2nd Special Audit on Financial Management of Government’s COVID-19 Initiatives

Meeting report

Opening Remarks
The Chairperson welcomed the newly appointed Auditor-General, who had been the Deputy Auditor-General for some years, and her team. He expressed his confidence in the AG and her ability to perform since she has been part of the institution for several years and was part of the pioneers of its major programmes, including the COVID-19 audit. He was confident in her leadership and capacity to lead her team in such difficult times. The Chairperson said that the meeting was convened to look at the AG’s findings in its second installment of the COVID-19 Audit.

The Auditor-General, Ms Tsakani Maluleke, said she was honored to have the opportunity to serve South Africa in this capacity and looks forward to working with the Committee as they collaborate to drive the mandate of the National Audit Office since taking over as the head of the institution on 1 December 2020. She has been quite clear that she will continue the tradition of the Auditors-General that have come before her, to focus on preserving what was founded and using her office to build what is there. The institution enjoys a solid reputation. It is blessed with capable and committed men and women who have chosen to serve the institution, and indeed, their democracy. Moreover, her office has chosen to do this independently and with professionalism. In a three-calendar year, the team ensured that they deliver on all commitments, whilst making a swift and bold transition to working remotely and on something completely new – the real-time audit of the COVID-19 relief funds. It was unfortunate that last year ended with the sudden and devastating loss of the former Auditor-General.

She reported that her office has managed to roll out the second installment of a special audit on the COVID-19 funds and also concluded the 2020 Public Finance Management Act (PFMA) audit cycle, all under the most extraordinary operating circumstances. They are currently busy finalising the Municipal Finance Management Act (MFMA) Local Government 2020 audits. They are also wrapping up the real-time audit of the COVID-19 related expenditures at municipal level which will form the third special report planned for mid-2021. All of this is going on whilst gearing up for the PFMA cycle for 2021. What is clear is that in this moment, they have to lean into the benefits that come with stability and continuity. The mandate is clear, and their vision is consistent, which is to be recognised by all their stakeholders as a relevant supreme audit institution, one that enhances public sector accountability. They are currently working on a four-fold strategy and incorporating their extended mandate arising from the amendments to the Public Audit Act. They will use the next few months to take stock of all the rapid and significant changes that are happening. As for the leadership of the institution, they will define their new strategy, informed by their vision of “seeking to be and to be experienced as a relevant supreme audit institution that does indeed, enhance public sector accountability”. That strategy will be the outcome of work done by the collective leadership of the institution. Over eight years in this Office, the new AG has learned to appreciate the value of leaning into the collective wisdom available amongst her colleagues and it is her intention to do just that as they define a new strategy.

As they take stock of all the many changes and figure out what they mean for their institution, she anticipates that they will be ready to share this work with the Committee in August 2021, which is the time they normally deal with the integrated report, as well as the plan and budget. As of 1 April 2021, they will continue to implement the Act integrating the new extended powers and ensuring that the instrument that has been given to AGSA to strengthen them is implemented in the way intended by the legislature.

The Chairperson said that the current strategy still serves AGSA for continuity. The AG will begin to tailor-make the new strategy to take that forward and that should be completed by the end of August 2021. He expressed his expectation that since the new AG occupied her office as from 1 December last year, the wisdom for the Committee to deal with a new strategy might somewhat hinder the progress made within the old strategy. They need to welcome that fact because “you work through the old to get to the new”. He said that upholding the key principles, informed by the credibility of their work, would contribute towards protecting AGSA and its work. He welcomed the Auditor-General.

Mr O Mathafa (ANC) extend his well wishes to the new AG and hopes that the kind of work and their experience as a Committee with her predecessor will continue. His understanding is that since the incumbent has been part of AGSA, they would also appreciate that the kind of work to flow through from AGSA. She had a meaningful contribution to that particular quality of work and Members anticipate that same quality to be maintained. The Committee pledged the AG all the support that she deserves to ensure the quality of accountability in the country and in the public space is maintained. It portrays legislation compliance in the use of government resources to taxpayers and the legislature.

Mr N Singh (IFP) said he knows and has worked with the AG in the past and knows that she has hit the ground running. He will be looking forward to working with her as they move forward. He asked about last year’s COVID-19 interruptions and the delays in submission of financial statements and auditing. Does AGSA think they are perhaps going to have the same happen this year? How is the Audit Office doing given the COVID-19 protocols present?

Mr M Hoosen (DA) said it is exciting to sit in this Committee coming from the Portfolio Committee on Cooperative Governance, where he experienced firsthand the state of municipalities in the country. The state of municipalities is dismal. If Parliament's core responsibility is oversight, then this Committee could contribute massively. If they get the financial management correct, then other service delivery failures will be addressed. He was very encouraged by the opening remarks of the new AG and congratulated her on the appointment. He commended her comments on the new tools and her commitment to making sure that they are implemented. He has sat on many Portfolio Committees and has seen many government officials come and go, making many promises and statements at the very beginning. He told the Committee that they can give the AG the benefit of the doubt and that she will use those tools to her advantage. One of greatest problems in government is the lack of accountability; people do as they please, and they get away with it year after year. The Auditor-General does audits on municipalities, provincial and national governments and year after year, problems pointed out the previous year have not been addressed. Moreover, nothing happens to the people who are getting paid huge salaries to fix those problems.

The Chairperson said he had been crying over the failure by Treasury to make the requisite allocation to ensure that AGSA is enhanced in terms of capacity. However, the AG informed him yesterday that it received R15 million from Treasury to support her work. He invited the AG to make her report.
 
Second Special Audit Report on Financial Management of COVID-19 Initiatives
The Auditor-General, Ms Tsakani Maluleke, reported there has been a good attempt by departments to take action and implement the commitments made on the First Special Audit Report findings. However, the impact of these actions were not yet evident in Second Special Audit Report as AGSA is reporting on procurement that occurred before those actions took effect. Some weaknesses could not be addressed through a quick fix. The Ministers and MECs were supporting their accounting officers to improve and in some cases took definite actions to get involved. AGSA did not have opportunity to brief committees in Parliament and provincial legislatures, but it has taken note of oversight actions taken by some committees.

Talking to the Second Special Audit Report, Ms Maluleke said there were significant deficiencies in the procurement and contract management processes – with inadequate controls in ensuring payments were made only for goods and services that are delivered at the right time, price and quality. She raised concern about unfairness in the awarding of government business and that not enough care was taken to protect against overpricing, financial loss, fraud and abuse of the system. The overall observation from the Second Special Audit Report noted the multibillion-rand relief package funded the country’s health response and provided social and economic relief. Most initiatives are completed or close to completion – some abandoned or redirected.

Previous message on the risks created by rapid implementation in a compromised control environment remain relevant and the impact on effectiveness of initiatives is now becoming apparent. Some of the initiatives did not achieve the desired results and were even abandoned because of failed coordination, monitoring and relationships across the three spheres of government. Where implementing agents were used, weaknesses were found in coordination and monitoring which compromised delivery, transparency and accountability.

The information technology systems, processes and controls used in government were not agile enough to respond to the changes required. AGSA identified that the lack of validation, integration and sharing of data across government platforms resulted in people (including government officials) receiving benefits and grants to which they were not entitled. Government needs to take a well-considered, coordinated and centralised approach to address the legacy challenges in the public sector information and communication technology (ICT) environment.

AGSA continued to identify indicators of potential fraud which were reported to the Fusion Centre for investigation. It has a goal to collaborate and coordinate efforts of state law enforcement institutions to detect and respond to allegations of corruption in COVID-19 pandemic activties.

AGSA's Third Special Audit Report will have a local government focus and is planned for mid-2021. It will continue auditing the COVID-19 funding and follow up on the progress made in addressing the audit observations and findings from this report. In the course of the normal annual audit, they will also identify material irregularities from this process and commence with the required processes.

Discussion
The Chairperson commented that the write-up was high level. He pointed out the biggest allocations in terms of expected expenditure were UIF and SASSA, and noted the improvement in these two big spending items. He also remarked on the 6 000 UIF beneficiaries who are senior managers in the public service, which has been confirmed by the Special Investigating Unit (SIU) report. The AG’s report covered several instances of preventative controls which have been compromised in procurement.

Ms M Mente (EFF) said what is important about the new Public Audit Amendment Act allows AGSA to do something about people who have breached the financial laws. The statement that “Issuing a certificate of debt is not very important but ensuring internal controls are in place is” is very profound.

Ms Mente said the Office of the Chief Procurement Officer (OCPO) in National Treasury had told them that its regulations in departments were replaced by the emergency policy of procuring Personal Protective Equipment (PPE) items. However, emergency procurement has to comply with the Public Finance Management Act (PFMA). The OCPO states that there is no electronic procurement system being utilised to monitor this money spent by government departments. However, the OCPO did promise to have a system in place by March 2021.

Ms Mente asked about the AG’s knowledge on the IT controlled and a centralised system where Treasury can monitor and observe all these activities. Is the AG satisfied with the system? What is National Treasury doing to better the situation? There was no documentation in some departments for AGSA to make findings on the financial statements, even when SIU went to these different spheres of government to investigate irregularities in PPE procurement. Documentation has been disappearing and they could not investigate. She asked if the AG has seen the Treasury centralised IT system and if she is satisfied with it.

The Auditor-General confirmed the appropriateness and adequacy of the IT system for centralised procurement. They have not yet audited it but certainly will at the appropriate time. They will work with the National Treasury to ensure the development of a system that is appropriate and adequate. She undertook to ensure a strengthened relationship with National Treasury to support them in delivering a system that is appropriately responsive.

Ms Mente asked if the AG could indicate where she had problems with leadership that did not cooperate or are not implementing the findings and consequences recommended. The leadership should promise to implement the audit recommendations – is there success in implementing the recommendations?

Ms Mente spoke with concern about risk management noting there is a general lack of ascertaining the risk when designing systems. She noted the 6000 public officials, the prisoners and even dead people who had received the Temporary Employer/Employee Relief Scheme (TERS) benefit. It shows a lack of risk management to ensure serious attention is paid to every detail. How can a government system fail to detect a person who is employed within government? How many more flaws must there be for those employed by the private sector, if the government system can detect a person who already has a PERSAL number? When addressing risk management by departments, has the AG tried to give advice? And if so, what was the advice so the Committee can ensure it is implemented well? There is a need for a risk-free system where corrupt people cannot easily breach it.

The Auditor-General replied that she is much happier with the current leaders in departments because they are cooperating with her to ensure no more financial irregularities take place. On leadership responsiveness, she has personally interacted with each of the ministers for Special Audit Second Report. In all instances, without any doubt there has been an acceptance of the matters raised as well as a commitment to support the accounting officers in responding. She believes that the moment is one that they should learn from and build on. Perhaps this is a sea change and if that is true, she would want to use that to build a different way of engaging with this work. The simple answer in each instance is that there has been the required level of responsiveness. They will continue to follow up on consequences. Some have already acted. When they do the 2021 regularity audit, they will follow up on the actions that needed to be taken.

On risk management for databases, the advice AGSA has been giving is to integrate databases in government and maintain quality databases. That is what needs to happen. If there are stable and well integrated databases, there will be no instances of ‘exceptions’. Fusion Centre colleagues have a similar view. What they saw when they engaged the Department of Performance Monitoring and Evaluation (DPME) is that there is an effort amongst the directors general to integrate and improve the quality of databases. Thus AG's recommendation is to continue supporting this work but also monitor how it pans out in the design. She remains hopeful they will get the benefit associated with this effort.

Mr Z Mlenzana (ANC) said it is better AGSA is capable with its new powers to do what they need to do. The expectation is that from time to time, it will assist and give direction, particularly, towards the end product of law enforcement. This is because they cannot allow a banana republic now that they managed to give teeth to AGSA with its amended powers. He expected to see results considering its coordination with all the law enforcement agencies. He expects to see people arrested and the repayment of undue and corrupt expenditure. After listening to the Office of the Chief Procurement Officer accounting to the Standing Committee on Appropriations this week, some auditees applied for procurement deviations and whilst the application is still being processed – there is need to look into the processing delays – they continued only to find the Chief Procurement Officer turned down the application, yet they had continued. Others would receive the “no” letter but would continue as if nothing has happened. The Committee asked the OCPO to give the Committee at least the top five auditees consistently doing this. He asked that the new Auditor-General re-launch the Operation Clean Audit Campaign. He suggested they give two to three years to achieve clean audits.

Mr N Singh (IFP) said AGSA has done excellent work in identifying many transgressions that took place during COVID. However, in presenting this report, he noted that the AG has been very circumspect. The AG has shown a lot of professional courtesy and collegiality when it comes to referring to government departments and entities. The most important thing is accountability, responsibility, and taking action against those who have transgressed. He would have liked to see more private service providers in orange overalls because the focus seems to be is on public servants, the executive, the accounting officers, but it takes two to tango. He inquired the extent to which AGSA has pointed out “crooked” service providers who knowingly engage in corrupt activities working with department officials.

The concrete action from the First Special Audit Report has shown that corrective action was not fully apparent yet. It seems to him that the emphasis of relying on accounting officers to take corrective action is wrong, because many of them have been found wanting. Seeing as the head is not right, including certain Executive Members, what would be the expectation for those below them? He asked the Auditor-General to comment on the efficacy of the accounting officers and Members of the Executive in dealing with audit concerns such as poor record keeping. This is a perennial problem when the AG gives a report. He asked when they were going to correct such concerns and get financial officers and internal audit committees to realise their responsibilities. There is need to have a comprehensive package of what they need to do and if they do not do it, action against them should be taken. Every cent of the R600 million in the Department of Human Settlements is precious as it is a very difficult task to find money in the country at the moment. R600 million was allocated for rental relief for those that suffered from COVID-19 and were unable to meet their rentals yet not one cent has been spent. There is need to investigate why R600 million was appropriated but not one cent has been spent. He suggested bringing in more forensic auditors as they detect material irregularities going forward. He also asked if AGSA can table a compilation of specific corrective actions for which there needs to be buy-in by all government entities and a box is ticked as they go along auditing.

One needs to ensure that taxpayers’ money is spent efficiently but the way things are now happening and based on the reports, that is not the case. He commended Office of the Auditor-General and the whole team for bringing to light the reported deficiencies. Remarking on the Auditor-General meeting with each minister, he hopes she also met with Office of the President and the President himself, and particularly the DPME. There is a whole department that is supposed to monitor and evaluate and he hopes those steps were taken because they need something conclusive after this Second Special Audit Report.

Mr Hoosen said the COVID Relief Fund to some extent has provided a lifeline to a number of people but the question is how much more could have been done had they not wasted as much money. He was not surprised that significant deficiencies were found in the procurement and contract management processes and that there are inadequate controls to ensure payments are made only for goods and services delivered at the right time, price and quality. He referred to the over pricing, fraud and abuse of the system since the President's announcement of the R500 billion relief package. There have been a number of stories in the public domain about excessive pricing and fraud and corruption, right down to municipal level. He was sure they would see more of those details in the third report later this year. The AG is in a position to put an estimate figure or percentage to the loss related to that R500 billion because that is where the real picture emerges. He asked how much of this money has actually been wasted either through poor financial controls, excessive pricing or corruption.

He raised excessive pricing noting that the AG Report mentions the Fusion Centre is where further investigations and accountability measures have been implemented. A set of regulations on excessive pricing were issued by Minister Patel under the Competition Act. There was a fine of up to R1 million for any company found guilty of excessive pricing. A number of municipalities and government departments were paying massive prices for PPE. For example, where a mask is supposed to cost R20 they were paying R200 despite Treasury's price guidelines. He asked if the AG will also ensure that this is also reported because if there is one way to stop the politicians from stealing money, it is to go after the corrupt businesses who are paying the politicians. If you put them right, the politicians will not have the space to run. They must focus on both the corruptor and the corrupted and get the money back from those people who have used government officers to make an extra buck - money intended for especially the poorest of communities to protect them from COVID-19. He asked if the companies participating in excessive pricing will be penalised.

Ms Maluleke replied that AGSA has valued the collaboration with the Fusion Centre and hopes it will assist them to establish this type of relationship to help implement the material irregularity (MI) process even better. In terms of Operation Clean Audit, they do have to continue to advocate for clean audits as a desirable destination in calling for clean administration. Too often, time is spent worrying about whether or not a clean audit is relevant and people celebrate an unqualified audit with findings. A clean audit as a destination is desirable because it is a good indicator of an environment operating well. The auditees that are in the 'yellow zone' with an audit outcome where the financials are unqualified and credible but they have major findings on compliance, especially for procurement – this is where much of the leakage happens and where much of the wrongdoing is happening. They need to find a way to get everyone to accept that one must be unsatisfied with an unqualified audit with findings and rather celebrate clean audits. All departments play a role in the system and have a duty to maintain that focus on a clean audit being the appropriate and desirable destination.

On action taken against those who have transgressed, the AG observed that their ability to share information with the Fusion Centre quickly is allowing the process of further investigation by law enforcement agencies to happen more quickly. At the time of the year-end audit for the financial year ending March 2021, auditees should be able to report how consequences were meted out in the context of the First and Second Special Audit Reports. They all ought to demand more of that swift action as the journey of safeguarding the precious Rands they do have requires swift alert action and it requires much greater collaboration by different players in the system. AGSA's focus is going to be where they are not seeing that action. The focus of oversight should also be on appropriate action, especially by accounting officers. The public finance management system is designed on that basis. The Public Audit Amendment Act is responding to failure by accounting officers to do what they are charged to do, and failure by others in the system. The Amendment Act is an instrument that allows them to push for greater, swifter action by all parties. Chasing one MI is important and it signals holding someone accountable which can start to change the culture. However, merely having that instrument in the hand allows them to drive committed action by many people in a much, much bigger way.

She suspects that the Public Audit Amendment Act will result in an opportunity to professionalise the public sector. From the AG’s experience, the accounting officer is seized with avoiding an material irregularity (MI) and a certificate of debt so he is going to be empowered to push back on inappropriate pressure. Moreover, an accounting officer that has qualifications could go on and do other things and have a different posture from one that is not professional. The Amendment Act has a chance to drive professionalism.

The one thing that stands out about the real-time audit is seeing the value of collaboration in formulation of the multidisciplinary teams within AGSA. They will continue to build on it and that this model has pushed them to progress in that journey quickly. They have to continue to supplement it, especially around data analytics, forensic skills and IT audit skills. They will continue to build on what they have learned and diversify their audit teams.

It also taught the importance and value that comes from collaborating with other actors outside of AGSA such as the players in the Fusion Centre, because ultimately, everyone wants the same thing. Moreover, if they all collaborate, they cut out the fragmentation and areas of duplication and people are allowed to do what they are supposed to.

On estimating the figure for loss, it would very difficult to do so. Many of the findings and observations have been about data analytics. They have identified 67 000 beneficiaries, for example, that should not have received the Social Relief of Distress grant. Somebody has to go and do the work of analyzing and reconfirming this if an individual should have got that money and go and recover it. Therefore, it is going to difficult to say what the estimation of loss is.

The lack of spend by Department of Human Settlements is novel as the real challenge there is about coordination between DHS and other actors. If they can sort out coherent and coordinated planning of initiatives across agencies and across spheres of government, then they will be able to get much better outcomes for the initiatives they design. That is consistent with what they have been saying about the sector for a long time. AGSA has observed that a key weakness is the lack of coordinated planning of key projects that cut across spheres of government – so that has to be the focus as was pointed out in the audit, because going forward, many different programmes are going to run like this.

The Chairperson said that the questions show how Members have noted persistent and undesirable actions by various auditees, which result in huge loss for the public purse. Moreover, Office of the Auditor-General is paid for conducting such audits. If after highlighting those audit findings, there is a failure by accounting officers to act, this amounts to wasteful expenditure. Accounting officers and executive authorities fail to act on these findings – some do not even attempt to deal with those matters. The Committee appreciates that these special audits have made way for improvements and to recover some of the amounts lost. However, one must be emphatic on the point of preventative controls, which enforce accountability by those who are supposed to account. The Chairperson said as, Members of Parliament, they are supposed to make those in the executive to account maximally on their actions and they are supposed to be accountable for what is taking place. He referred to the First Special Audit Report on COVID-19 which referenced more than 80 000 matters sent to the Fusion Centre, which was a huge number of referrals for investigation. We now find out that only a certain number of those are being pursued by SIU. What type of accountability does the AG assert for the Second Special Audit and how many cases have been referred to the Fusion Centre to assist and collaborate in investigations?

The AG replied that she does not have the specific number of the different incidents that were handed over. However, they have handed over the findings, observations, and risk indicators for the PPE procurement. That has been a major focus of the work of the Fusion Centre since December. In addition, AGSA has continued to hand over some cases to UIF and SASSA. However, the bulk of it was PPE and that has informed the work of the SIU as well as law enforcement over the last few months.

The Chairperson said the Committee is interested in the details and requested if it could be furnished with these. If the departments, paying for AGSA to audit them, fail to implement, AGSA also fails, then both have to be held accountable – rather than always pointing fingers at government alone. AGSA is so far accounting for 65% of the overall allocation, which is a huge expenditure for emergency items allocated during this period. They await the Third Special Audit Report to cover the rest. The indications are where outputs and outcomes have some level of failure, this ought to be pursued and look at other ways to deal with those failures. The Chairperson asked the Committee to take note that the AG will return on 12 March for the regularity audit.

The meeting was adjourned