Ad Hoc Committee on the Commission for Gender Equality (CGE) Forensic Investigation presentation

1. Ad Hoc Committee on the Commission for Gender Equality (CGE) Forensic Investigation presentation National Treasury Presenter: Gillian Wilson | Public Finance |31 January 2011

2. LEGISLATIVE FRAMEWORK • Institutions supporting constitutional democracy are independent and subject only to the Constitution and the law (section 181(2) of the Constitution. • No persons or organ of the state may interfere with the functioning of Chapter 9 institutions (section 181 (4) of the Constitution and section 10(2) of the CGE Act. • Chapter 9 institutions are accountable to the National Assembly and must report on their activities and the performance of their functions to the Assembly. • Before transferring any funds to an entity within or outside government , the accounting officer must obtain a written assurance from the entity that implements effective, efficient and transparent financial management and internal control systems, or, if such written assurance is not given render the transfer of the funds subjects to conditions and remedial measures. BUT this does not apply to constitutional institutions (section 38 (j) of the PFMA).

3. Accountability structure of the CGE • Section 119 of the constitution provides for the establishment of the commission for gender equality. • And determines the members of the commission and the requirements for their appointment; • The Act stipulates that the Commission shall consist of a chairperson and no fewer than 7 and no more than 11 members; • The Commission shall in consultation with the Minister of Finance appoint a suitable qualified person as Chief Executive Officer to assist the commission with the financial administrative and clerical functions; • The persons appointed by the commission shall receive remuneration, allowances and other employment benefits and shall be appointed on terms and conditions and period as determined by the commission in consultation with the Minister of Finance; • The CEO shall be responsible for the management and administrative control over staff and shall be accountable to the Commission; • The CEO shall be charged with the responsibility of accounting for money received and paid by the Commission and also accounting records; • Performed functions assigned by the Commission in order to achieve the objects of the Commission shall for those purposes be accountable to the Commission.

4. Internal Control Environment of the CGE • The PFMA is clear that there should be a distinction between the accounting officer and the body that the accounting officer is accountable to, and that the accounting officer or acting accounting officer should be an Officer. National Treasury may approve that a person other than the CEO to be appointed as the accounting officer. • This principle was violated when the Office of the Chairperson was subsumed into the office of the CEO; this appointment blurred the lines between the accounting officer responsible for sound financial management and the Commission (the executive) that the accounting officer is accountable to. • The PFMA does not provide for a member of the executive or two persons to be appointed as Accounting Officer. • The internal control environment of the Commission is not good for achieving the objectives of the Commission; The report of the AG describe the control environment as high risk and susceptible to fraud. • There is no clear procedures that guide the relationship and interaction between the Commission and the administration of the CGE. The AG report also cited the lack of leadership and the failure of the executive to take appropriate action on previous reports.

5. Financial misconduct by public officials – Treasury’s role • Chapter 10 of the PFMA (and Treasury Regulation 4) provide for the procedures to be followed in addressing allegations of financial misconduct and maladministration by officials, including the Accounting Officer (AO). • The PFMA clearly sets out: a). what constitutes financial misconduct b). disciplinary and criminal proceedings to be followed amid allegations of financial misconduct against officials • Section 84 of the PFMA provides for the applicable legal regime for disciplinary proceedings as follows: “ a charge of financial misconduct against an accounting officer or official referred to in sec 81 or 83 or an accounting authority or a member of an accounting authority or an official referred to in sec 82, must be investigated, heard and disposed of in terms of the statutory or other conditions of appointment or employment applicable to that accounting officer or authority, or member or official, and any regulations prescribed by the Minister in terms of sec 85”.

6. Financial misconduct by public officials – Treasury’s role (continued)… • The Minister of Finance sets regulations prescribing procedures to be followed in the event of financial misconduct by an official (sec 85) • These regulations prescribe, among other things; 1) the manner, form and circumstances for reporting such allegations to the National Treasury and the auditor General 2) matters relating to the investigation of allegations of financial misconduct 3) circumstances in which the National Treasury or Provincial Treasury may direct that disciplinary steps be taken or criminal charges be laid against a person for financial misconduct 4) the circumstances in which the findings of the disciplinary board and any sanctions imposed by the board must be reported to National Treasury and the Auditor General.

7. Investigation of alleged financial misconduct[TR - 4, sec 85(1)(b), (c) and (d) of the PFMA] • The AO must, within 30 days from the date of discovery of an alleged financial misconduct, ensure that an investigation is conducted into the matter and if confirmed, ensure that a disciplinary hearing is held in accordance with applicable prescripts and agreements in the public service. • If the allegations are against the AO, the relevant treasury, as soon as it becomes aware of the alleged misconduct, must ensure that the relevant executive authority initiates an investigation into the matter and if the allegations are confirmed, holds a disciplinary hearing in accordance with applicable prescripts and agreements in the public service. • A relevant treasury may; – (a) direct that an official other than an employee of the institution conducts the investigation; or (b) issue any reasonable requirement regarding the way in which the investigation should be performed.

8. Role of the National Treasury – Maladministration and misuse of funds • Section 38(1)(c)(ii) of the PFMA: • Accounting Officer must take effective and appropriate steps prevent unauthorized, irregular and fruitless and wasteful expenditure and losses resulting from criminal conduct • If irregular expenditure is incurred, institutions needs to obtain the necessary authorization to regularize the expenditure; • Process to be followed - Practice note 4 of 2008/09: • Irregular expenditure Register • Determine if expenditure is irregular • Indicate in AFS • Submit request to the National Treasury for condonation • If not condoned recover from relevant officials or apply debt write off policy

9. Actions of National Treasury on the findings in the report of the Public Protector • The appointment of two members of the executive as CEO appear to be in contravention of the PFMA and the Act guiding the Commission and is therefore unlawful and irregular. Therefore the expenditure that occurred in this period was made in contravention with The Act and might constitute irregular expenditure and should be investigated. • Action: This finding relates to a legal provision and we referred this to our legal section for a legal opinion. Irrespective of the legal opinion we are not sure if this can reasonable be recovered, but we urge the Commission to put proper procedures in place to avoid this from reoccurring. • Based on the findings of the public protector and AG this expenditure should be reported to National Treasury as irregular expenditure. • Submit a request to NT to regularize the expenditure • R4 million was spent on a Organizational Diagnostic Process with no tangible result that can be of any value to the organization. This appear to expenditure that was made in vain and that could have been avoided had reasonable care been exercised and constitutes fruitless and wasteful expenditure. Authorizing such expenditure by the accounting officer should be investigated. • Action: : We would like the CGE provide NT with documents to show the value derived from this work. Based on this, if no satisfactory value was added, we would want to recommend that the Commission take the necessary steps to recover this money. • based on the findings of the public protector and AG this expenditure should be reported to National Treasury as irregular expenditure. • Submit a request to NT to regularize the expenditure

10. Actions of National Treasury on the findings in the report of the Public Protector • The appointment of a consultant, Mr. Setshedi as CEO and accounting officer appear not to be in line with the PFMA as Mr. Setshedi was at the time not an employee or official of the Commission. This appointment appear to be unlawful and irregular, it also constitute maladministration and improper conduct. The expenditure that occurred during this period might therefore resulted in irregular expenditure and had to be investigated. • Action: This finding relates to a legal provision and we referred this to our legal section for a legal opinion. Irrespective of the legal opinion we are not sure if this can reasonable be recovered, but we urge the Commission to put proper procedures in place to avoid this from reoccurring. • based on the findings of the public protector and AG this expenditure should be reported to National Treasury as irregular expenditure. • Submit a request to NT to regularize the expenditure • On the report of the AG is important that the plenary compile and implement a proper corrective plan to address the irregularities identified, strengthening internal control measures in the Commission and to develop and to implement policies in key areas to ensure compliance to legislation and the effectiveness of the Commission. Instances of irregular expenditure was identified. • Action: The office of the accountant General will assist with monitoring of the implementation of this corrective plan and report to management of the commission on a regular basis. Irregular expenditure should be reported to National Treasury

11. Interventions of the National Treasury to date / why is the money still voted • Briefing both the then Ministers of Finance and Justice and Constitutional Development on CGE’s financial management matters in 2008 after the MTEC hearing in September 2008. • Briefing led to a meeting held on the 3rd November 2008 between DoJ & CD, NT and CGE. • In that meeting NT advised CGE to prioritise the filling of critical posts, e.g. CFO and CEO and that internal stability needs to be created. • As a result the then Minister of DoJ & CD seconded the Chief Director: Budgets to the CGE. He assumed duty on 12th January 2009. • In January 2009, the Deputy Speaker of Parliament was assured by the Chairperson that indeed the CGE has turned the corner and is capable of discharging its constitutional mandate • NT recommended to both MTEC and MinComBud that no additional discretionary allocation should be made to CGE until the implementation of a turnaround strategy. • The turnaround strategy was implemented from May 2010 and the CGE promised monthly report on the implementation of the turnaround strategy

12. Recommendations for remedial action in the Public Protector report • Moved from disclaimer in 2008/09 to qualification in 2009/10 • Most management positions are vacant • CEO filled 1 August 2010 • CFO interviews to be held 1st week February 2011 • Most findings due to a lack of internal controls and a weak control environment. • Limited personnel, limited segregation of duties • None of these findings are difficult to correct if managerial positions are filled with appropriately qualified people • CEO has to set up timelines with CFO to resolve these findings • CEO has to put in place Internal Audit Section and Audit Committee

13. END THANK YOU