PRESENTATION TO PORTFOLIO COMMITTEE ON LABOUR (PCL) MERSETA PRESENTATION TO PORTFOLIO COMMITTEE ON LABOUR (PCL) Presentation on the 2005/06 SETA Annual Report & 2006/07 Auditor General’s Interim Management Letter 21 June 2007 Manufacturing engineering and related services SETA

CONTENTS Auditor General’s Finding on 05/06 No approval from Treasury for acquisition of outsourced service provider (Section 54(2) of PFMA.) Promotion of Access to Information Act (Act 2 of 2000) not adhered to. Tenders were not obtained for significant contracts without documenting reasons. Also documentation for verification of company details could not be found (Treasury regulation 16A6.4 16A9.1 respectively). Supporting documents for certain success indicators relating to performance information could not be found. Differences between reported information and supporting documentation was found (Section 20(2)(c) of the PAA).

CONTENTS (CONTINUED) INTERIM MANAGEMENT LETTER 2006/07 Non compliance with Treasury Regulations 16A – procedures for threshold values Non compliance with Treasury Regulations 16A6.1 – incorrect threshold values per supply chain management policy Non submission of compliance reports Report is now submitted quarterly to the department of Labour. Approval for acquisition of significant asset not obtained from Treasury. Inadequate investment policy Unclaimed mandatory grant not swept to discretionary reserve on a regular basis

AUDITOR GENERAL’S REPORT 2005/06 An unqualified report was issued with the following emphasis of matter: No approval from Treasury for acquisition of outsourced service provider (Section 54(2) of PFMA.) Promotion of Access to Information Act (Act 2 of 2000) not adhered to. Tenders were not obtained for significant contracts without documenting reasons. Also documentation for verification of company details could not be found (Treasury regulation 16A6.4 16A9.1 respectively). Supporting documents for certain success indicators relating to performance information could not be found. Differences between reported information and supporting documentation was found (Section 20(2)(c) of the PAA).

CORRECTIVE MEASURES ON AUDITOR GENERAL’S REPORT 2005/06 An unqualified report was issued with the following emphasis of matter: Finding No approval from Treasury for acquisition of outsourced service provider (Section 54(2) of PFMA.) Management’s Action Letter requesting ex-post facto approval has been submitted to the Minister of Labour. Merseta is awaiting a response . Promotion of Access to Information Act (Act 2 of 2000) not adhered to. A Company Secretary has been appointed who acts as the Deputy Chief Information Officer. The Merseta is now fully compliant with the Act.

CORRECTIVE MEASURES ON AUDITOR GENERAL’S REPORT 2005/06 An unqualified report was issued with the following emphasis of matter: Finding Tenders were not obtained for significant contracts without documenting reasons. Also documentation for verification of company details could not be found (Treasury regulation 16A6.4 16A9.1 respectively). Supporting documents for certain success indicators relating to performance information could not be found. Differences between reported information and supporting documentation was found (Section 20(2)(c) of the PAA). Management’s Action Treasury regulations now being adhered to and the procurement policy has been revised and implemented

INTERIM MANAGEMENT LETTER 2006/07 Finding Non compliance with Treasury Regulations 16A – procedures for threshold values Management action Treasury regulations now being adhered to and the procurement policy has been revised and implemented. Non compliance with Treasury Regulations 16A6.1 – incorrect threshold values per supply chain management policy Management action Treasury regulations now being adhered to and the procurement policy has been revised and implemented .

INTERIM MANAGEMENT LETTER 2006/07 Finding Non submission of compliance reports Management action Report is now submitted quarterly to the department of Labour. Finding Approval for acquisition of significant asset not obtained from Treasury. Management’s Action Letter requesting approval has been submitted.

INTERIM MANAGEMENT LETTER 2006/07 Finding Inadequate investment policy Management’s Action Policy has been revised and has been submitted to the Executive Committee for approval Unclaimed mandatory grant not swept to discretionary reserve on a regular basis Currently being debated as not practical to sweep on a regular basis due to the size of seta. It is swept at year end.

INTERIM MANAGEMENT LETTER 2006/07 Finding Internal audit deficiencies - Three year rolling plan and budget not updated Management’s Action The three year rolling plan and budget has been approved by the Executive Committee. Risk assessment not done annually The risk assessment has been completed. An action plan to address risks will be implemented in the current financial year.

INTERIM MANAGEMENT LETTER 2006/07 Finding The Merseta strategic plan not submitted timeously to Department of Labour. Management action The report was submitted on 30 November 2006. This fact was verified by the Department of Labour.

AUDITOR GENERAL’S FINDING ON 05/06 Special investigation As a result of the emphasis of matter expressed by the Auditor General in the 05/06 audit the MERSETA Board appointed an audit firm in November 2006 to conduct an Audit Investigation into the opinions expressed by the AG with specific reference to the violation of the Supply Chain Management function The following matters were investigated: The irregular manner in which contracts were awarded. Awarding of significant contracts without going on tender or providing reasons for deviating from inviting competitive bids in accordance with Treasury Regulations 16 A 6.4 Beneficial payments to staff or board members. In the absence of proper bid process being followed a financial investigation of the officials who participated in the awarding of the contract be investigated Relationships between contract beneficiaries and MERSETA Related party transactions.

THE PURPOSE OF THE AUDIT INVESTIGATION The purpose of the Audit Investigation was to: Review and identify potential fraud risk that MERSETA was exposed to. Performed a detailed investigation into the process followed in the awarding of the STEP project Review the Procurement policies and procedures of the MERSETA Review the awarding of contracts to Employer Associations (RMI, SEIFSA, PLASFED) who have representatives on the Board

FINDINGS OF THE AUDIT INVESTIGATION The findings of the final report indicated that: The Treasury Regulations on procurement was not followed by MERSETA. The internal procurement policies and procedures manual of 2002 developed by the MERSETA was in contravention with the PFMA Governance problems existed at the SETA Internal controls were fundamentally weak No fraud has been committed and no material loss of revenue was suffered by the MERSETA.

CORRECTIVE ACTIONS ON THE AUDIT INVESTIGATION INTERNAL CONTROLS: MERSETA has corrected its procurement policies to be inline with that of the PFMA and Treasury Regulations The contracts investigated : The Retail Motor Industry Organisation (RMI) R15,076,500 The contract has come to and end has not been renewed. SIGIMA/STEP R179,879,212 The contract was only allowed to proceed with phase 1 to the value of R28,53 million. The contract has been cancelled as from 31 March 2007. Steel and Engineering Industries Federation of South Africa (SEIFSA) Plastic Federation (PLASFED) R6,582,121 Fairchild McMoraan Consulting R1,233,138

CORRECTIVE ACTIONS ON THE AUDIT INVESTIGATION

GOVERNANCE The MERSETA Board has appointed KPMG to conduct a capacity building of the Board on 27& 28 June 2007. The programme will focus on: Board responsibilities and accountability Fiduciary responsibilities Role of the Audit Committee Understanding of the Legislation (PFMA, Treasury Regulations, SDA, SDLA) The role of the Chair and Exco MERSETA operates on a Board approved delegation of Authority and policies Minute taking, signing and recording of resolutions has been improved via dedicated secretaries Procurement processes in accordance with the PPPFA and the procedure have good built in controls

INTERNAL CONTROLS A supply chain management division has been created within the MERSETA. Internal controls has been strengthened. A corporate governance division has been created. The top structure of MERSETA has been appointed (CEO was appointed in October 2006) Internal controls have been improved within the SETA through development of policies and Quality Management manual, strong audit committee and internal audit function exist within the SETA.

CONCLUSION The MERSETA Board wishes to reiterate its commitment to ensuring clean governance and adherence to PFMA in discharging its fiduciary duties. The Board will ensure that no stone is left unturned in its quest for above-board conduct by all the MERSETA staff, service providers and stakeholders, the Board will not hesitate to relentlessly pursue all avenues at its disposal.

THANK YOU