A government entity responsible for developing programmes to address skill shortages in the construction industry incurred more than R79.8-million in irregular expenditure this financial year, according to Auditor-General Tsakani Maluleke.

According to the report from Maluleke’s office, this was in addition to R5-million in fruitless and wasteful expenditure incurred by the Construction Education and Training Authority (Ceta).

These details emerged in a presentation to the parliamentary portfolio committee on higher education on 11 October 2023 during a briefing on audit outcomes for the higher education sector.

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The Ceta is among 28 sector education and training authorities (Setas) that fall under the Department of Higher Education.

The Ceta’s mandate is to combat unemployment by dealing with skills development to close the skills gaps in the economy.

The Auditor-General stated in the report that the Ceta’s R79.8-million in irregular expenditure would exceed the department’s director-general support cost limit of 7.5% and non-compliance with supply chain management prescripts, while the R5-million in fruitless expenditure was due to the cancellation of the Enterprise and Resource Planning (ERP) project.

The report also stated that it was the only Seta with two back-to-back material irregularity findings.

Material irregularity is defined in the Amended Public Audit Act as fraud, theft, breach of fiduciary duty, or non-compliance with or contravention of the law that could result in a material loss, the misuse or loss of a material public resource or substantial harm to a public sector institution or the public. 

This could result in criminal prosecutions.

Ceta spokesperson Mabo Thobela said, however, that the correct irregular expenditure amount was R68.7-million.

“The major drivers of this are the project management fees which include project monitoring and oversight visits which contribute to successful project outcomes,” Thobela said.

She said system and process improvements, and compliance with requirements of the Quality Council for Trades and Occupations, which ensure quality assurance in the sector, also contributed to the Ceta exceeding the director-general’s support cost limit of 7.5%.

“On the ERP system, the correct amount spent was R3,483,120.”

She said the Ceta has taken steps to review, set aside and recover the amount spent on the ERP contract.

“The matter is in the high court,” she said.

Material irregularities

The Auditor-General also reported that there was material irregularity recorded against the Ceta for this current financial year for appointing an implementing agent in a project that failed to meet its objectives and was later scrapped.

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This, the Auditor-General stated, is a failure to comply with section 57(b) of the Public Finance Management Act (PFMA).

According to the report, the Ceta’s accounting authority – the board ­– was notified about the material irregularity on 17 July 2023 and a response was later received, which the Auditor-General is now evaluating as to whether appropriate action has been taken following the finding.

In the latest material irregularity, the report stated that the Ceta entered into an agreement with a consulting firm to assist in analysing data in order to assist decision-making and undertake conflict of interest verifications.

However, on assessment of the invoices received, it was noted that within four invoices from the service provider – covering the period of 15 June 2020 to 31 July 2020 – the Ceta was billed at a rate of R1,200 per hour, as opposed to the agreed R1,100 in the service level agreement.

“Furthermore, it was noted that VAT was billed twice on the invoices which resulted in an overpayment as the rates agreed upon in the SLA [service level agreement] were already inclusive of VAT,” the Auditor-General’s report read.

The report therefore found that the Ceta did not comply with section 57(b) of the PFMA.

“The accounting authority has not taken adequate actions in response to the notification,” said the report, adding that recommendations included in the auditor’s report to the Ceta were expected to be implemented on 10 September 2023. However, no response had been received from the Ceta. In light of this, the Auditor-General would communicate the next steps.

Ceta responds

In relation to the current material irregularity, Thobela said an investigation is ongoing in line with National Treasury prescripts and is nearing conclusion.

“The leadership of the implementing agent has confirmed that they have taken consequence management [disciplinary action] against those involved,” Thobela said.

She declined to disclose details of the agent, indicating that a case number would be shared once the matter was enrolled in court.

The Ceta, she said, complied with the PFMA disclosure requirements as of the end of the financial year on 31 March 2022.

An internal investigation, she said, has been concluded on the incorrect billing material irregularity and the recommendation was that the money should be recovered from the implicated service provider.

“The latest response sent to the AG [Auditor-General] on this matter was on 14 September 2023, signed by the chairperson of the accounting authority.” Consequently, she said, the matter will be heard in court on 8 November 2023.

She said there is no finding from the Auditor-General that the Ceta had not provided any responses.

“It is not correct that the Ceta failed to respond to the AG.”

To the contrary, Thobela said, the Ceta responded on 23 January 2023, 21 June, 24 June, 25 June, 26 July, 28 July, 10 August, 18 August, 21 August and 14 September.

She said the Auditor-General recommended that the matter be investigated in line with the National Treasury Framework on irregular, fruitless and wasteful expenditure.

Thobela said that the Ceta has implemented the steps in the framework and that financial recovery is pending in court.

Auditor-General spokesperson Africa Boso said they would comment after a consolidated general report for national and provincial departments and entities was released on 29 November. DM