Public Service SETA & Energy SETA 2009/10 Annual Reports : hearings with Minister of Public Service and Administration

Meeting report

The Chairperson welcomed Mr Richard Baloyi, Minister of Public Service and Administration.  The Committee had invited Dr Blade Nzimande, Minister of Higher Education and Training to the hearing as well, but had received no acknowledgement from the office of the Minister.  The Sector Education and Training Authorities (SETA’s) played a very important role in skills development in the country.  However, certain SETA’s had been the subject of adverse publicity.  The Committee needed to understand the problems experienced by the SETA’s in order to assist with addressing the challenges.  The hearing was intended as an information-sharing session and the Committee would be submitting a report to Parliament.

Hearing on the Public Service Sector Education and Training Authority (PSETA) Annual Report 2009/10
Mr M Steele (DA) referred to the Statement of Responsibility on page 37 of the Annual Report and asked if the accounting authority of the PSETA was represented at the hearing.

Mr Themba Mhambi, Administrator, explained that the PSETA was placed under administration in September 2010 and the Board was relieved of its duties.  He was appointed the accounting authority on 13 October 2010.

Mr Steele referred to the report of the Auditor-General on pages 33 to 36 of the Annual Report and quoted the comments concerning the lack of leadership identified during the audit (see paragraphs 36 to 38 on page 36 of the report).  Section 51 of the Public Finance Management Act (PFMA) specified the general responsibilities of the accounting authority.  It was clear that the accounting authority of the PSETA had completely failed to carry out its statutory responsibilities and he wanted to know who was being held accountable for the failure.

Mr Mhambi replied that the Minister had decided to place the PSETA under administration and dissolved the Board because of the faults identified by the Auditor-General.  The Board had been in place for the fiscal period 1 April 2009 to 31 March 2010 and was dissolved on 17 September 2010.

Mr Steele said that there had clearly been a dereliction of responsibility by the members of the PSETA Board.  The Board was appointed in 2006 and he asked what action had been taken against the members for failing to carry out their responsibilities.

Mr Mhambi replied that a forensic audit was undertaken in 2006 but the audit report was only received from PriceWaterhouseCoopers (PWC) in 2010.  The Special Investigations Unit (SIU) was brought in to investigate the allegations of mismanagement.  The SIU had conducted preliminary investigations.  The scope of the SIU probe was extended in January 2011 to include the decisions taken by the Board.  The contract with the SIU would be made available to the Committee on receipt of a formal written application.

Mr Steele advised that the Committee was entitled to receive a copy of the contract and information concerning the forensic investigations undertaken.  The Auditor-General had issued disclaimers for the fiscal years 2007/08, 2008/09 and 2009/10.  He asked why the executive authorities (i.e. the Ministries of Higher Education and Public Service and Administration) had not taken action before September 2010.

The Chairperson suggested that Minister Baloyi flagged the question for later response.

Mr Steele referred to the report by the Auditor-General on page 33 of the Annual Report.  The basis for the disclaimer of opinion was the lack of accounting records and documentation to support the opening balances of the National Skills Fund (NSF) deferred income liability amounting to R7.7 million and the accumulated surplus of R7.4 million.  He wanted to know what had caused the finding and what had been done to address the matter.

Mr Thabo Sibiya, Chief Financial Officer, PSETA, explained that the NSF income liability arose from a project initiated by the PSETA in 2005.  The project was discontinued in 2006.  The accounts related to the project had been reconstructed and the amount of the liability had been re-calculated.  The comment concerning the reserves arose because adequate records had not been kept between 2005 and 2010.

Mr Mhambi added that the project had involved a number of service providers.  The learner records of attendance and the records to support the payments made to learners were not kept.  The PSETA had no authority to demand the records from the service providers involved.

Mr Steele asked what had happened to the records.

Mr Mhambi replied that the Administrator had been unable to establish what had happened to the records and was experiencing difficulties in obtaining copies from the service providers concerned.

The Chairperson pointed out that record-keeping was a managerial responsibility.  He asked what explanation was given to the Board.  The Committee was aware of incidences of fraud that had resulted in substantial losses, which had almost bankrupted the PSETA.

Mr Mhambi replied that the records should have been kept by the department responsible for implementing the project.  The contracts entered into with the learners were available but the documents kept by the service providers were missing.  The SIU was attempting to obtain the necessary records from the service providers.

Mr Steele was not satisfied with the responses.  He suspected that the missing documents and records concealed further incidents of theft and fraud.  The responses excluded any acceptance of responsibility.

The Chairperson observed that the management of the PSETA had been replaced.

Mr Mhambi asked the Members to consider the documents provided to the Committee that outlined the plans and strategies that had been developed.  The action taken by the Authority included laying charges of fraud and theft against a former Finance Manager.  He was found guilty on 38 counts of fraud and/or theft and was sentenced to 10 years imprisonment.

Mr R Ainslie (ANC) asked if the officials who had failed to keep records had been identified and if any disciplinary action had been taken against them.  He noted that the powers and duties of the Administrator were set out in the contract signed with Mr Mhambi and included taking action against personnel involved in wrongdoing.

Mr Mhambi replied that two officials had been found to have been negligent and their actions had resulted in financial losses.  The officials had been seconded to the PSETA by the Department of Public Service and Administration (DPSA).  The Department had instituted disciplinary action against the officials concerned.  The services of the Procurement Manager and the Acting CEO were terminated after disciplinary action was taken against them.

The Chairperson noted that, according to the forensic audit report, the Finance Manager convicted of fraud was screened by an agency appointed by the DPSA and had provided false identity documents.  The appointment procedures followed contravened Government procedures as the applicant was not security-vetted by the National Intelligence Agency.

Mr Steele referred to the comments of the Auditor-General on page 33 of the Annual Report (paragraphs 5, 6 and 7).  The Board had authorised payments from the DPSA to the NSF and vice versa.  The Auditor-General found that it was doubtful that an amount of R6.3 million of accounts receivable was recoverable.  He wanted to know what action had been taken to address the matter.

Mr Mhambi advised that the matter was being discussed with the DPSA and PSETA.  It was necessary to determine what amount was for proper procurement purposes.  An amount of R1.1 million was recoverable from the DPSA.  A number of questionable transactions were identified and referred to the SIU for further investigation.  Legal advice would have to be obtained to determine if a refund could be demanded.

Mr Steele said that the PSETA appeared to be at the beginning of a recovery process.  The results of the investigations undertaken by the SIU had to be obtained.  The Committee would require further updates and reports on the progress made.  He felt that the irregularities involved too many people and a substantial amount of money and that it would appear that a fraudulent culture prevailed at the PSETA.  He suggested that the Committee postponed the hearing to a future date.

The Chairperson said that the concerns of the other Members of the Committee would be heard before the decision was made on whether or not the hearing would be postponed.

Mr P Pretorius (DA) said that the members of the PSETA Board were guilty of negligence in terms of Section 51 of the PFMA.  Section 86 of the PFMA made provision for the action to be taken in the event of transgressions in terms of Section 51.  He wanted to know what steps had been taken to hold members of the Board accountable.

Ms M Matladi (UCDP) objected to the statement made by the Administrator that the Committee had to submit a formal request for information.  She pointed out that the Committee was entitled to receive all information and documentation it required.

The Chairperson requested that the Administrator provide the Committee with the documents concerned within one week.

Ms T Chiloane (ANC) observed that the PSETA had accumulated reserves of R8.398 million but the Auditor-General was unable to obtain sufficient audit evidence (see pages 33 and 34 of the Annual Report).  She wanted to know why the PSETA was unable to provide sufficient audit evidence for the amount held in reserve.

Mr Mhambi replied that bank records indicated the amount concerned and he was satisfied that there was a clear audit trail.

The Chairperson asked if the Auditor-General was satisfied as well.

Mr Sibiya replied that an interim audit would be held in March 2011, when it would be established if the Auditor-General was satisfied that the amount held in reserve could be substantiated.

Ms Chiloane pointed out that the Auditor-General had found that the provisions of the PFMA were not adhered to.  She asked who was responsible for the failure to implement the PFMA and what action had been taken against the persons concerned.

Mr Mhambi explained that the PSETA did not run its own programmes.  Government Departments retained the 1% of turnover and ran their own training programmes.  The PSETA was unable to utilise the funds accumulated.  With effect from April 2011, PSETA would be implementing its own programmes.  The PSETA had requested permission from the National Treasury to retain the funds accumulated in previous years.  The officials found guilty of negligence had been on secondment from the DPSA and had subsequently returned to the Department.

The Chairperson remarked that an unstable top management structure usually resulted in a lack of growth at the lower echelons of an organisation.  He asked why people had been appointed to senior positions at PSETA, only to be found inadequate after one year.  He was of the opinion that there was a problem with the appointment process, which needed to be resolved before a strong organisation could be developed.

Mr S Thobejane (ANC) observed that there were at least 12 persons involved in the irregular activities at PSETA.

Ms Chiloane referred to paragraph 14 of the Auditor-General’s report (page 34) and to the corresponding note 14 on page 63 of the Annual Report.  She asked for an explanation of the irregular expenditure amounting to R5.2 million.

Mr Mhambi replied that the irregular expenditure item referred to the utilisation of NSF funds for purposes other than funding learnerships.  Investigations had revealed that certain invoices from service providers were suspect.  Copies of the cheques issued in payment of the invoices were handed over to the SIU for further investigation.

Ms Chiloane noted that the financial controls and systems of PSETA were inadequate.  She observed that PSETA had applied for condonation of the irregular expenditure by the National Treasury and suggested that the Committee discussed the request with the Treasury.

The Chairperson advised that the Committee’s quarterly engagement with the National Treasury had been arranged.  He noted that an amount of R66,770 for audit fees was paid from the NSF and had been condoned by the DPSA.  He asked for an explanation of the condonation of the amount of R651,077 for the CFO function.

Mr Steele referred to page 64 of the Annual Report where it was stated that an amount of R1,466,815 for the CFO function was not condoned.  None of the items of irregular expenditure listed on page 64 had resulted in disciplinary steps or criminal proceedings.

Ms Chiloane requested an explanation of the request to the National Treasury to retain accumulated funds.

Mr David Mulovhedzi, Chief Audit Executive, DPSA explained that the PSETA had made certain payments from its operations account rather than from accumulated funds.  The decision to pay the invoices for the CFO function from the NSF was made by PSETA before the matter was discussed with the DPSA.

The Chairperson remarked that the actions taken by PSETA officials indicated little respect for the procedures that had to be followed.

Ms Chiloane asked for an explanation of the contingency of R10.8 million mentioned in paragraph 12 of the Auditor-General’s report (see page 34 of the Annual Report).

Mr Ainslie said that the contract with the Administrator included clear instructions to carry out certain functions.  He asked if a new constitution had been drawn up for the organisation and if a new Board had been appointed.  He noted that the Administrator had been granted the power to replace staff and asked if any senior managers had been appointed.

Mr Pretorius had been unable to find a breakdown of the expenditure of R12.8 million on goods and services reported on page 70 of the Annual Report.  He asked for an explanation.

Mr Mhambi agreed to provide the details of the expenditure on goods and services to the Committee.

Mr Steele suggested that further engagement with the PSETA included a discussion on the future envisaged for the organisation.

Mr Thobejane observed that PSETA had received three prior disclaimers of opinion from the Auditor-General.  No action had been taken by the DPSA and he wanted to know what monitoring was carried out by the Department and if the Minister had been briefed on the situation.

The Chairperson pointed out that PSETA reported to the Minister and not to the Department,

Ms F Muthambi (ANC) referred to page 54 of the Annual Report.  She noted that no disciplinary action was taken against the persons responsible for the items of irregular expenditure totaling R2.8 million.  It would appear that the only action taken was to return staff on secondment to the DPSA.

Ms Chiloane referred to paragraph 17 of the Auditor-General’s report.  The license of the PSETA had expired on 31 March 2010 and was renewed by the Department of Higher Education and Training for one year.  She wanted to know what the situation would be after April 2011.

Mr Mhambi responded that the contingency amount of R10.8 million was made when it became apparent that the funds were lost to incidents of theft and fraud.  The matter was referred to the SIU but the exact amount could only be verified once bank records were accessed.  Criminal charges were laid against the former Financial Manager. Two officials seconded to the PSETA were suspended and disciplinary procedures instituted against them by the DPSA.  A draft constitution had been compiled and had been approved by all the stakeholders.  The draft constitution was currently with the Chief Director: Legal Services of the DPSA and was expected to be forwarded to the Minister of Higher Education and Training for approval.  The final constitution was expected to be in place by March 2011.  A new Board must be appointed by the Minister by the end of March 2011.  Advertisements for the vacant senior positions were placed in newspapers on 16 January 2011.  The vacancies included the posts of Chief Operations Officer, ETQA Manager, Projects Manager, Corporate Services Manager and Learning Programmes Manager.  Interviewing of applicants would be held in the near future.  The license of the PSETA would be extended for a further year to March 2012.

Ms Shamira Huluman, Chief Executive Officer, PSETA explained that the SETA operated as a Chief Directorate of the DEPSA between 2001 and 2006.  PSETA was re-registered as a public entity in 2006 and operated with staff seconded from the DPSA.  Personnel were reluctant to take the option of permanently transferring to PSETA as the entity was only licensed for a period of one year.

Mr M Malale (ANC), Chairperson of the Portfolio Committee on Higher Education and Training, observed a general tendency by Government entities to adhere to the PFMA and for officials to commit fraud.  He wished to make it clear that new appointees to senior positions would be scrutinised by both the Portfolio Committee and SCOPA.

The Chairperson queried the practice of hiring new staff when the PSETA was only licensed for a period of one year.

Minister Baloyi reiterated his commitment to respond to the issues raised by the Members of the Committee and to address the problems identified.  If required, a written response could be provided to the Committee.  One of the ‘anomalies’ identified concerned the appointment of members of the Board.  The appointment process involved the Ministers of Higher Education and Training, Public Service and Administration and Labour and required a lengthy consultation process.  He gave an outline of how the process should work but agreed that it was necessary to apply the principles of quality assurance when choosing the members of a Board.  Soon after taking office, he became aware that the PSETA was dysfunctional.  It was not immediately clear who was responsible and the Administrator was appointed to identify the persons who were accountable and to take the necessary steps to hold them to account.  Although the accounting authority was the PSETA Board, the DPSA was responsible as well.  The conflict of interest between the Board and executive management was a matter for concern.  It was unacceptable that the Acting CEO functioned as the Chairperson of the Board as well.  He exercised his authority to dissolve the Board and to take action against the top management (within the legal and labour relations parameters).  Plans were in place to set the PSETA on a course in line with the political objectives for skills development and it was envisaged that PSETA would continue to exist in the future.  He agreed that the licensing of PSETA needed to be reviewed.  PWC was unable to conduct all the investigations into the irregularities that had occurred and it was decided to involve the SIU in investigating the allegations of fraud and corruption.  The roles of the DPSA, PSETA and the Department of higher Education and Training needed to be clarified.

The Chairperson said that the challenge would be in turning the vision for PSETA into reality.

Hearing on the Energy Sector Education and Training Authority (ESETA) Annual Report 2009/2010
The Chairperson regretted the absence of the political leadership of ESETA at the hearing.  He observed that ESETA had received a disclaimer of opinion from the Auditor-General for three consecutive years.

Mr Thobejane questioned the advisability of continuing the hearing in the absence of the responsible Minister of Higher Education and Training.

Mr Pretorius felt that the Committee should undertake an investigation into the progress that had been made in addressing the issues identified by the Auditor-General.

Mr Ainslie said that ESETA had received the worst audit report he had ever seen.  The Auditor-General had issued 14 disclaimers of opinion and he felt that there would be little value in going over each item.  ESETA had also been placed under administration and the Committee needed to hear what action had been taken to address the overall situation.

Mr Malale asked the Administrator to comment on the morale of the personnel of ESETA.

Ms Matladi had intended to suggest that ESETA was shut down but had decided to give the entity an opportunity to explain what was being done to turn the organisation around.

Ms Tsakani Matshazi, Administrator, ESETA, advised that she had identified three major areas that needed to be addressed, i.e. financial management and control systems, governance and performance.  The issues requiring attention included a lack of skills, the failure of systems and procedures and the lack of leadership.  Guidelines for the implementation of proper financial control systems had been formulated.  The appointment of a new Board was in progress.  The financial management of ESETA was in such a state of chaos that all the financial accounts had to be recreated.  She agreed that no credence could be given to the published financial statements for the 2009/10 fiscal year.  The accounting firm Deloittes was appointed to provide the necessary capacity required to re-do the entity’s accounts.

Ms Matshazi said that the necessary policies and procedures were in the process of being established.  In addition, there had been a major shake-up of the management of the organisation.  ESETA had no CFO for at least a year prior to being put under administration and the CEO was dismissed.  Her first action had been to appoint an Acting CEO and an Acting CFO.  Only one Executive Manager remained in place and the process to fill the key vacant posts was under way.  The remainder of the senior management had either resigned or had been suspended, pending disciplinary action against them.

The Chairperson asked if individuals were being held accountable for the irregularities that had occurred at ESETA.

Ms Matshazi confirmed that one manager was currently subject to disciplinary action.  The Administrator had identified the areas requiring further investigation and the issues that were raised in the reports of the Auditor-General.  One person had been suspended and one person had been charged with fraud.  All allegations of wrong-doing were being investigated.  A major problem was the fact that supporting documents were mislaid or had been misfiled.  A process was underway to re-create all the accounts.  The forensic audit conducted in 2008 was of little use as the findings were inconclusive and were difficult to follow.

Ms Matladi said that there were existing procedures for the duties and responsibilities of the accounting officer and she did not understand why it was necessary to formulate new policies and procedures.  She questioned the additional expense incurred by the appointment of an external consultant to recreate the accounts when the entity had personnel in place.  She wanted to know why the established rules and regulations were not followed by the officials of ESETA.  She questioned the filling of vacant positions when it was not clear that the ESETA would continue to exist in the future.

The Chairperson made it clear that the Committee did not condone the use of external consultants by Government entities.

Ms Matshazi explained that the former Board had failed to carry out its responsibilities.  The posts of CEO and CFO were vacant and there was a major leadership and skills vacuum at ESETA.  An Acting CEO and an Acting CFO was seconded from Deloittes for a period of six months (September 2010 to March 2011) at a total cost of R1,026,000.  She was confident that Deloittes would deliver on its mandate.  The recently established Audit Risk Committee was overseeing the delivery of services from the external consultant.  The license of ESETA was renewed for a further period of five years, from April 2011 to March 2016.

Ms Matshazi said that the reasons for the failure to comply with legislative and regulatory requirements was a combination of activities resulting in irregular expenditure, the failure to keep complete and accurate supporting documentation and the failure to follow proper supply chain management procedures.

Mr Steele observed that the Auditor-General had commented on the incompetence of personnel and the lack of a performance appraisal system yet the total cost of employment increased from R7.2 million to R10.2 million in 2009/10.  He asked how the additional R3 million could be justified and wanted to know what expenditure was included in “other salary related costs” totaling R1.3 million.

Mr Pretorius referred to the Chairperson’s Report on page 2 of the Annual Report and was of the opinion that the mandate of ESETA was not clearly understood by the Chairperson of the ESETA Board.  He asked if the core functions of ESETA were being carried out.

Mr Ainslie referred to the limited benefits derived from the 2008 forensic audit and asked why the Administrator of ESETA did not refer all the investigations into the irregularities to the SIU.  In his opinion, the high occurrence of missing documentation indicated extensive fraudulent activities.

Ms Matshazi agreed with the Auditor-General that the financial staff delivered no value and the situation was exacerbated by the lack of a performance management system.  The Board had failed to exercise control over the CEO, CFO and executive managers and the senior management had failed to provide any leadership.  The Administrator had conducted a skills audit and found that one senior manager was not competent to perform his functions.  In general, the prevailing culture was lax.  She said that the amounts quoted in the Annual Report could not be verified and the figures provided for payroll expenditure was doubtful.

Ms Matshazi reported that the morale of certain administrative personnel was good and that ESETA continued to deliver output.  More centralised oversight was being carried out by the recently appointed Acting CEO.  The Administrator was still engaged in ascertaining the state of affairs and would request a forensic audit only once the nature and extent of the situation at ESETA was known.

Mr Malale remarked that ESETA was in a state of paralysis and clearly unable to deliver on its mandate.  He advised that the Portfolio Committee on Higher Education and Training would be following up on the progress made.  He wanted to see that a turnaround strategy was put in place and that appropriate action was taken against the responsible individuals.

The Chairperson thanked the Administrators of the PSETA and ESETA for their input.  The Portfolio Committee on Higher Education and Training would be monitoring the progress made in addressing all the issues raised by the Auditor-General and by the Members.

The meeting was adjourned.