DIRCO CFO on circumstances that led to recurring multiple audit findings

Meeting report

The Chairperson pointed out that the present meeting coincided with the Medium Term Budget Speech that will be delivered by the Minister of Finance later in the day. She noted that the presentation document which was a comprehensive 63 pages had been received late by the Committee. After the briefing the Committee would understand the role of the CFO better on the recurring negative audit findings of the Auditor General of SA (AGSA) from 2013/14 up until 2018/19. Members should be informed about what steps the CFO and DIRCO had taken to turn things around based on the AGSA’s recommendations. Members should be better empowered after the meeting. She hoped the meeting would be a productive one.

Briefing by DIRCO Chief Financial Officer (CFO)
Mr Caiphus Ramashau CFO, DIRCO said that for 2018/19 the areas of qualification were on assets and on supply chain management ie procurement at missions.

Management of Cash and Cash Equivalents
The current model for transferring funds between missions and head office was performed manually which was inconsistent with the requirements of the modified cash basis of accounting to which DIRCO had migrated. During the 2018/19 audit, the AGSA noted that there were inadequate reconciliations performed, inadequate internal controls implemented which management concurred with and attributed these to amongst others to capacity constraints within the cash and bank management unit and also a lack or absence of an integrated financial management system. Amongst the remedial actions to be taken was for the Finance Branch to develop a cash equivalent standard operating procedure. This included analysing all missions that had contributed to the finding with a purpose of clearing accounts but also to identify the root causes for the differences. The responsible person to do this was the Chief Director: Financial Management and it should be done by 15 November 2019.

Misstatements of Financial Statements
The annual financial statements submitted by the DIRCO to the AGSA were found to contain material misstatements, notably on cash and cash equivalents; irregular, fruitless and wasteful expenditure and on movable assets.  The Finance Branch did not have requisite skills to prepare financials. The DIRCO concurred with the AGSA’s findings and attributed them to amongst others a lack of a financial management system and to capacity constraints within head office and missions. Amongst the remedial actions to be taken was to address capacity constraints. This included conducting a skills audit and subsequent training for head office and missions which was the responsibility of the Deputy Director General: Corporate Management and it should be done by 30 January 2020. The Deputy Director General: Corporate Management should also by 30 January 2020 develop a competency framework for financial practitioners.

Findings by the AGSA on Supply Chain Management (SCM)
SCM has remained a concern as a matter of emphasis raised by the AGSA in consecutive financial years. Management concurred with the AGSA’s findings which amongst others were attributed to deviation approval requirements not being met by head office on SCM. The DIRCO had requested a condonation but was required to meet requirements of the Public Finance Management Act (PFMA) which had not happened. The AGSA found internal control deficiencies and had found a contract to be irregular. 

Mr Ramashau stated that the DIRCO Director General had not taken the necessary steps to ensure that all conditions stipulated by National Treasury were adhered to prior to the finalisation of the award. Proposed interventions for management to take were to include transactions in the irregular expenditure register, to develop a deviation checklist and for SCM and internal audit to check on compliance before approval by the Director General.

Findings of the AGSA on Asset Management
These included that the asset register was incomplete, that assets in the Fixed Asset Register (FAR) could not be physically verified/did not have barcodes to confirm their existence, obsolete assets were still recorded in the FAR, that audit findings of previous financial year had not been addressed and that discrepancies were noted on the submitted annual financial statements.

Mr Ramashau explained that the Chief Director: SCM had not implemented adequate asset management controls that included reconciliations between physical assets and what was accounted for on the FAR. The roots causes of the problems were attributed to, amongst others, there was no electronic Asset Management System and there were capacity constraints within the Asset Management Unit. Proposed interventions to be taken by Management included to implement an electronic Asset Management System (NetTrace), to conduct biannual Physical Asset Verification and to conduct intensive Asset Management training to relevant officials.

Mr Ramashua provided the Committee with insight into the processes around the Diplomatic Bag contract and around the New York Pilot Project.  

Discussion       
The Chairperson commented that the presentation was way too long. She had been tempted to stop the presentation as it was not on what the Committee had requested. The Committee had, through the Minister of International Relations and Cooperation’s Office, asked the CFO to make a presentation on the Report of the AGSA Office’s Audit Findings for the financial years 2014 to 2018. The CFO had chosen to make a presentation only on the AGSA findings for 2018/19. This was not what the Committee had requested. To make matters worse the Director General of DIRCO and the Chief Director of Supply Chain Management were also not present in the meeting. She asked that Mr Mahoai be contacted as there were slides on which he needed to respond to. Some of the slides she was referring to included slide 35 and 47).

The Chairperson noted that, in his input on the New York issue, Mr Ramashau had deliberately not spoken to the findings of the AGSA. His input was merely giving his side of the story and in his opinion there was no wrongdoing. Slides 53 to 67 were merely stating Mr Ramashau’s view which was contrary to what the AGSA had found. She asked, on the New York issue, whether the recommendations by National Treasury were written recommendations or were there any documentation relating to it. If Mr Ramashua did not have it on hand she asked that it be furnished to the Committee through the Minister’s Office within two working days. The Committee was following processes in terms of the Powers and Privileges Act of Parliament. She added that in the presentation Mr Ramashau was putting the blame on persons who were not present in the meeting to defend themselves. What Mr Ramashau failed to do in his presentation was to state what the role of the CFO was in DIRCO.

Mr D Bergman (DA) had hoped that the presentation by Mr Ramashau would give the Committee some comfort but it had not. The picture that was emerging after the presentation could be likened to a coach of a soccer team blaming the loss of a game on his players. At the end of the day financial blunders fell onto the shoulders of the CFO who in turn reported to the Director General of DIRCO. It would seem as though both the CFO and the Director General had not come to terms with their respective portfolios. The issue was about how funds were spent and in terms of legislation there even might be people who would end up in jail. He pointed out that when the Committee had gone on oversight to DIRCO it became clear that the Department’s internal audit committee had picked up on issues but nobody was listening. The problem was that the internal audit committee could not go beyond the organisation. The presentation spoke about DIRCO’s capacity constraints at head office and at missions (Slide 11). Yet somewhere, someone had mentioned that funds had to be forked out for an apartment for a Consular General abroad. It was clear that the DIRCO needed to tighten its belt. The Committee had for the past six years been calling for DIRCO to downsize its footprint across the world and reduce the number of missions. It appeared as if SA wanted to keep up with China and the USA in terms of the number of missions that it had. SA could not afford to service all the missions that it had. Wasteful expenditure had to be stopped. Mr Ramashau proposed a skills audit be done by January 2020 (Slide 13). Why was this only proposed now? He was not convinced by the outcomes of adjudication bids. He felt that every single adjudication that the two concerned committees had adjudicated over should be placed under the Standing Committee on Public Accounts (SCOPA) spotlight. 

Mr B Nkosi (ANC) agreed that all the slides on the New York issue were Mr Ramashau’s opinion. The information in the presentation covered only Mr Ramashau’s take on things. The Committee had information that stated the contrary and was backed up by evidence. National Treasury was one source of such information. The Office of the Chief State Law Adviser (OCSLA) had expressed its own take on things to the Committee which differed to what Mr Ramashau had said yet he stated that they were in agreement with him. The presentation said that National Treasury “perceived irregularities” (Slide 62). He stated that National Treasury had not perceived irregularities but rather had pointed them out. National Treasury stated that Mr Ramashau had not followed things on bid adjudication processes.

Mr Nkosi said that Mr Ramashau was misrepresenting what National Treasury had told him to do. He proposed that the Committee ignore this part of the presentation. It should just be regarded as input made by the CFO. On the findings of the AGSA from 2014 to 2019 there were a number of issues raised. Mr Ramashau, on cash and cash equivalents, had come up with an interim programme. What would happen thereafter? What was the role of National Treasury to manage cash and cash equivalents? He observed that only the Director of Finance was to be held responsible. He felt it onerous to leave the responsibility to one person. On capacity and training, the AGSA had raised issues on training since 2013/14. Mr Ramashau had failed to act on the recommendations of the AGSA. As the CFO, the team that worked with him should be as qualified as he was. Mr Ramashau had also indicated that on supply chain management and asset management that the management interventions were good. Mr Ramashau was increasing the irregular expenditure register. He asked Mr Ramashau what he intended to do in his action plans. Mr Ramashau had also, on the “Travel with Flair” and the “Execujet”, said that standard operating procedures would be developed. The problem was that the Committee was not seeing any consequence management. No actions were being taken. He pointed out that the Department of Home Affairs (DHA) had indicated that it was not comfortable with the way visa applications were handled at DIRCO. He asked whether the funds from the processing of visas were included in the reconciliations of DIRCO.

Mrs T Msane (EFF), on the capacity constraints of DIRCO, asked whether Mr Ramashau had done an evaluation of the skills at the Department. She asked how procurement would be verified once it was done by missions (Slide 6 Point 2.2). Given the current Information Communication Technology (ICT) capacity of DIRCO, she asked how Mr Ramashau’s plans would be integrated into ICT. Mr Ramashau had stated that data centres worked regionally; hence there was no live view of expenditure. What plans were there to have integration with head office? She asked for an example on SCM where functionality criteria had not been used in the evaluation process. She asked how it was possible for service providers to provide a service without approval. Could management not have intervened? She also asked, given the nature of DIRCO’s mandate, how it could not have a travel agent.

Ms Msane asked whether it was the best method to procure computers on lease. If the contract had expired why was payment still taking place? She observed that a great deal of the CFO’s presentation passed the buck to the Director General. She noted that when the Committee had gone on oversight to DIRCO and a presentation was made by the Finance Branch, the Chief Directors of Finance, SCM, Properties and Facilities all said that they reported to the CFO. She put it to Mr Ramashau that they all reported to him yet he maintained that they had not followed processes. She consequently asked Mr Ramashau what consequence management processes had he put in place. On the 186 000 assets of the DIRCO she asked Mr Ramashau to separate immoveable assets from moveable assets. She asked if there was a high vacancy rate at DIRCO why was he proposing asset management training to officials (Slide 54). Who was being trained? On specifications and approval of the Diplomatic Bag, she asked who specified the requirements for the Diplomatic Bag. Mr Ramashau was asked what happened to the chancery/property that SA had before 1994 in New York. She asked what his role was on the Bid Adjudication Committee (BAC) and on the Bid Evaluation Committee (BEC). She asked, to date, how much money had been spent on the New York matter. How much would SA lose on the New York matter? She concurred with members that the OCSLA had given a different story to Mr Ramashau’s version on the New York matter. She pointed out that nowhere in the presentation was any mention of consequence management. So it seemed that there were no consequences. She pointed out that the AGSA’s Audit Report had also spoken about a misappropriation of donations and sponsorships at one of DIRCO’s missions.

Mr M Chetty (DA) was a bit concerned that the presentation given was not what the Committee had requested.  The performance of DIRCO from 2013/14 to 2018/19 was mediocre and over the period there had been no improvement.  Mr Chetty referred to Slide 62 where Mr Ramashau stated that the DIRCO responded to the concerns of National Treasury with “evidence”. The Committee needed to see what the “evidence” was that was being referred to. He concurred with members on what the Committee had found out on oversight to DIRCO. He understood the property in New York to be 40 000 square metres but in Mr Ramashau’s presentation the size was stated to be 20 000 square metres. He asked where funds were transferred to DIRCO offices in Iran, Syria and Khartoum via Dubai how these funds were controlled. The presentation spoke about spot checks and unannounced visits being done. Yet it seemed that these transactions could now not be reconciled. The presentation also alluded to people being unskilled in the DIRCO (Slide 11). He said that a certain Mr Mashaba had said that persons who were data capturers had been pushed into supply chain management. Mr Ramashau was saying that people were incompetent to do their jobs. He noted that it seems as if a blame game was being played. Mr Ramashau simply felt that he was not to blame. It seemed that a Department with R6.5bn budget was being run like a spaza shop. Mr Ramashau was asked, in his capacity as CFO from 2013 to 2019, what his role on oversight was. Members understood that he had been on leave for a while now but back then he was still the CFO. There was no Acting CFO prior to him going on leave. There was nobody to put the blame on. He felt that Mr Ramashau was simply passing the buck. Mr Ramashau was asked what his role on SCM was (Slide 17). On the SCM Execujet irregular expenditure, Mr Ramashau had said it was the Acting CFO that had acted not himself. He asked what actions Mr Ramashau had taken against the Acting CFO (Chief Director: Property Management) and the Chief Director: SCM where processes had not been followed (Slide 23).

Mr Chettry noted that the presentation also brought in the Ministry in that South African Air Force flight use was in contravention of the Ministerial Handbook. Why did the DIRCO not have a travel agent? There was also piggybacking on the Department of Human Settlements (DHS). He asked why “Travel with Flair” was used for catering purposes. He pointed out that the AGSA had in its findings stated that there was no correlation of assets at missions and what was reflected at head office because there was no proper hand over with the data capturers involved. On the Diplomatic Bag he noted that the extension came at a cost. He referred to Slide 56 and asked for clarity on the figures provided on the Diplomatic Bag contract.

Mr T Mpanza (ANC) reiterated what members had said about Mr Ramashau not presenting on audit findings from 2013/14 up until 2018/19. He had only spoken to the audit findings of 2018/19. All the presentation was saying was how things were done and why they were done. It was not informing the Committee on the circumstances that had led to wrong things. He agreed with what members had said about the portion of the presentation that covered the New York matter. There was a great deal of misrepresentation and many contradictions. Even a Minister of International Relations and Cooperation as well as the Director General of DIRCO were implicated. He asked the Chairperson to read out the letter in which the presentation by the CFO was requested. The request had been made through the Minister’s Office.

Ms T Zungu (ANC) said that Mr Ramashau was playing with the Committee. He was also contradicting himself. He had not managed the finance branch properly. The rest of her input was made in her mother tongue.

The Director General of the DIRCO Mr Kgabo Mahoai joined the meeting.

The Chairperson welcomed Mr Mahoai to the meeting. It was unfortunate that the Chief Director of Supply Chain Management could not also make it to the meeting. She proceeded to read out the letter which was addressed to the Minister’s Office requesting the CFO to make a presentation on the circumstances that had led to the recurring AGSA’s audit outcomes of the DIRCO which related to the work of the Finance and Asset Management Branch. She addressed Mr Mahoai and said that there were quite a few slides in the presentation which said that he was responsible. Slides 16, 19, 20 and 21 were just some of the slides. She said that the Public Finance Management Act (PFMA) gave the Director General as the accounting officer the power to delegate/assign powers and duties to the CFO. She noted that now when the chips were down the presentation said that the CFO could not take responsibility for things having gone wrong. Once a person was appointed to an organisation to lead it one also inherited the baggage that went along with it. In the presentation itself there were some sections that acknowledged the AGSA’s findings whilst other sections did not. According to Mr Ramashau there was no wrongdoing. She felt it to be a contradiction of the worst kind. Mr Ramashau had stated that the Executive in 2016 had instructed him to acquire property in New York. Funds had been made available to acquire land. Mr Ramashau had instead purchased a property instead of land. There was definitely something wrong. Mr Ramashau’s explanation was not good enough. She was sure there was some contravention of law. The OCSLA had informed the Committee that they had not been part of the initial stages of the land acquisition in New York. Mr Ramashau on the other hand said that he had worked with the OCSLA. She said that the lawyers of Open Waters had stated that they needed an affidavit from Mr Ramashau. She asked Mr Ramashau if he had provided them with the affidavit. She pointed out that the AGSA’s audit report with regards to the New York matter had findings around non-compliance with SCM and that there had been irregular expenditure to the tune of R118m. According to Mr Ramashau there was no wrong doing. She asked Mr Ramashau whether he was disagreeing with the AGSA’s audit report. Did he accept the AGSA’s audit report? She pointed out that what Mr Ramashau had presented was contrary to what the AGSA had presented to the Committee.  Mr Ramashau was playing the blame game in his presentation. The presentation had not spoken to the recurring problems in the DIRCO which had started in 2013. She said that Parliament had established Chapter 9 institutions like the AGSA and there was no reason for it to implicate a particular department. She addressed Mr Mahoai and said that he needed to respond to Slide 37 which spoke about there being no contract in place with the travel agent company “Travel with Flair”. She asked that he respond to Slides 16 and 19 as well. Mr Mahoai was also asked to speak to the matter of the Travel with Flair, the Minister’s political gala dinner and the Brazil, Russia, India, China and South Africa (BRICS) matter. She additionally asked Mr Mahoai to tell the Committee who in fact was responsible to implement the findings of the AGSA on consequence management. On Slide 58, she said that Mr Ramashau mentioned three committees that were responsible for the process. Mr Ramashau was asked who the chairpersons were of the Bid Evaluation Committee and the Bid Adjudication Committee. Who was the Accounting Officer that was being referred to on Slide 58? On the legalities of the New York matter, Mr Ramshau had stated that a risk review and a legal review had been done. The OCSLA had said that they had not been part of these processes. Who was in charge of all the legal processes?

Mr Ramashau responded that he was an accountable person. He took appearing before the Committee
seriously. On the New York matter he undertook to provide the Committee with all supporting documentation on what he had said in his presentation. He would do so within two working days. He assured the Committee that processes had been followed. On the affidavit matter, he had not received such request from Open Waters. He however had engaged with them.

Mr Chetty, in the interest of time, asked that the meeting be closed. There was no way that proper responses could be given in the time that was left. He proposed that Mr Ramashau and the Director General provide written responses to the questions that members had asked or alternatively the Committee schedule another meeting with Mr Ramashau.

Ms Msane pointed out that the questions asked had been scattered. How would the CFO be able to respond to them? The questions needed to be properly formulated.

Mr Chetty was sure that the Committee Secretariat had captured most of the questions. It could be sent to Mr Ramashau and to Mr Mahoai.

Mr Mpanza, on the two options suggested by Mr Chetty, felt that the written responses would be best. Perhaps Mr Mahoai and Mr Ramashau could propose a way forward.

Mr Nkosi said that in addition to responding to questions Mr Ramashau also needed to respond to the letter of the Committee via the Director General.

The Chairperson asked Mr Nkosi whether he was insinuating that Mr Mahoai had not seen the presentation document of Mr Ramashau before the meeting.

Mr Nkosi confirmed that he was.

Mr Mahoai said that there was irregular expenditure of R298m. The presentation gave specifics. Perhaps DIRCO could fully account on irregular expenditure on previous years.
 
The Chairperson, addressing Mr Mahoai, reiterated that he should clarify the Travel with Flair matter, the Minister’s political gala dinner and the BRICS matter. She suggested that instead of getting written responses the Committee should rather schedule another meeting. She asked Mr Mahoai whether he got what she had said.

Mr Mahoai confirmed that he had.

The Chairperson said that the Chief Director of Supply Chain Management also had be provided with a copy of Mr Ramashau’s presentation. At the next meeting Mr Mahoai, Mr Ramashau and the Chief Director of Supply Chain Management had to all be present. Mr Ramashau had said that the Chief Director of Supply Chain Management had contravened the PFMA. The Acting CFO should also be present in the meeting. The Committee needed to close the chapter on the financial accountability of the DIRCO. The Committee would draft another letter addressed to the Minister’s Office with regards to the follow up meeting. At another time the relevant Minister mentioned in Mr Ramashau’s presentation would also be invited to the Committee.
 
The meeting was adjourned.