Department of Science and Technology: AGSA on 13/14 audit findings; BRRR process

Meeting report

The Chairperson commented on the importance of the Budgetary Review and Recommendations Report (BRRR) in terms of monitoring and evaluation and oversight.

Budgetary Review and Recommendations Report (BRRR) process
The Committee Content Advisor, Ms Renèe Osbourne-Mullins, said the Money Bills Amendment Procedure and Related Matters Act (No. 9 of 2009) provided Parliament with a procedure to amend money Bills. The procedure entailed that each House of Parliament established a committee on finance and a committee on appropriations. The finance committees considered and reported on the national macro-economic and fiscal policy and related matters. The appropriations committees considered and reported on spending issues, amendments to the Division of Revenue Bill, the Appropriations Bill, Supplementary Appropriations Bill and the Adjustments Appropriations Bill. Parliament established a Parliamentary Budget Office (PBO) to provide independent, objective and professional advice and analysis on the budget and money bills. Prior to introduction of the national budget, Portfolio Committees should submit a BRRR for tabling in the National Assembly.

The Money Bills Act stated that Portfolio Committees should, annually assess the performance of each national department with reference to the department’s medium term estimates of expenditure, strategic priorities and measurable objectives. This would include an assessment of the prevailing Strategic and Annual Performance Plans (APPs), the expenditure reports published by National Treasury, financial statements and any other relevant reports. The Portfolio Committees would, after assessing the performance of a national department, compile the BRRR detailing its findings. A BRRR reviewed past performance to inform future use of resources through recommendations. When assessing performance, Portfolio Committees should focus on whether goals and objectives were “SMART” (specific, measurable, achievable, relevant and time-bound). Indicators should measure well defined and cost effective performance and the budget should reflect the priorities of government. The efficient use of resources should be evident and any deviations from targets set in APPs had to be substantiated.

In October, Portfolio Committees compiled the BRRR and tabled it in the National Assembly. When the BRRR had been adopted by the National Assembly, it was submitted to the Minister of Finance and to the Minister responsible for the vote to which the report applied. At the discretion of the Portfolio Committees, additional BRRRs could be submitted. In February, the Minister of Finance would formally respond to the BRRR recommendations. If the recommendations were rejected by the Minister of Finance and the Portfolio Committee was dissatisfied with the reasons given, the Portfolio Committee might approach the National Assembly’s Committee on Appropriations to reassert its BRRR recommendations. The report of the Committee on Appropriations that proposed ant amendments to the Appropriation Bill should be submitted to the Minister of Finance and the Minister responsible for that department budget vote. These Ministers then had 10 days to respond to the proposed amendments and the report of the Committee on Appropriations on the Appropriations Bill should include the response of the Ministers. Parliament must then pass the budget vote, with or without amendments, or reject the amendments to the Appropriation Bill within four months after the start of the financial year to which it related.

Ms Mullins said the power of the BRRR was in the fact that it could be used to amend budgets of departments, if assessed and analysed adequately. It was therefore important to monitor in-year developments to draft the BRRR.

Overview of areas to be addressed by Committee when interrogating Annual Performance Plans
The Committee Researcher, Dr Eliya Madikane, gave an overview of the focus areas, based on DST's audit findings, to enable the Committee to engage DST and its entities as well as looking at the DST's APP and strategic objectives, noting DST had achieved 77% of its targets. He highlighted issues for consideration for each of the Department’s programmes. For example, in the Research, Development and Innovation Programme (Programme 2), out of four MeerKAT satellite dishes due on 31 March 2014, only one had been installed. Also, it seemed that the National Intellectual Property Management Office (NIPMO) was underfunded and the vacancies of the Department were concentrated in Programme 2. He said it should be assessed whether the allocation of R12.5 million was sufficient was for the National Advisory Council on Innovation ( NACI) to do what it needed to do and if there was a tracking mechanism for the advice NACI had given to the Minister. The Council should be able to report what advice was given and whether the advice had been implemented.

Vacancies at the Technology Innovation Agency (TIA) were concentrated in the Office of the Chief Operations Officer with 21 vacancies out of the 73 available positions. Of the 21 employment terminations, 14 (70%) had resigned. It had come to the attention of Parliament that TIA was retrenching a third of its employees, meaning about 75 people would be retrenched, leaving only 152 people. TIA needed to assess their capacity needs, as well as the impact of these retrenchments.

The Human Sciences Research Council (HSRC) struggled to secure contract funding and research grants and if the budget were to be increased; HSRC should indicate how the increased budget would be utilised.

The South African National Space Agency (SANSA) should clarify the ‘capacity constraints’ referred to in their APP and SANSA seemed to have difficulty in employing permanent staff from designated groups in management positions. There should be a detailed recruitment strategy in place, because the Agency had a vacancy rate of 12.4%.

Dr Madikane said the Council for Scientific and Industrial Research (CSIR) should explain what processes were in place to ensure that its activities were even more aligned to the vision of the National Development Plan. The target related to publication equivalents was not met and this was one of the indicators that were used to measure the health of the National System of Innovation (NSI). Usually the patent is obtained before one published, but it did not seem to be the case in this instance and it should be clarified.

The National Research Fund (NRF) highlighted that placement of the Square Kilometre Array project funding on a sustainable basis was a concern. The value of the grants had not increased to the set level and reasons needed to be provided why 545 of the grants had not been spent at the time of reporting. The NRF was not an exception in failing to achieve the target to secure patents and it should be assessed holistically.

Unlike all the other DST entities, the Annual Report of the ASSAf was not aligned with its APP and this very same issue was highlighted in 2012/13. Furthermore it was unclear how ASSAf monitored and measured the impact of its policy advice to government.

Overall DST had improved performance in terms of set targets, however the Research, Development and Innovation (Programme 2) was not performing at an optimal level. The National Research Fund struggled to meet targets related to the number of blacks and women supported in its grants funding and funding for post graduate studies. Several entities had mentioned funding constraints and cost containment measures and the Technology Innovation Agency (TIA) had a deficit of over R18 million at the end of the financial year. It should be established whether the deficit was as a result of underfunding or the poor management that TIA experienced recently. TIA’s budget had already been reduced by over R100 million for 2014/15 with a commitment that the budget cut would not affect service delivery.

Auditor-General South Africa (AGSA) briefing on the audit outcomes for 2013/14 financial year
AGSA Senior Manager, Mr Faizel Jogee, provided the Committee with information on the audit outcomes to enable Members to execute their oversight function.

The Department had received a final annual appropriation of R6.2 billion and had spent 99.54% of the allocation in 2013/14. The largest portion, 92.03% of the annual appropriation, was transferred to the portfolio entities, other institutes and projects. He gave an overview of both the specific amounts allocated to each of the entities, as well as a breakdown of the allocations to the DST programmes which included the planned budget, actual spending and deviations. DST and the Africa Institute of South Africa (AISA) received unqualified opinions with findings on compliance, but they managed to resolve their prior year findings on predetermined objectives. DST and AISA recorded instances of non-compliance as material adjustments were made to the annual financial statements (AFS) submitted on 31 May 2014. A number of non-compliance findings in respect to supply chain management (SCM) were identified at DST and the Department failed to comply with prescripts relating to compensation of employees.

Significant emphasis of matters were identified in AISA’s AFS that included adjustments made in respect of prior year errors identified in the current year. The errors related to incorrect allocation of rental expense for the prior year, assets additions for the prior year incorrectly accounted for in the current year and an Unemployment Insurance Fund (UIF) error for amounts payable. It should be noted however that AISA had been incorporated into the HSRC as of 1 April 2014. No significant additional matters were included in the audit report of the entities and none of the entities had a qualified, adverse or disclaimer opinion in the 2013/14 financial year. In addition, no significant findings on predetermined objectives were identified.

In terms of supply chain managemen, DST, AISA and the NRF incurred irregular expenditure as a result of the contravention of SCM legislation. Contracts were awarded to suppliers whose tax matters had not been declared by the South African Revenue Service (SARS). There had been a lack of proper review by management to ensure compliance with SCM policies, procedures and legislation. It was also found that DST did not follow the proper verification process for new appointments as required by Public Service Regulations. There were no significant matters to report on the information technology reports and none of the auditees had findings or displayed signs that there were matters which could affect financial sustainability. Material misstatements to financial statements had been recorded for DST and AISA. These misstatements had been subsequently corrected, resulting in the financial statements receiving an unqualified audit opinion. Internal control deficiencies had been recorded for DST, AISA and the NRF, which directly led to the SCM related findings. The irregular expenditure which also related to SCM issues showed an amount of approximately R32 million for DST and R588 000 for AISA. HRSC significantly reduced irregular expenditure from R132 000 to R76 000 and CSIR incurred no irregular expenditure.

The Department and its entities had progressed in complying with National Treasury requirements on reporting on pre-determined objectives. Management did proper monitoring during planning to ensure compliance to the National Treasury Framework and obtained feedback on a quarterly basis. New commitments included the monthly monitoring of the dashboard and updating the Minister on a quarterly basis on the improvement and actions taken to improve on the controls. A checklist would be implemented on the requirements of the SCM process, which should be completed with regards to all tenders, quotes and deviations. An internal audit would be done to ensure compliance.

TIA, SANSA and ASSAf were audited by external auditors and based on the reports showed the overall audit outcomes of these entities had improved when compared to the previous year. TIA did not have sufficient monitoring controls to ensure adherence to the internal policies and procedures at an objective level and for purposes of taking corrective action. As a result, the target for the number of technology based products and processes developed through investments objective was not well defined. Non-compliance with legislation related to SCM could have been prevented had compliance been properly reviewed and monitored. This non-compliance effectively led to TIA incurring irregular expenditure of approximately R52 million.

Discussion
The Chairperson said Members should keep in mind that the presentations were made to enable members to engage with the Department and its entities. He asked for clarification on both the irregular expenditure and the lack of monitoring noted in some instances.

Dr A Lotriet (DA) asked for confirmation that the irregular expenditure could be mainly ascribed to non-adherence to SCM procedures and not as a result of wasteful or fraudulent expenditure.

Mr Jogee said a lot of work had been done with the Department during the interim audit phase and a lot of SCM issues were picked up. The Department then took the necessary steps to address those issues, but because the financial year was already closed, it had to be recorded in the audit findings. The commitments made by the Department to use a checklist and the monitoring of the dashboard should address all the SCM challenges. The internal control challenges of AISA could mainly be ascribed to the transition process of its incorporation into HSRC and should be resolved in the current financial year. The NRF’s SCM challenges mainly focused on procurement and quotations. The reasons for non-adherence were not clearly documented and resulted in the irregular expenditure audit findings. No fraudulent transactions were detected, because all the services were delivered, but there was a lack of documentation that supported the deviations. Irregular expenditure should be firstly condoned by the Accounting Authority and then by National Treasury. In some instances, it had only been condoned at Accounting Authority level and had not been reviewed by National Treasury. Once the amounts had been condoned by National Treasury, there should be a significant reduction in the irregular expenditure.

Mr C Mathale (ANC) asked for clarification on the tax clearance certificate findings raised.

Mr Jogee said it was one of the major requirements that before a quotation, contract or tender was awarded, a valid tax certificate should have been in place. In some instances there had been no tax clearance certificate in place and it had only been sourced once it was already raised by AGSA. In one case the tax certificate did not look like a proper tax clearance certificate and it was confirmed by SARS that although the service provider in question did have a valid tax clearance certificate, the certificate the entity had on file was not the correct certificate. It led to audit findings of inadequate monitoring and control procedures.

The Chairperson thanked everyone for their input.

The meeting was adjourned.