, food and non-alcoholic beverages and infrastructure investment. Insight into the data was gained through thematic mapping, cluster analysis and principle component analysis. The briefing was data laden and covered a huge amount of information which provided the Committee with a substantial amount of interesting statistical facts. The initial part of the briefing covered SA. The Eastern Cape for instance had wards with less than 5% of households having flush toilets. In Limpopo Province there were areas that had unemployment rates greater than 71%. In the KwaZulu-Natal Province in areas surrounding Nqutu there were less than 5% of households that had piped water. The second part of the briefing covered country comparisons across Africa. On total economy prices in 2005 it showed that prices in Zimbabwe were highest in Africa. Kenya and Egypt had low prices. For 2011 total economy expenditure showed that expenditure was high in South Africa and in Egypt. Other comparisons were made on household consumption prices and food and non-alcoholic beverages prices etc.

The third part of the briefing covered housing utilities like water, gas and energy. Housing utilities were higher along the eastern side of Africa with the exception of Egypt. Transport and communication prices were lower in the North West part of Africa. Health and education prices were high in SA, Botswana and Namibia and were lowest in countries like Egypt and Ethiopia for instance. On household welfare consumption for 2011 was highest in countries like Mauritius, Seychelles, Egypt and SA.

On Africa’s distribution of wealth, the top four countries by Purchasing Power Parity adjusted GDP had been Egypt ranked first, SA ranked second, Nigeria ranked third and Algeria ranked fourth. At present though Nigeria had moved up surpassing both SA and Egypt to take the number one spot.

Members asked whether statisticians across Africa met to share statistics. It was felt that the sharing of data would help identify strengths and weaknesses in the continent. Concern was raised over price fixing that was taking place in SA. What could be done to address the issue? It was also asked how the information of Statistics SA influenced decision making processes of departments. The comment was made that if the European Union could trade as a block what stopped Africa from doing the same in the future.  Was it correct that in Africa industrialisation took precedence over good governance? Members were concerned over the fact that departments in SA and SA’s counterparts did not take advantage of data which Statistics SA made available to them.

The Office of the Auditor General South Africa briefed the Committee on the audit outcomes of the Department of International Relations and Co-operation for the 2013/14 financial year. The DIRCO had regressed from 2009/10 from an unqualified audit report to a qualified audit report in 2013/14.The area that caused the DIRCO to receive its qualification was its assets. Regarding the DIRCO and the African Renaissance Fund outcomes per audit area were elaborated upon. On financial statements the DIRCO received a qualified outcome whereas the ARF received an unqualified outcome. On compliance with legislation both the DIRCO and the ARF received an adverse/disclaimer with findings. On performance reports both the DIRCO and the ARF received a qualified outcome with no findings. Detail on key focus areas was provided. On supply chain management the DIRCO had awarded contracts and quotations to bidders who did not declare whether they were employed by the state or connected to any person employed by the state. The ARF did not take effective steps to prevent irregular expenditure. On predetermined objectives, the ARF had material misstatements in its annual performance report which was subsequently corrected. On human resources management internal control deficiencies were noted in human resource management in many areas for the DIRCO. The ARF also had human resource management issues in that the accounting authority did not ensure that there was an approved delegation of authority, including terms of reference for both the Advisory committee and Secretariat which clearly set out the delegated powers and duties. On information technology controls for the DIRCO deficiencies were noted in the Information and Communications Technology (ICT) control environment in a number of areas.

On material errors/omissions in submitted annual financial statements, the DIRCO had material misstatements on assets identified by the auditors in the submitted financial statements and it was not corrected resulting in a qualified audit opinion. With regards to the ARF there were material misstatements on payables, irregular expenditure, related parties and receivables but these were subsequently corrected. There were however no matters to report for both the DIRCO and the ARF on financial health status.

Members were not entirely convinced that an audit done on a sample basis was a true reflection of the state of affairs. Concerns were raised that there were many findings pertaining to supply chain management. How did the 126 missions’ abroad impact upon supply chain management? A further concern was that many of the findings made by the AGSA could have been easily avoided as it was simple things that a civil servant should know. A simple example was that for procurement three quotations were required. How did the AGSA handle the auditing of unexpected expenses like for instance the funeral of former President Mandela? Members were additionally concerned that the governance issues that plagued the ARF would also plague the South African Development Partnership Agency (SADPA) as well. What was followed when the usual PFMA prescripts could not be applied on procurement processes abroad? 

The Committee Researcher of the Portfolio Committee on International Relations provided the Committee with an overview of budgeting reporting as contained in the DIRCO’s Annual Report 2013/14. He listed the five Programmes of the DIRCO, which were Administration; International Relations; International Co-operation; Public Diplomacy and Protocol Services and lastly International Transfers. He then proceeded to speak on the appropriations made and expenditure incurred. For the financial year 2013/14 DIRCO had over expenditure in the amount of R116 650.The DIRCO had spent 102% of its appropriation. The over expenditure was attributed to the depreciation of the rand and the cost attached to the protocol funeral of former President Nelson Mandela. There were membership fees that had to be paid to organisations that went up due to fluctuations in the rand. Foreign exchange losses amounted to R132m and membership costs came to R25.6m. Of concern was that in 2006/07 the DIRCO had unauthorised expenditure of R98m which remain unresolved. The DIRCO was also in the process of finalising the Partnership Fund for Development Bill and the Foreign Services Bill. Lastly, the DIRCO also received approval of R21.2m for the capacity building of SADPA. 

The Committees’ Content Adviser informed members that she would speak to salient points of a political nature with which the Committee could engage the DIRCO.

Issues for the Committee to consider:

1. The uniqueness of the DIRCO mandate – DIRCO’s outputs were not always quantifiable. The DIRCO had to unpack its outputs with the Committee so that members could see how outputs linked with objectives.

2. How foreign policy activities respond to domestic priorities – DIRCO had hosted two meetings and the significance thereof should be communicated to the Committee.

3. South –South Co-operation – a highlight was the launch of the BRICS Development Bank. Ratification thereof had taken place recently.

4. Global Governance - The DIRCO participated in the United Nations, the International Monetary Fund and the G20. What was the benefit to SA? An explanation should be provided to the Committee.

5. International Relations Programme – It was of great importance as most of the DIRCO’s budget went towards the Programme. The aim was to link foreign policy with domestic priorities and also to establish and monitor relations.

6. Public Diplomacy – Ubuntu Radio was used the question that remained was what was its coverage. A total of 500 media statements were done by DIRCO. Was other media used and what was the impact made? 

7. Administration Programme – the turnaround time for filling of vacancies in the DIRCO was four months. Questions that should be asked were what the delay in filling vacancies was and whether there were staff retainment policies in place. The DIRCO had taken on 30 interns but unfortunately none of them were disabled persons. There was a huge problem that payment of suppliers did not take place within 30 days. Grievances were also not addressed within 30 days. A positive step was that the DIRCO had trained 105 women on mediation in African states. Another issue was that performance contracts and assessments had not been complied with fully. How then was performance measured?

8. AGSA Audit Report – The DIRCO had regressed since 2009. Financial performance was good. Operational management was however poor. The Committee needed to address the matter. It was the crux of the 2013/14 qualified audit report as there were asset management issues. The DIRCO had a global footprint in 126 missions in 109 countries with 270 000 pieces of assets. The AGSA had suggested that the DIRCO and the Committee should do verification visits to missions to verify assets. This was the very issue which caused the DIRCO to get a qualified audit report. On procurement the AGSA had said the requirement was to obtain three quotes. If procurement was done overseas deviations would be allowed but motivations must be given for it. The DIRCO also needed to improve the payment of its suppliers by adhering to the 30 day payment period. Not paying on time was detrimental to the survival of small businesses.

An issue that had surfaced was that provincial departments and entities owed the DIRCO money. It was something which the DIRCO should address. For instance with the funeral of former President Mandela many departments were involved.

Oversight by the DIRCO on its public entity the ARF needed to be done. How could the new entity SADPA emerge whilst there were still problems with the ARF? The concern was that the same governance problems that plagued the ARF may recur in SADPA. The SADPA needed to be a structure that could act with speed and it needed the autonomy to do so. If SAPDA took on the structure of a fund then it would have the same issues as the ARF. If SADPA took on the form of an agency then it would be better.

The DIRCO needed to follow up with National Treasury regarding the 2006/07 unauthorised expenditure. If it did not then it would remain. The DIRCO also needed to engage with National Treasury on foreign exchange losses. Supply chain management was a serious issue which needed attention. They also had to be consequential management where there needed to be consequences to actions or non-action. Asset and revenue management also needed attention. Filling of vacant posts and the activation of SADPA needed to be looked at.

Financially speaking the ARF was doing okay. It did have irregular expenditure. They also had some supply chain problems.

Meeting report

Briefing by the Department of Performance, Monitoring and Evaluation (DPME)

The Department of Performance, Monitoring and Evaluation (DPME) briefed the Committee on the performance of the Department of International Relations and Co-operation. The delegation comprised of Mr Henk Serfontein DPME Director: Management Performance Assessment and Ms Khanyisile Cele also from the DPME Directorate on Management Performance Assessment. The presentation was done by Mr Serfontein.

Mr Serfontein explained that the DPME used a Management Performance Assessment Tool (MPAT) to check on whether things were being done correct or better by a department. The MPAT did not measure service delivery. The MPAT did not look at overall performance or at actual performance. Even though there were regular interactions between the DPME and the AGSA they used different methodologies. The AGSA did auditing whilst the DPME did monitoring. All assessments were evidence based. The assessment process started with self-assessment and validation within a department followed by external moderation and feedback from the DPME. Thereafter the department had to institute an improvement plan and monitor it. The Committee was given insight into the MPAT Annual Cycle. He continued with an overview of performance of SA as a whole. Across all departments there was an overall improvement in management practises. He did emphasise that Human Resource Management was a bad performing area. On financial management there was a 50% compliance rate.

The briefing continued with specifics on the DIRCO. He noted that the majority of issues were upheld and that there was good understanding, hence he felt that the DIRCO would improve. The 2013 MPAT scorecard showed that strategic management in the DIRCO was of not too much concern. On governance and accountability there was concern about the lack of management structures. Low scoring on ethics within the DIRCO was a further concern. As previously stated Human Resource Management (HRM) was an area of concern as it was a crucial area. There was a disjuncture in terms of what was contained in the DIRCO’s Strategic Plan and whether the DIRCO had the capacity to deliver the service. Within HRM, management performance was a concern. On financial management the DIRCO was complying and doing well, except on demand management. In conclusion key lessons from the analysis of data and good practise were that there needed to be commitment. There needed to be accountability in leadership and consistency of purpose as well as a professional service culture. On management practises aligned policy, planning and performance review systems were needed. Furthermore organisation, structures, processes, resources and norms needed to be in place.  It was believed that MPAT had a notable influence on improving management practice.

Discussion

Mr B Radebe (ANC) was concerned about the use by the DPME of a one size fits all tool even though departments function in different environments. There were instances when departments were unable to furnish all information as some information was regarded as confidential. For example the Promotion of Access to Information Act (PAIA) score card rating of the DIRCO looked adverse but in actual fact it should not be seen as such since some information was not made available due to its confidentiality. Hence a one size fits all approach did not work well. 

On fraud and ethics he felt that people were flouting the law. The consequence of inaction was not strict enough. There was a need to be stricter.

Mr Serfontein replied that the DPME was aware of the sensitivity of some information of departments. Relevant to the DPME was issues of process. Information in any case could be classified. It was not about releasing information but rather about mechanisms for the public to have access to information.

The basis of the DPME’s assessments was the Public Finance Management Act and the Public Service Act. The DPME was aware that not all departments were the same. The DPME assessed policies as well.

Where a corruption case had been identified, the Department of Public Service and Administration (DPSA) had a right to institute disciplinary measures. However the problem was that in many instances this was not done. Many cases were lost at the Commission for Conciliation Mediation and Arbitration by the public service because proper processes were not followed. The excuse used for non-action was that the criminal matter needed to be finalised before a disciplinary action could be taken. This was not true. The DPSA was setting guides and directives over the issue.

The Chairperson asked whether the tools of the DPME considered the specific mandates of departments when making assessments of them. Did the DPME assess the entire department in terms of all its levels? He asked whether the tool used by the DPME took into consideration external factors that impacted upon the department. It was also asked whether the Department undertook six month assessments.  He pointed out that in an election year Ministers come and go. How did it affect the assessments done by the DPME? He referred to the public diplomacy efforts of the DIRCO and said that political-economic trade agreements that had been entered into did not filter down to the public. What was the DPME’s view on it? Service delivery protests were taking place all over SA, was it that municipalities were not performing or was there something else behind the protests. The issue of service delivery needed to be unpacked at another time. He pointed out that there was an observation that in SA there was a low work ethic because people hid behind the unions they belonged to. He asked the DPME to comment.

Mr Serfontein explained that the DPME did not assess the delivery of departments as a whole. The National Planning Commission was now part of the DPME. The DPME would be monitoring annual targets of departments as well. Assessments were only done annually. Even though Ministers come and go, the Department assessed departments as entities.  He explained that in election years’ policy deadliness were postponed. The DPME did not assess communications between departments. The issue was however whether the DPME was communicating effectively. On service delivery protests, the DPME had developed a tool to assess the management practises at local governments. It was aimed to be an objective measure of performance of municipalities. The tool was being tested. It was perhaps true that protests had different motivations and was not necessarily about failure of service delivery. The DPME was also considering allowing citizens themselves to do monitoring. On the issue of unions the point was to get the balance right between the interest of the union and that of the employer.

The Chairperson pointed out that when foreign companies or investors say that South Africans had a very low work ethic they often compared South Africans to Malaysians and Germans. Was it true that South Africans had a low work ethic?  Was there an international norm to measure work ethic?

Mr Serfontein replied that there were productivity indexes with which to gage productivity. SA needed to look at its skills base. Human Resource Development standards also needed to be relooked at.

Ms Cele said that when comparisons were made with other countries percentages were compared. She noted that there was a measure which National Treasury used. It was impressed upon members that departments needed to evaluate and look at themselves. What were their weaknesses or where could they improve?

Mr Radebe liked the fact that the Committee also had a role in monitoring departments. The one size fits all concepts did not work. For example with the DIRCO, many of their employees were employed in missions abroad. As a consequence the Committee could not do proper monitoring. The same problem related to the procurement of goods. Missions abroad procured goods abroad. How would missions abide by the Public Finance Management Act (PFMA) prescript of having to pay suppliers within 30 days? How the expenditure of a department would be judged in terms of the PFMA.

Mr Serfontein replied that the one size fits all issue was being looked at by the DPME. Perhaps tailor made assessments were needed as departments tend to differ.

Ms M Moonsamy (EFF) questioned the type of organisational structure that the public service in SA had. She felt that there was still a lack of transformation in the public service. At middle management level was where the problem was prevalent. There was a reluctance to hand over capacity at that level.

She noted that an increase in public spend was observed. Business felt that the focus was being taken away from the private sector. She also felt that DIRCO was a highly politicised department.

Mr Serfontein replied that the DPME saw its tool as a chain management tool. Departments were requested to do employer surveys. On handing over of capacity he noted that the DPSA had handed down directives on delegations. A decentralised model was needed. The DPME did consider case studies of good practise. For the DIRCO an option could be shared services.

Briefing by Statistics South Africa

Statistics SA briefed the Committee on intra-Africa trade regarding price and expenditure patterns in the continent. The delegation comprised amongst others of Mr Pali Lehohla, the Statistician General and Mr Dunstan Morudu, Stats SA Executive Manager. The briefing was done by Mr Lehohla.

The data presented to the Committee was from the International Comparison Programme. It covered total country economy or Gross Domestic Product, household consumption, gross fixed capital formation, food and non-alcoholic beverages and infrastructure investment. Insight into the data was gained through thematic mapping, cluster analysis and principle component analysis. The briefing was data laden and covered a huge amount of information which provided the Committee with a substantial amount of interesting statistical facts. The initial part of the briefing covered SA. The Eastern Cape for instance had wards with less than 5% of households having flush toilets. In Limpopo Province there were areas that had unemployment rates greater than 71%. In the KwaZulu-Natal Province in areas surrounding Nqutu there were less than 5% of households that had piped water. In Limpopo Province in and around areas of Fetakgomo there were less than 10% of wards that had access to internet.

The second part of the briefing covered country comparisons across Africa. On total economy prices in 2005 it showed that prices in Zimbabwe were highest in Africa. Kenya and Egypt had low prices. For 2011 total economy expenditure showed that expenditure was high in South Africa and in Egypt. Other comparisons were made on household consumption prices and on food and non-alcoholic beverages prices etc.

The third part of the briefing covered housing utilities like water, gas and energy. Housing utilities were higher along the eastern side of Africa with the exception of Egypt. Transport and communication prices were lower in the north western part of Africa. Health and education prices were high in SA, Botswana and Namibia and were lowest in countries like Egypt and Ethiopia for instance. On household welfare consumption for 2011 was highest in countries like Mauritius, Seychelles, Egypt and SA.

On Africa’s distribution of wealth, the top four countries by Purchasing Power Parity adjusted GDP had been Egypt ranked first, SA ranked second, Nigeria ranked third and Algeria ranked fourth. Mr Lehohla pointed out that at present Nigeria had moved up surpassing both SA and Egypt to take the number one spot.

A summary of conclusions had been compiled by Stats SA on what the data had found. There was evidence of regional clustering in the data. Existing trade blocks did not always show homogeneity in prices, relative expenditure shares and capital expenditure. More research needed to be done to gain additional insight on the basis of more frequent data.

Discussion

The Chairperson asked whether Statistics SA met with its counterparts as a continent or as regional groupings like Southern African Development Community (SADC) etc. If meetings were held it would assist in the collation of information that respective counties had compiled. He felt it important that Statistics SA should meet with regional blocks like SADC and present statistics to them. The statistics would highlight what strengths and weaknesses there were. Having statistics was important as Africa had the Agenda 2063 and the Brazil, Russia, India, China and SA (BRICS) Development Bank the focus of which was to develop infrastructure. He was concerned about the issue of price fixing. The Competition Commission had not too long ago penalised motor vehicle manufacturers Toyota and BMW for price fixing. Retail supermarkets like Shoprite and Pick n Pay had also been penalised. What could be done to address the issue? Why should prices be expensive in a middle income country like SA? He asked who fixed prices when it was not guided by the income of its population. Former President Thabo Mbeki had always challenged the statement that the “poor was getting poorer and the rich was getting richer.” Yes perhaps the rich were getting richer but the poor were not getting poorer.  

Mr Lehohla replied that statisticians from Africa met annually. In all there were 50 countries on board. . He had tried to get the attention of politicians in Africa but to no avail. They simply did not wish to listen. He had tried to get the issue on the agenda at Pan Africa level but no interest was shown. Ministers did not use the information that was available when policy was made.  People needed to get on board to use the data. He noted that structures at Pan African Level were very weak. The issue was about looking at data and understanding it. He had presented data with a view of improving trade and to look at new opportunities. He conceded that the rich were getting richer but the poor were better off because of interventions by government. Statistics SA was driving the agenda for the International Comparison Programme (ICP).

Mr Morudu added that on price fixing, ICP data was much aggregated. Globally SA was a middle income country, however in the African context its prices and expenditure was high.

Mr Lehohla continued that on price fixing, price levels in SA below national was more or less the same? It was about average pricing. SA had relatively high incomes. He said that concentration on other things might drive up prices. On regional integration and Agenda 2063 he said that statistical information was the driver for it.

Ms T Kenye (ANC) asked why Egypt’s prices were low.

Mr Lehohla explained that Egypt’s prices were low because it had a high subsidy level and the military was used to construct projects like roads, bridges etc. On a lighter note he said that China was not happy about the statistics that Statistics SA had compiled as it had ranked China as number one. The reason for their unhappiness was that they were aware that along with the number one ranking went huge responsibilities which they did not wish to bear. 

Mr M Lekota (COPE) asked to what extent the information that Statistics SA had influenced the decisions made by cluster departments like DIRCO and the Department of Defence etc. He stated that the European Union traded as a block and supplied far off countries. Why could Africa not do the same?

Mr Lehohla replied that a weakness was that the data was available but that it was not used. Perhaps part of the blame could be placed on the shoulders of statisticians but politicians too had to ask questions.

Ms Moonsamy asked what suggestions Statistics SA had on minimising imports in Africa. She agreed with Mr Lehohla that perhaps having regional blocks were not as efficient as it was thought. If regional blocks had been efficient what would the benefit of economic blocks like BRICS be on intra Africa trade? She also asked whether in Africa industrialisation took precedence over good governance.

Mr Lehohla on the issue of governance responded that there was currently a debate going on about economic development. He noted that the peer review mechanism had been a great help. He felt it to be an academic issue. Some on the statistical work presently being worked on by Statistics SA was on good governance. On the issue of imports and exports, it depended upon how markets played themselves out. It also depended upon what agreements were in place around imports and exports.

Mr L Mpumlwana (ANC) asked what the Committee could do to assist Statistics SA.

Mr Lehohla stated that the point was that greater strategic thinking was needed about information and how it could be used. In general policy needed to ask tough questions.

Mr Radebe sympathised with Mr Lehohla because the nature of Statistics SA’s work was very difficult. People did not always wish to hear what he had to say. He had been under the impression that Mr Lehohla was going to explain why prices were high in certain parts of Africa and not in others. What hampered industrialisation in Africa? The Committee needed to be provided with information on what the respective strengths of different African countries were. He was concerned about the fact that Africa did not use the information that Statistics SA had. 

Mr Lekota emphasised that it was the responsibility of legislators to take charge of the information of Statistics SA. Parliament should impress it upon the Executive to utilise the information of Statistics SA. Furthermore to improve the lives of South Africans, the potential of neighbouring countries needed to be unlocked.

Briefing by the Auditor General of South Africa (AGSA)

The Auditor General SA briefed the Committee on the audit outcomes of the Department of International Relations and Co-operation for the 2013/14 financial year. The delegation comprised of Mr Gideon Labane an AGSA Manager, Ms Kumari Naicker, an AGSA Senior Manager and Mr Thami Zikode, an AGSA Business Executive. The presentation was done by Mr Labane.

The Committee was told that the DIRCO had regressed from 2009/10 from an unqualified audit report to a qualified audit report in 2013/14.The area that caused the DIRCO to receive its qualification was its assets. Regarding the DIRCO and the African Renaissance Fund outcomes per audit area were elaborated upon. On financial statements the DIRCO received a qualified outcome whereas the ARF received a unqualified outcome. On compliance with legislation both the DIRCO and the ARF received an adverse/disclaimer with findings. On performance reports both the DIRCO and the ARF received a qualified outcome with no findings.

 

The briefing continued with detail on key focus areas. On supply chain management the DIRCO had awarded contracts and quotations to bidders who did not declare whether they were employed by the state or connected to any person employed by the state. The ARF did not take effective steps to prevent irregular expenditure. On predetermined objectives, the ARF had material misstatements in its annual performance report which was subsequently corrected. On human resources management internal control deficiencies were noted in human resource management in many areas for the DIRCO. The ARF also had human resource management issues in that the accounting authority did not ensure that there was an approved delegation of authority, including terms of reference for both the Advisory committee and Secretariat which clearly set out the delegated powers and duties. On information technology controls for the DIRCO deficiencies were noted in the ICT control environment in a number of areas.

On material errors/omissions in submitted annual financial statements, the DIRCO had material misstatements on assets identified by the auditors in the submitted financial statements and it was not corrected resulting in a qualified audit opinion. With regards to the ARF there were material misstatements on payables, irregular expenditure, related parties and receivables but these were subsequently corrected. There were however no matters to report for both the DIRCO and the ARF on financial health status.

Other matters of interest were that the DIRCO was found to have fruitless and wasteful expenditure. Both the DIRCO and the ARF had incurred irregular expenditure. 

The Committee was informed that there was combined assurance on risk management in the public sector with different levels of assurances. The first level of assurance was management itself; the second was assurance by National Treasury, an internal audit and by an audit committee. The third level was independent assurance which included monitoring by portfolio committees.

Discussion

Mr Mpumlwana said that the Committee needed insight into what a qualification of assets meant. He asked whether it was correct that the AGSA audited on a sample basis. What types of assets were audited? Was it properties or consumables? He also asked whether irregular expenditure was considered legal expenditure.  Was there a distinction made between justifiable and unjustifiable fruitless expenditure.

Ms Naicker confirmed that the AGSA did sampling on its audits. She noted that the issues raised around assets referred to movable assets. There were no issues relating to immovable assets. She explained that there were two assertions relating to the movable assets. The first was about the existence of the assets. The AGSA had huge issues pertaining to the asset register. The second was about the completeness of records which the AGSA also had significant issues about. Overall the assets register was not updated and hence the DIRCO received a qualified audit report. She noted that wasteful/fruitless expenditure was defined by the PFMA. Irregular expenditure was incurred when there was a breach in legislation. 

Mr Radebe pointed out that there was a great deal of findings made by the AGSA on supply chain management. The DIRCO had 126 missions throughout the world, how did it impact upon supply chain management. How did the AGSA overcome the issue in compiling its audit report? He pointed out that the African Renaissance Fund had not done an internal audit but yet they were considered okay by the AGSA. It was also pointed out that there were no consequences for misdemeanours committed in the DIRCO. In this regard what had the AGSA advised the DIRCO to do?

Ms Naicker referring to supply chain management on how it impacted upon missions said that the PFMA did allow for deviations. There however had to be motivations for deviations. Even though the ARF had not done an internal audit for 2013/14 it had no impact on the financial health of the ARF. There was no direct link. In terms of consequences the AGSA had reported on a number of issues. For there to be consequences, action needed to be taken.

Ms Moonsamy noted that the findings made by the AGSA relating to the DIRCO spoke to issues that could easily be avoided. For example on procurement the requirement was that three quotations were needed. How difficult was that? These were basic things which public servants were supposed to know. She was concerned that basic things like these were not adhered to. What were the reasons for non-compliance and what was the way forward.

Mr Zikode explained that the AGSA used international standards of auditing in carrying out audits. The AGSA had guidance in terms of which assets to audit. The total value of assets was looked at. Criteria were laid out for standards of auditing. The AGSA did not perform oversight over departments. The audit was based on what the PFMA stated. If investigations were completed, someone had to be held accountable. If no accountability the AGSA came back to state that there was a failure to take appropriate action.

Ms Kenye referred to the regression of the DIRCO in terms of its audited outcomes over the years. She asked what the reason was why management could not ensure compliance. She also asked relating to the ARF why management did not have sufficient monitoring controls in place to ensure compliance with legislation. Reference was made to page 12 of the AGSA’s briefing note document and it was asked who was responsible for the second investigation. 

Mr Lekota asked when sampling was done what was taken into account. Did the AGSA check whether missions had deficiencies?

Ms Naicker explained that internal audit committees, Chief Financial Officers and financial units were engaged on what were high risk missions. The rest of the missions went into a pool.  

The Chairperson referred to unexpected occurrences where security and medical relief might be required in war zones or where there were outbreaks like the recent Ebola outbreak. Unexpected expenses were also the recent repatriation of deceased South Africans from Nigeria after the recent building collapse tragedy. How did the AGSA handle the auditing of such expenses? He referred to the migration of the ARF to the South African Development Partnership Agency (SADPA) but was concerned that the same governance issues which plagued the ARF would be migrated to SADPA as well. He asked whether there were any other issues which the AGSA wished the Committee to be aware of.

Mr Zikode stated that aid providing structures needed to be flexible. There had to be legal terms of reference for such structures. On governance it was about keeping management responsible. If there were no controls for monitoring then management up to the Director General could be held responsible.

Mr Mpulmwana said that there were laws of procurement in SA that did not apply abroad. He was not convinced about the sampling method for audits.

Mr Zikode said that sampling took into account where the biggest asset base was sitting.

Mr Radebe stated that when allocations were made it was done in Rands but overseas most of the procurement was in dollars or euros. It was thus unavoidable that there would always be over expenditure. What advice could the AGSA provide?

Mr Zikode noted that where the PFMA did not apply deviations were allowed. Foreign exchange was a reality which had to be dealt with. Regular interactions with National Treasury needed to take place. If unauthorised expenditure was properly disclosed and explained then a department could receive a clean audit.

Presentation by Committee Researcher

Mr David Madlala Committee Researcher provided the Committee with an overview of budgeting reporting as contained in the DIRCO’s Annual Report 2013/14. He listed the five Programmes of the DIRCO, which were Administration; International Relations; International Co-operation; Public Diplomacy and Protocol Services and lastly International Transfers. He then proceeded to speak on the appropriations made and expenditure incurred. For the financial year 2013/14 DIRCO had over expenditure in the amount of R116 650.The DIRCO had spent 102% of its appropriation. The over expenditure was attributed to the depreciation of the rand and the cost attached to the protocol funeral of former President Nelson Mandela. There were membership fees that had to be paid to organisations that went up due to fluctuations in the rand. Foreign exchange losses amounted to R132m and membership costs came to R25.6m.

Mr Madlala continued with detail on each of the Programmes. The Administration Programme had under expenditure in excess of R53m. Reasons given for the under expenditure was that some of the expenditure for capital projects had been deferred. Detail on which capital projects expenditure was deferred was not provided. However if the Committee so wished the detail could be requested from the DIRCO. The International Relations Programme had over expenditure in excess of R116m. Reasons given for the over expenditure were depreciation of the rand, operational costs, salaries paid to employees and accommodation costs. The International Co-operation Programme had under expenditure in excess of R7m. The reasons given for the under expenditure was foreign exchange fluctuations and that a number of meetings that had been scheduled had not taken place. The Public Diplomacy and Protocol Services Programme had over expenditure of R20m. The reason for the over expenditure was the cost of the funeral of former President Mandela. The International Transfers Programme had over expenditure in excess of R25m.

In conclusion, Mr Madlala stated that in 2006/07 the DIRCO had unauthorised expenditure of R98m which remain unresolved. The DIRCO was also in the process of finalising the Partnership Fund for Development Bill and the Foreign Services Bill. Lastly, the DIRCO also received approval of R21.2m for the capacity building of SADPA. 

Presentation by the Committee Content Adviser

Ms Lineo Mosala, the Committee Content Adviser informed members that she would speak to salient points of a political nature with which the Committee could engage the DIRCO on.

Issues for the Committee to consider:

1. The uniqueness of the DIRCO mandate – DIRCO’s outputs were not always quantifiable. The DIRCO had to unpack its outputs with the Committee so that members could see how outputs linked with objectives.

2. How foreign policy activities respond to domestic priorities – DIRCO had hosted two meetings and the significance thereof should be communicated to the Committee.

3. South –South Co-operation – a highlight was the launch of the BRICS Development Bank. Ratification thereof had taken place recently.

4. Global Governance - The DIRCO participated in the United Nations, the International Monetary Fund and the G20. What was the benefit to SA? An explanation should be provided to the Committee.

5. International Relations Programme – It was of great importance as most of the DIRCO’s budget went towards the Programme. The aim was to link foreign policy with domestic priorities and also to establish and monitor relations.

6. Public Diplomacy – Ubuntu Radio was used but the question remained as to what its coverage was. A total of 500 media statements were done by DIRCO. Was other media used and what was the impact made?  

7. Administration Programme – the turnaround time for filling of vacancies in the DIRCO was four months. Questions that should be asked were what the delay in filling vacancies was and whether there were staff retainment policies in place. The DIRCO had taken on 30 interns but unfortunately none of them were disabled persons. There was a huge problem that payment of suppliers did not take place within 30 days. Grievances were also not addressed within 30 days. A positive step was that the DIRCO had trained 105 women on mediation in African states. Another issue was that performance contracts and assessments had not been complied with fully. How then was performance measured?

8. AGSA Audit Report – The DIRCO had regressed since 2009. Financial performance was good. Operational management was however poor. The Committee needed to address the matter. It was the crux of the 2013/14 qualified audit report as there were asset management issues. The DIRCO had a global footprint in 126 missions in 109 countries with 270 000 pieces of assets. The AGSA had suggested that the DIRCO and the Committee should do verification visits to missions to verify assets. This was the very issue which caused the DIRCO to get a qualified audit report. On procurement the AGSA had said the requirement was to obtain three quotes. If procurement was done overseas deviations would be allowed but motivations must be given for it. The DIRCO also needed to improve the payment of its suppliers by adhering to the 30 day payment period. Not paying on time was detrimental to the survival of small businesses.

Revenue Management 

An issue that had surfaced was that provincial departments and entities owed the DIRCO money. It was something which the DIRCO should address. For instance with the funeral of former President Mandela many departments were involved.

Oversight by the DIRCO on its public entity the ARF needed to be done. How could the new entity SADPA emerge whilst there were still problems with the ARF? On the activation of SADPA the DIRCO referred to the Partnership for Development Fund Bill. The concern was that the same governance problems that plagued the ARF may recur in the SADPA. The SADPA needed to be a structure that could act with speed and it needed the autonomy to do so. If SAPDA took on the structure of a fund then it would have the same issues as the ARF. If SADPA took on the form of an agency then it would be better.

Hotspots

The DIRCO needed to follow up with National Treasury regarding the 2006/07 unauthorised expenditure. If it did not then it would remain. The DIRCO also needed to engage with National Treasury on foreign exchange losses. Supply chain management was a serious issue which needed attention. They also had to be consequential management where there needed to be consequences to actions or non-action. Asset and revenue management also needed attention. Filling of vacant posts and the activation of the SADPA needed to be looked at. Parliamentary diplomacy was an area where the Committee could play its part. The Committee could monitor the activities of the DIRCO internationally.

ARF Report 2013/14

Financially speaking the ARF was doing okay. It did have irregular expenditure. They also had some supply chain problems.

Audit Committee Findings

Terms of reference for the secretariat were needed. Policies and procedures was an issue which should be looked as well.

Members of the Committee thanked all presenters including its Committee staff for the inputs made and considered it as preparation for interacting with the DIRCO the following day.

Mr Lekota was interested to know which provinces and municipalities owed the DIRCO money. Knowing specifics would allow the Committee to assist the DIRCO to recoup funds.

Ms Kenye said that there should be an audit of the DIRCO’s assets as the fourth parliament had recommended.

The Chairperson remarked that the day’s work was good preparation for the Committee’s interaction with the DIRCO the following day. 

The meeting was adjourned.

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