Public Accounts
Printer-friendly versionPublic Service Commission:Survey on Vacancy Rate & Department of Public Service & Administration: Annual Report
24 October 2007
PUBLIC SERVICE COMMISSION:SURVEY ON VACANCY RATE & DEPARTMENT OF PUBLIC SERVICE AND ADMINISTRATION: ANNUAL REPORT
Chairperson: Mr T Godi (APC)
Document handed out:
Public Service Commission Presentation: Vacancy Rates in National and Provincial Departments
DPSA Presentation:Vacancy rates in Public Service:a critical analysis
Management improvement plan related to the 2006/07 audit
Relevant Documents:
Annual report of the Department of Public Service Administration 2006 and 2007 [available at www.dpsa.gov.za]
Audio recording of meeting[Part1] [Part2]
SUMMARY
In a joint meeting of the Standing Committee on Public Accounts and the Joint Budget Committee, the Committees heard a submission from the Public Services Commission (PSC) concerning the results of a requested survey into the vacancy rates in provincial and national government. It was clear that there were problems of skills, leadership and information systems within the public service. There was discussion about the discrepancies in the figures given, budgeting and under-expenditure, turn-around times in filling vacancies, and extended discussion about PERSAL and recording systems used by government to monitor employee posts. The Committee concluded that it was closer to understanding the vacancy problem, but was now aware of serious weaknesses in the Government machinery that made this a difficult task to research.
The Committee then interrogated some aspects of the Annual Report of the Department of Public Service and Administration, focusing on the recommendations of the Auditor General. Questions were asked on record keeping, lease commitments that were not originally included in the financial statements, the weaknesses in the various information systems and their interface, the lack of documentation and inadequate systems, inadequate asset monitoring, and risk management. Further questions related to non-payment of invoices within thirty days, which had also been reported on in the previous financial year, instances of under-spending, the vacancy rates of the department and the extensive use of consultants, the budget for the Integrated Financial Management System, the current status and objectives of the public service sector training authority, and the progress of the investigations into fraud. Most of the issues had been addressed already by the Department. The Committee was pleased to note that there had been progress but stressed that there was a need to deal with prompt payment of invoices, capacity building, less use of consultants and the vacancy rates.
MINUTES
The Chairperson welcomed the Joint Budget Committee members sitting with his Committee, and forwarded the apologies of their joint Chairpersons, Ms L Mabe (ANC) and Mr B Mkhaliphi (ANC), who were unable to attend. The Chair did note that there were however, other members of the Joint Budget Committee present.
Public Service Commission (PSC) Review into vacancies in the public service: Briefing
Mr Norman Maharaj, Commissioner, Public Service Commission, tendered the apologies of the Chair of the Commission, Professor Stan Sangweni
Ms Odette Ramsingh, Director General, Public Service Commission, noted that the PSC had undertaken a survey and review into public service vacancies following on a request from the Standing Committee on Public Accounts. It had the mandate to conduct the investigation in terms of Section 196(4)(f)(i) of the Constitution, as well as Sections 9 and 10 of the Public Service Act.
She indicated that a common theme throughout was the significant differences between the two data sources, namely information obtained from the Personnel and Salary Administration System (PERSAL), and the same data requested from Departments. For example, the total number of funded vacancies according to PERSAL was 330 987, while the information from Departments collated to 88 323 vacancies. This presented a discrepancy of 242 664 vacancies or 73.3% between the two data sources. The result was that it was very difficult for PSC to determine the actual vacancy rate.
Ms Ramsingh added that, no matter which vacancy figure was correct, there would be budgetary implications as there was no funding for these supposed positions. The current spending on the compensation of employees suggested that the vacancy rate should by much lower than that suggested by both PERSAL and even the Departments according to the budgets. She highlighted problems in the recruitment process concerning advertisement and job evaluations and noted that both activities needed to be accelerated if they wished to fill the vacancies. Of much interest was a slide indicating the average turn around times for filling posts. 59.8% of Departments had indicated an average turn around time of between 2-3 months, though research conducted by the Department of Public Service and Administration (DPSA) clearly indicated a larger timeframe. The important point again was that this turn around time had to be reduced to positively impact the filling of these positions. Ms Ramsingh noted that it went without saying that the accuracy of PERSAL had to be improved, as this caused many of the difficulties in analysing the nature of the problem. She also outlined and motivated the numerous recommendations at the end of the presentation that would improve the reception and retention of workers. The PSC’s conclusion, based on their findings, was that it was clear that there was a need for the Departments to respond with urgency to the filling of vacant posts.
Discussion
The Chairperson wanted to check whether the six departments that did not respond to the survey were provincial or national Departments.
Ms Ramsingh replied that this comprised of both provincial and national Departments.
The Chairperson asked whether the PSC had been able to find out what the cause of the huge variance between data sources was.
Ms Ramsingh responded that PSC had come to some assumptions about the discrepancies. The first was that there was poor record keeping on the PERSAL System.. Another problem was that PERSAL could not indicate whether vacant posts were funded or unfunded. A third and recurring problem was that abolished posts were still on the PERSAL system.
Mr M Swart (DA) questioned these uncertainties and record keeping problems from a budget point of view. He wanted to know how it was possible to budget if one did not know how many positions to pay for, and how many vacancies there were.
Mr E Trent (DA) added that there would also be a problem when the vacancies needed to be filled, and they were not budgeted for.
These two questions were not responded to directly.
Mr Trent pointed out that it had been indicated there were six Departments who did not respond, though later in the presentation there was reference to “72% of departments that responded to this question.” He wanted to know if that meant that some people did not respond to all the questions, and why this was so.
Ms Ramsingh explained how the departments responded. PSC sent the questionnaires out, and asked for a contact person with whom to check details. Often this would be someone at a low level who did not have a full conception of the whole system. As such their research system did not get used as well as it ought to.
Mr P Gerber (ANC) said that if PSC took the information as granted, the total budget for compensation of employees (including vacant posts) was R174,2 billion and the actual spending R68,8 billion. In his mind this left R105 billion unspent, which was an astronomical amount that would have a huge implication for the economy.
Mr Maharaj assured Mr Gerber that there was no crisis, and that the R174 billion was for the full year’s compensation, and currently they were only part-way through the year.
Ms Ramsingh said that if the PSC took into account the money already accounted for, assumed that the people currently on the payroll would continue to be paid, and calculated the deficit at the end of the year, this would be only a small percent of the budget. This small amount remaining could not even pay for the funded vacant posts, if they were to be filled.
Mr Gerber asked for more information and details concerning the practice by which vacancies were first advertised internally and then externally.
Mr Maharaj agreed that there were internal advertisements for posts, but said that positions above senior management had to be advertised externally.
Mr Gerber told of incidents where someone internal had been earmarked for a position, but the position sat vacant. He suggested that all vacancies got advertised externally as well, to spread the net as widely as possible.
Mr Gerber looked at Annexure B of the presentation that noted the breakdown of total number of funded posts. Those with the biggest discrepancy between the PERSAL and Departmental data were the Departments of Education and Health, and he enquired why this was so.
Mr Maharaj said that when one looked at percentages it was not easy to grasp the size of the issue, but a comparison of numbers was easier to correlate. He speculated that the large vacancies in these areas may have been related to the lack of available skills of teachers, doctors, nurses and assistant staff in these Departments. He also thought that the discrepancies here could also be concerned with the large size and decentralised nature of the Departments.
Ms L Mashiane (ANC) asked how it was possible that, with all the vacancies, there was over-expenditure with regard to the compensation of employees. He wanted to know if this meant that the posts had not been budgeted for, or if personnel in the Department were being paid over the norm.
Mr Maharaj explained that, although Departments were not supposed to transfer and use funds from the non-consumable budget in the personnel budget, Departments would often shift funds and this would prevent over-expenditure on the “personnel budget”. This came down to the poor quality of planning within Departments, and there needed to be correct programmes to deal with service delivery improvements. He also noted that often there was a Human Resources plan independent of a Service Delivery Improvement plan and this affected expenditure. However, he also noted that there could not be overpayment as salaries were regulated. There could be unregulated extras such as bonuses and overtime pay, but this would not account for the kind of over expenditure that was reflected.
Ms Mashiane asked if there was any strategy to curb counter-offers and thereby stop poaching of staff.
Mr Maharaj noted that the PSC were aware of the abuse of counter-offers. Often if there was a shortage of employees, an employee, being aware that he or she had a scarce skill, would apply somewhere else in order to force the employing department to give a counter-offer and higher pay. This practice had something to do with the over-expenditure.
Ms Mashiane noted the high vacancy rate of KwaZulu-Natal and that there was no strategy to deal with it. She wondered how they would fill the posts with no strategy.
Mr Maharaj answered that in the absence of a strategy, they could only assume that KwaZulu-Natal used an ad-hoc approach to fill the positions.
Ms Ramsingh added that, in fairness to KwaZulu-Natal, they did not ask in the survey if there were any other unique strategies over and above a recruitment strategy that they used. In hindsight PSC could have used more in the research once it was done, and asked more questions. It may not have been negligence by KwaZulu-Natal, as they could have other systems in place.
Mr T Mofokeng (ANC) said that he had not heard about the balance of the budget that would be left to spend for the vacant posts. As there were only a few months left, he wondered if there would be a roll over. If so, why were PSC not addressing the issue of unemployment that was brought up by the labour movement.
Mr Maharaj did some calculations and worked out that there would be potential savings of R3,5 billion if the posts were not filled. Should they all be filled, there would not be enough funds to pay for the positions.
Mr Mofokeng noted that there were vacancies in the lowest level positions, and that the main factor given for vacant posts was a lack of skills. He wanted to know why a department would be looking for skills to employ a general worker.
Mr Maharaj speculated that there may be too much bureaucracy involved in employing unskilled positions, and that perhaps the DPSA had more information on that matter.
Mr D Gumede (ANC) wanted clarification on the measurement of the “turn-around time” to fill positions. He wanted to know if the time measured included the notice period of the people who resigned or were asked to leave.
Mr Maharaj replied that the turn-around time did not include the notice period, but only started from the time when the position became vacant. He added that it was a good idea to start the process to fill the position as soon as notice was received, to shorten the turn-around time.
Mr Gumede wanted to know if there was any justification from the DPSA for the average turn-around time being 1 year and 3 months long.
Mr Maharaj said that it could not be justified and that such a period was far too long and impacted service delivery.
Mr Gumede asked how PSC had finally come to a conclusion on the current vacancy rates. He wanted also to know that if there was such a discrepancy between the PERSAL and Departmental replies, what rates were used for auditing purposes, and how then disputes were resolved and the figures reassessed.
Ms Ramsingh said that PSC did not know how accurate the answers were. The formal benchmark was the PERSAL data, which they obtained, but PSC had to note the different figures received from departments. There was a serious need for accurate information to get a good profile.
Mr Trent mentioned that the issue that puzzled him was how the information on PERSAL was sometimes “questionable”. He pointed out that Government administered its payroll through PERSAL, and he could not understand, if everyone was paid with PERSAL, how there could there be different figures.
Mr Maharaj agreed and said that the information on PERSAL was problematic for PSC too. He said that the problem was the irregular updating of each Department’s information on the system.
The Chairperson wanted to know if the PSC was saying that a Department would input information into the system, and then turn around and said that the information was wrong.
Mr Maharaj responded that this was happening. He added that the National Treasury kept the system updated.
A representative from National Treasury said that it was correct to say that PERSAL was kept by the National Treasury and linked to the payroll. However, if there was human error when the information was first inputted, then National Treasury would be extracting the incorrect information out of the system.
Mr Henk Serfontein, Director: Monitoring Government Relations, DPSA, who was an expert on the system, gave a background to it. He informed the Committee that PERSAL was developed in the late 1980’s and was originally conceptualised to manage personnel, but when it was implemented it focussed mainly on payroll. In the process creating a new structure within PERSAL a department would first create a new structure and then transfer the people across from the old structure. The problem arise when extracting information regarding vacancies it is not possible to determine that a particular department is in the process of implementing a new structure and therefore the posts will be counted double. Another factor that contribute to the inaccurate information on vacant post is the tendency within departments to load both the funded and unfunded positions onto PERSAL and there is no accurate way of determine whether funding is actually available for specific positions. The vacancy rate reflected would then include positions for which funding is not available and would therefore not be able to fill. The GIGO garbage in and garbage out principal does apply in the case of vacancies and effect the analysis of the skills shortages within the government.
The Chairperson asked what the future of PERSAL in the Government was.
Mr Kerry Govender, DDG: Management of Compensation, DPSA, said that they were trying to put in a new Integrated Financial Management System (IFMS) and a separate HR module and payroll module.
The Chairperson wanted to know what progress had been made in this regard.
Mr Govender said that the HR system had been tendered already and should be piloted in the second half of 2008. The procurement process to employ people to start writing a payroll programme still had to be started.
Mr Swart noted that the problem with PERSAL was that even the information supplied by the Departments seemed to be incorrect. He was worried that they would implement a new system with PERSAL’s wrong information, and the same problems would continue.
Ms Mashiane wanted to know how long it took to realise that there was a problem with PERSAL.
Prof Richard Levin, Director General, DPSA, replied that the problem on PERSAL had been identified some time ago, and the idea for a new IFMS had also been in the pipeline for a while. He also noted that there was another problem in that the organisational structures captured on PERSAL were wrong, and DPSA were currently developing a database on organisational structures. As the DPSA decentralised public management it had realised that the capacity to manage decentralised managements was lacking. The quality of the personnel tasked with administration was problematic, and so DPSA had created quite a user-friendly programme where they would be able to indicate these trends and problems.
The Chairperson expressed his opinion that it may well have been that the problem was one of HR rather than systems. If there were not the correct people to properly manage and update the system, a new system may not address the problem. He asked the Auditor General (AG) to throw some light on the issue.
Mr Barry Wheeler, Office of the Auditor General (AG), addressed the Committee. He noted that the audit of departments was based on the actual approved number of posts that were recorded at the end of each year. There was therefore a timing problem as by mid-year the information in the system was in flux. He was comfortable that the figures provided in the annual reports were fairly accurate and could be used to work out vacancies. It was problematic to try ascertaining that data within the year, as many Departments aimed to ensure their data was correct only at year end. In regard to the comments on inputs and outputs, Mr Wheeler said that Mr Serfontein had given an honest view as to what happened with the system. The data concerning posts and employment was often held by the Departments in other spreadsheets outside of PERSAL. PERSAL data was also complicated by extra unfounded posts not reflected in the established structure and people appointed as consultants. Mr Wheeler concurred with the finding of the DPSA that the control of PERSAL was left to junior management people, and was perceived as basically a salary payment system. The important aspect of HR management was left out. Mr Wheeler also raised the issue that PERSAL needed a clean up, as some records on it were outdated, and a database needed to be accurate, relevant and reliable. He sounded a note of caution concerning the expectations for the IFMS, and noted that there needed to be an adequate database for it to work.
Mr Trent wanted to clarify if PERSAL was used to pay salaries. If so, he wondered how they could use an incorrect system to pay employees.
Mr Wheeler mentioned that he was correct that PERSAL was the predominant paying system, though there were other databases that were probably more up to date and were used by some sectors.
The Chairperson noted that the discussion had thrown some light onto the PERSAL challenges. He wondered if the PSC was any closer to getting a sense as to the vacancy rates in the public sector. However, it had realised there were serious weaknesses in the Government machinery, and that there were challenges of leadership, skills and capacity.
Annual Report of the Department of Public Service Administration (DPSA)
The Chairperson noted that this session was intended to allow the DPSA to engage with the Committee around their 2006/07 Annual Report.
Ms N Hlangwana (ANC) wanted to know what had been done in response to the Auditor General’s (AG) concerns about record keeping in the DPSA to ensure that records were accurate, complete and valid.
Prof Levin informed the Committee that the Department admitted there was room for improvement and had drafted a management plan that addressed all of the AG’s concerns.
Ms Hlangwana asked about certain lease commitments that the Department did not originally included in the financial statements. She wanted to know if a lease register had been complied and updated, and if cell phones and fax machines were included in the register.
Prof Levin replied that the DPSA had created the register and that the main leases related to the hire of photocopiers and cell phones. It was also recommended that DPSA create an asset register for leases, which they had done, and employee’s cell phones were already included on the LOGIS asset register of DPSA.
Ms Hlangwana mentioned that weaknesses in the DPSA’s Information Systems (PERSAL, Basic Accounting System (BAS), LOGOS etc) were identified, and wanted to know if anything had been done to avoid repetition of these weaknesses in the future.
Prof Levin responded that the Information Systems audit was in March 2007 and at that time the main problem was that DPSA did not have a documented user management and operational procedures for BAS, LOGOS and PERSAL although forms and procedures were in use. It was standard practice on all transversal systems that the systems controller had access to the systems. Another weakness was that previous managers were inactive users on BAS, but their id’s still existed. This inactive user id’s had subsequently been removed.
The Chairperson noted that the AG did not only talk about a lack of documentation, but that the actual systems for user account management were also not adequate. He enquired as to whether anything had been done in that regard.
Ms Deseree Wilsenach, Acting Chief Financial Officer, DPSA, replied that DPSA had made sure that all the AG’s recommendations were followed and built into the user account management procedure.
Ms Hlangwana raised the matter of inadequate asset monitoring, where assets had not been reflected in the asset management register. She asked that the DPSA should indicate what control measures had been put in place to avoid further problems.
Prof Levin explained the background to the two instances referred to and responded that DPSA had taken the correct steps to ensure that such problems would not recur. He noted that they certainly acknowledged this as a problem, and that a new person in charge of monitoring assets had been appointed on assistant manager level to ensure that they got the correct monitoring.
Ms Hlangwana also noted that the AG’s report indicated that for 2006/07 the Department did not have a risk management strategy in place, and the Risk Committee had only met once during the year.
Prof Levin agreed that he thought this was a serious matter and related partly to the issue of decentralisation, requiring that managers needed to properly take on the responsibilities of managing. Given the inadequacy of the risk committee, DPSA had decided to escalate the responsibility to an Executive Committee level, and with the full Executive Committee they had undertaken a risk evaluation. He also noted that the fraud prevention plan formed part of the risk management strategy, but it was too generic and needed to be customised for the DPSA’s use. They were recruiting a deputy director to help co-ordinate that project.
The Chairperson wanted to clarify the Executive Committee taking over the function of the risk committee. He asked for how long this would be so.
Prof Levin explained that when the Director General issued the instruction for the risk committee to meet, it was always made up of lower management members, and he did not believe they could undertake a comprehensive risk management assessment. The decision was therefore taken to escalate it to the Executive Committee level, where all the DDG’s sat,and where proper co-ordination, documentation and so forth could be ensured.
Ms Hlangwana asked if this meant they had shifted the responsibility.
Prof Levin replied that they had, as they initially did not have the quality of people to effect and identify the strategic risks faced by Department as a whole. He believed that risk management was in fact a function for top management to perform.
Mr Wheeler noted that according to Section 38 of the Public Finance Management Act (PFMA) it was the accounting officer and head manager’s responsibility to monitor risk. He believed that having this function at an Executive level meant that cross-organisation risks that existed could be better seen. He would think it was not appropriate for the Executive Committee simply to monitor; they had to do the work.
The Chair requested clarity as to whether the Executive Committee was taking a monitoring role or replacing the committee.
Prof Levin said that the Executive Committee will replace the risk committee, as it will be directly involved in the actual assessment process.
The Chairperson asked what happened to the risk committee.
Prof Levin said that under the new process the Executive Committee would be responsible for updating and monitoring the system. Therefore the risk committee as it existed before would become superfluous.
Mr Trent posed specific financial questions for the Department. He noted that there was no internal audit committee for six months and asked whether that had been corrected, and whether the committee was meeting correctly.
Prof Levin replied in the affirmative.
Mr Trent noted that for the second year running there was a recommendation by the AG to ensure that all invoices were paid within 30 days.
Prof Levin said that this was a very serious matter as the development of Small, Medium and Micro Enterprises (SMME) in the country related to the ability to pay invoices within 30 days. One of the problems was the verification of banking details, but DPSA had now created a process to capture the banking details when the order was logged. He felt that things were improving and the current trend was that less than 3 to 5 invoices per month were being processed late. The DPSA had been challenged to reach 100% compliance and were aiming for it.
The Chairperson asked what the problem with this area was.
Mr Wheeler noted that this was a wider problem than in his Department alone. The first issue was the date stamping of the invoice issues on receipt; these might not be correctly drawn to the attention of the line managers. The 30 days started running from the date of receipt and unfortunately Treasury regulations did not make any allowances for those times when there were complications and disputes about the invoices.
The Chairperson asked if this was 30 working or calendar days.
Mr Wheeler replied that technically it was 30 working days, but most auditing practices used a measure of 30 calendar days.
The Chairperson asked for a better understanding of how the Department process worked to get the payment done in time.
Ms Wilsenach explained in detail the whole process from when the invoice was received at the registry office. It was then sorted and routed to the supply chain section, where it was identified and sent to the manager who requested the service, to certify that the service had been received. There were often delays here as the manager might not be in office. Once signed it went back to the registry, where it would be sorted and finally sent back to supply chain management. From there the account was captured on LOGIS. There would be interface between LOGIS and the BAS system. Payment would be authorised and would reflect four days later in the respective bank accounts. She concluded that it was difficult to get that all done in 30 days, and if there was ever a problem the Safety Net System further delayed the process.
Mr Trent noted that the AG had in the past, and again in this year, allowed the Department to resubmit their financial statements after correction. This time there were expenses to the value of R9m that were incorrectly classified. Mr Trent wanted to know why DPSA could not get their financial statements correct the first time around, especially since it was a relatively small budget.
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Prof Levin agreed that this seemed problematic, but noted that they were dealing with 1 specific problem case and not a generic problem. He explained the origin of the unique case, showing that it was a once-off incident. He added that DPSA had learnt a lesson from this and would ensure they did very careful allocations in the future.
Mr Trent asked about the reason for the under-expenditure of the Department.
Prof Levin outlined the areas where there were incidents of under spending and indicated that all this funding was rolled to the current financial year.
Mr Trent also asked about the vacancy rates of the Department.
Prof Levin replied that DPSA was focussing on filling the vacancies, ensuring that they were filled by March 2008. He added that they were also very systematic as to the advertising of posts.
Mr Trent wanted an explanation about the pages and pages of explanations regarding consultants who were appointed by the Department. He noted that they had budgeted for, and employed 400 people to do work for the Department, sometimes only for one day. Mr Trent asked why they had made such use of consultants in the Department and not filled their own posts.
Prof Levin noted that one of the key aims of decentralised public management was to empower the managers to do what they needed to do. He added that it was no secret that his predecessor placed much more of an emphasis on outsourcing, and that under his leadership, overall there had been a decline in the use of consultants. However, the issues relayed were relevant to their Department as a whole, and they employed people who ended up being project managers who outsourced the work to consultants.
Ms Wilsenach explained the systems that were in place to monitor these consultants. These involved service level agreements and documentation monitoring.
Mr Trent disagreed with the statement, staying that page 85 of the Annual report showed that DPSA had doubled the use of consultants over the last year, despite maintaining that there was a decrease.
Prof Levin said that there was not a decline in the quantum of money spent on consultants, but the use had declined as a percentage of expenditure of goods and services.
Ms Wilsenach noted that they must consider that the budget for goods and services grew R250m, and therefore a comparison as a percentage of goods and services showed a decrease in the use of consultancy. She added that some of the work performed could not be done by their own employees.
Mr Trent asked whether the budget from the previous year to the present year had in fact doubled.
Prof Levin quoted the cumulative budgets and noted that it had more than doubled.
Mr Trent asked a question about the new IFMS and why it was not listed as a main output of the Department or budgeted for, considering the long debate about systems they had had earlier in the meeting.
Prof Levin informed Mr Trent that the actual budget for the IFMS was with National Treasury. The project was owned by the Treasury and developed by the State and Information Technology Agency (SITA). The latest update he had heard was that IFMS will be rolled out by 2012
Mr Gumede asked a question about the Public Sector Educational and Training Authority (SETA). He noted the AG’s concern about the status of the organisation, and that there was currently a three-year arrangement in place for funding of PSETA. He asked about the medium to long term arrangements for this SETA.
Prof Levin agreed that the current situation was untenable. The SETA had a board and a CEO. He noted that they had created the basis to list it as a public entity in June 2006, however the CEO resigned and the Finance Manager passed away. They (DPSA) did not believe it was responsible to release the entity in its present state, but the intention was to have it operating as a stand-alone entity like all the other SETAs in the future.
Mr Gumede enquired about the performance objectives and results of the SETA as the information given did not align with the practice experiences.
Mr Govender agreed that they needed to acknowledge the disjuncture between the key performance areas and the delivery. He noted however that the overlapping responsibilities of the SETA with the DPSA and the Department of Labour created some of the disjuncture. Some of the areas where the SETA could not deliver were also related to inadequacies in the current funding.
Mr Gumede asked about the investigation concerning alleged fraud.
Mr Govender said that the case was before the court at the moment. The moment DPSA had detected the fraud, it had shut the system down, backed it up and called in all the correct parties to deal with it. Currently the alleged perpetrator and three accomplices were in prison, and they hoped to finalise the case soon.
Prof Levin added that a large percentage of the money was recovered when the National Prosecuting Authority (NPA) froze the accounts.
Mr H Bekker (IFP) made a comment that usually in Annual Reports there was a foreword or a message from the Minister. This was not present in the DPSA’s report.
The DPSA noted this point.
Mr Bekker also had a question on disposals of tangible assets. There was an item labelled “specialised military assets” though no money was allocated to it. He wanted an explanation.
Prof Levin said that the item was an error and was supposed to have been deleted.
Mr Bekker last question related to the medical scheme highlighted on page 20 and 41of the report, and wished to be furnished with more information concerning the stake holders and the management fee being charged.
Prof Levin indicated that GEMS is a private company created under the Medical Aid legislation and no management fee is paid by government he also noted that DPSA could furnish Mr Berger after the meeting with the report and additional information he required.
The Chairperson said that he was happy to note there had been a number of measures taken by the DPSA to address the issues raised by the AG. However, they still needed to deal with the issue of prompt payment of invoices. Even though it was running to a tight schedule, the Chairperson had confidence that it could be done. He wanted to see capacity being built in the Department, as there was too much money being used for consultants. The vacancy rate also needed attention.
The meeting was adjourned.
De Beers on Tax Exemptions of Export Diamonds; Fidentia: hearings
STANDING COMMITTEE ON PUBLIC ACCOUNTS
12 September 2007
DE BEERS ON TAX EXEMPTIONS OF EXPORT DIAMONDS; FIDENTIA: HEARINGS
Acting Chairperson: Mr V Smith (ANC)
Relevant documents:
De Beers briefing document – strictly for Members only
AG’s briefing document on De Beers
Standing Committee on Public Accounts: 12 June 2007 meeting: interaction with the Minister of Minerals and Energy on SCOPA 62nd report 2005: South African Diamond Board
Business Report news article June 13 2007: MPs challenge De Beers over mysterious exports (see Appendix)
Audio recording of meeting
SUMMARY
The Committee interrogated the De Beers delegation on the tax exemptions relating to the export of diamonds in order to conclude the matter and submit its report to Parliament. It was the Committee’s view that there had been a ‘spike’ in the export of diamonds just prior to the coming to power of a democratic government. The Department of Minerals and Energy, the South African Diamonds Board, and the Office of the Auditor-General expressly concurred with this view. De Beers denied that there had been a ‘spike’.
The Committee was concerned that tax revenues had thereby been lost through the tax exemptions that De Beers claimed it had been granted by the South African Diamonds Board. De Beers denied that there was any irregularity in its being granted tax exemptions.
De Beers agreed to co-operate with the Committee by providing requested documentation promptly. The Committee’s view was that no corporation or individual was above the law.
The Committee interacted with the curator and co-curator of the Fidentia Group and urged them to bring the matter of the Fidentia Group to a conclusion as soon as possible and recover the money that was intended for Fidentia’s beneficiaries. The curator and co-curator said that they wanted to co-operate fully, without prejudice to the assets that they hoped to recover. The Committee was concerned about the cost of the curatorship and its duration. The curator said that he had offered to serve at no charge, but this offer had been declined; as for the duration of curatorship, they were constrained by court proceedings and processes; they were also frustrated by non-recognition in South Africa of the doctrine of conversion, whereby assets could be attached to exact payment of debts.
MINUTES
Mr V Smith (ANC) as Acting Chairperson in the temporary absence of Mr N Godi (African People’s Convention) opened the meeting. Mr Godi arrived subsequently, but Mr Smith continued as Acting Chairperson.
Interaction with De Beers
The Acting Chairperson welcomed the De Beers delegation, which the Committee in its 12 June 2007 meeting had agreed should be summoned to appear before it. The delegation consisted of Mr David Noko, Managing Director, Mr Bruce Cleaver, Group Director for Commercial Affairs and Legal Services, and Mr Barend Petersen, Director of Information Services. Also welcomed were Mr W Van Heerden, Corporate Executive, Office of the Auditor-General, Mr Sandile Nogxina, Director-General: Department of Mineral Affairs and Energy, and Mr Abbey Chikane, Chairman: South African Diamond Board.
The Acting Chairperson said that he hoped that the outcome of the meeting would be resolution and closure of the matter of the tax exemptions related to the export of diamonds by De Beers and that the Committee would thereupon be in a position to report on the matter to Parliament.
The Acting Chairperson said that the Committee had one and a half hours to deliberate on the De Beers matter. He asked that Members should ask only pertinent questions so as not to prolong the deliberations. He asked that respondents should answer the questions completely but strictly to the point so that the Committee could conclude its deliberations on the evidence before it and thereafter report to Parliament.
The Acting Chairperson asked Mr Pierre-Jean A Gerber (ANC) to summarise the background to the matter.
Mr Gerber thereafter began the Committee’s interrogation of De Beers. He said that in 1993 at the dawn of democracy in South Africa, De Beers took out approximately 20 million carats of uncut diamonds. These had a value of about 900 million US dollars. The tax levy due on these was some 135 million US dollars. This was equivalent to about 1 billion rands. This tax levy was not paid, because De Beers claimed that it had been given an exemption by the South African Diamond Board.
The objectives of the Diamonds Act were to regularise the activities of the diamond industry and to establish a more effective control structure. It was a fact that the diamond industry was an industry that lent itself to suspicion. The Government had found it necessary to order no fewer than three formal and three informal investigations.
Since 1999 SCOPA had raised this issue. It had been in the media. It had been raised in Parliament. Various ministers had raised it. De Beers at no time and nowhere had produced evidence of its permission for the export of the diamonds without paying tax.
Only when SCOPA had asked De Beers to appear before the Committee did De Beers produce a document.
The Acting Chairperson asked the Committee Members if they were familiar with the document about which Mr Gerber was talking, namely, the agreement between the South African Diamond Board and De Beers Consolidated Mines
Mr Gerber asked the De Beers delegation for the names of those who had signed on behalf of De Beers Consolidated Mines Ltd. The De Beers signature was illegible. He further asked who had signed on behalf of the Diamond Board.
Mr Bruce Cleaver, Group Director for Commercial Affairs and Legal Services: De Beers, said that there were two signatures: one was of Mr Gary Ralfe [De Beers Non-Executive Director], the second was not clear.
Mr Gerber further asked who had signed on behalf of the Diamond Board.
Mr Cleaver said that he was not in a position to say.
Mr Gerber, addressing the Acting Chairperson, said that the document that he was now referring to consisted of seven pages. All pages had been signed by the Diamond Board managers and by the members of De Beers.
With regard to the diamonds that De Beers had exported in 1993, Mr Gerber asked the De Beers delegation if he could ask them questions on the 1992 agreement that De Beers had from the Diamond Board. He asked if De Beers had a copy of that document. That was the document that had been approved on 03 December 1992.
Mr Cleaver replied: ‘Yes, we do.’
Mr Barend Petersen, Director for information services: De Beers, said that he confirmed that on behalf of De Beers.
Mr Gerber asked the De Beers delegation for the names of those who had signed the 1998 agreement, which had five signatures, and if De Beers could show him any of the names of signatories to the 1992 agreement. The 1992 agreement, unlike the 1998 agreement, lacked signatures. He again asked for the names of those who had accepted this agreement on behalf of De Beers.
Mr Cleaver replied that the document had been submitted to De Beers on 13 January 1993. There was a copy of the document dated 12 February 1993. The Diamond Board had agreed and its officials had signed. He said further that the 1992 agreement consisted of a suite of documents”, that together constituted a written agreement, although not all parties had signed the annex. No party had signed the attachment.
Mr Gerber said that he had in front of him a letter addressed to Mr Link; this was the letter that they had been looking for 13 years. This letter had many smudge marks.
Mr Cleaver asked if that was the letter that bore the date 13 January 1993 in the top right hand corner.
Mr Gerber said that was correct.
Mr Gerber said that there were three different kinds of lettering on this letter. This was significant, since in 1993 word processing facilities that would easily enable a writer to use three different kinds of lettering in the same letter were not readily available.
Mr Cleaver asked Mr Gerber to enlighten him with regard to his observation.
Mr Gerber said that the lettering for ‘Yours sincerely’ was different.
Mr Cleaver replied that De Beers had no knowledge as to how the South African Diamond Board had composed the letter, but De Beers regarded it as ‘a solid letter’.
Mr Gerber asked De Beers why, if in their view the 1992 agreement constituted a valid legal document, did they feel the need in 1998 to go and ask the Diamond Board for another agreement.
Mr Cleaver said that in the attachment to the 1992 agreement there was a sentence ‘The agreement will be subject to annual review’. Each year the Diamond Board had confirmed continuation of the 1992 agreement, and De Beers had felt no reason to doubt the validity of these yearly reconfirmations. In 1998, however, there had been, after negotiations, a new, formal agreement with slightly different terms. He said that both were perfectly valid legal documents. He could not shed any further light upon these agreements, since he was not present at the time. However, the 1998 agreement clearly referred to the terms of the 1992 agreement.
Mr Gerber asked if the 1992 agreement had come about through protracted negotiation or had it been the result of one Diamond Board meeting.
Mr Cleaver said that in 1990 and 1991 the industry had asked De Beers to provide a more consistent mix of diamonds. It was his impression that there had been negotiations behind the 1992 agreement. De Beers had agreed in the 1992 agreement for the first time to mix South African diamonds to be exported to London with De Beers diamonds from all over the world, and re-import not only De Beers South African produced diamonds but diamonds from De Beers mines all over the world. He confirmed that it was his understanding that there had been negotiation preliminary to the 1992 agreement.
Mr Cleaver thereupon informed the Acting Chairperson that he, Mr Cleaver, had just been offered an original of the letter issued to De Beers by the South African Diamond Board in January 1993. He would be happy to hand out a copy of the letter.
The Acting Chairperson asked Mr Gerber to continue.
Mr Gerber asked Mr Cleaver if he had copies of the discussion with the Diamond Board preliminary to the 1992 agreement, or had the discussion documents been given to a subcommittee.
Mr Cleaver asked if he could confer with a colleague.
Afterwards, Mr Cleaver said that they did not have with them any of those documents; they know that there had been lengthy discussions, and that the Diamond Board subcommittee was involved. They could investigate that. Nonetheless, they could confirm that there had been lengthy discussions.
The Acting Chairperson asked if the Diamond Board could enlighten the Committee.
Mr A Chikane, Chairperson: South African Diamond Board, said that they were aware only that there had been some resolutions.
The Acting Chairperson emphasized that the Committee really wanted to conclude the matter that day, and so he appealed to De Beers to conduct that investigation and return to the Committee as soon as possible.
Mr Cleaver reiterated that De Beers had a valid agreement. However, De Beers would do its best to conduct the investigation regarding the documents. They would search for any relevant minutes.
The Acting Chairperson said it was in the interests of De Beers, if they had substantial documentation related to the agreement, to produce that documentation. It was in everybody’s interest to produce that documentation. Failure to do so would leave the Committee to draw its own conclusions.
Mr Gerber asked De Beers what had motivated the company, on the eve of a new democratic South Africa, to ship 20 million carats of uncut diamonds to London, only to re-import some of them afterwards. These diamonds were worth 900 million US dollars free of tax. For a company such as De Beers, that was and remains an institution in South Africa, it really raised many questions.
Mr Cleaver said that that, in De Beers’ view, was a misconception. De Beers had comprehensive evidence for every diamond. It was De Beers’ view, based on its own records and evidence, that no more than its usual number of diamonds were exported in 1993. De Beers had comprehensive records and could substantiate that for every shipment of diamonds it had a certificate of exemption. There was not a material ‘spike’ in De Beers' export of diamonds in the year prior to the 1994 election.
The Acting Chairperson said that the Committee had documentation from the Office of the Auditor-General that gave a different picture. The Committee’s information was contrary to that of De Beers, which argued that its exports had remained constant. He asked the Auditor-General’s representative to confirm the information given by the Office of the Auditor-General to the Committee, in particular the information given on page seven of the document that the Auditor-General had provided on 11 September 2007. According to that document, there was a substantial difference in the sale of South African diamonds in the year 1992 from any other year. He asked for the source of that information.
Mr W Van Heerden, Corporate Executive: Office of the Auditor-General, said that the information had been supplied by the Department of Minerals and Energy.
The Acting Chairperson asked if the Committee could assume that De Beers had exported all those diamonds, or if any other company or organisation had contributed to the total. He asked if they were all De Beers’ diamonds.
Mr Van Heerden said that the total included the products of other companies or organisations, but that De Beers was the biggest diamond producer at the time.
The Acting Chairperson thanked Mr Van Heerden, saying that the Committee just wanted to set the record straight.
The Acting Chairperson said that the export of uncut diamonds to the value of R4.6 billion in 1992, compared with R1.7 billion in the year before, was, contrary to what De Beers had said, clear evidence of ‘a spike’.
Mr Petersen said that it was necessary to distinguish exports from sales. The document in question referred to sales.
The Acting Chairperson said that the Committee had a problem in reconciling the figures given by De Beers with the figures given by the Auditor-General to Parliament. It was a frustrating situation for the Committee. He asked the Department of Minerals and Energy if it had any information that could assist the Committee in its interrogation and if there had been ‘a spike’ in diamond exports.
Mr Sandile Nogxina, Director-General: Department of Minerals and Energy, said that the Department could confirm what the Auditor-General’s representative had said.
The Acting Chairperson asked Mr E W Trent (DA) if the above constituted an answer to his question.
Mr Trent said that his question was answered.
Mr Gerber asked De Beers if he was correct in assuming, with reference to the 1992 agreement, which De Beers insisted was legal, that De Beers had not paid any export levies up to 2007.
Mr Cleaver said that De Beers had a valid certificate of exemption.
The Acting Chairperson said that he did not want to open a debate between De Beers and the Auditor-General’s Office. He asked De Beers, that if they disputed the figures that the Committee had received from the Auditor-General’s Office, they should submit their figures to the Committee in writing so that the Committee could itself interrogate them. He said that the question that the Committee was now asking De Beers was whether or not they had been paying duties on exports since 1992. He asked Mr Gerber to repeat his question.
Mr Gerber asked if De Beers could give details of the exemption certificates.
Mr Cleaver said that De Beers had not paid duties on exports since 1992 since De Beers had been given exemption. De Beers could provide the Committee with copies of exemptions granted since 1993. The delegation members had with them the exemption for 1993, and could leave a copy with the Committee.
The Acting Chairperson asked De Beers to confirm, for the record, that De Beers had an exemption.
Mr Cleaver confirmed that De Beers had an exemption.
The Acting Chairperson asked that De Beers furnish the Committee with copies of the exemption.
Mr Gerber asked if De Beers had had an exemption for every parcel of stones that had been exported.
Mr Cleaver replied that De Beers had valid certificates of exemption for every shipment. De Beers would be happy to provide the Committee with copies of exemption for the year in question, 1993; it was a very large file, but De Beers would provide 1993 certificates to the Committee before they left that day, and subsequently any other documentation that the Committee required. They did not have with them the documentation for other years.
The Acting Chairperson thanked Mr Cleaver and said that the Committee would certainly examine the documents, either on the Committee’s premises or on De Beers’ premises.
The Auditor-General’s representative said that the 1992 exemptions were wanted as well.
Mr Gerber asked where the head office of De Beers was located.
Mr Cleaver said that it was in Kimberley.
The Acting Chairperson asked if De Beers would confirm that it had not deliberately held back any of its production as a stockpile. It was necessary to move away from being ‘nice’ and instead be ‘frank’ He asked De Beers if they were disputing that prior to 1992 there had been a big stockpile that had been shipped to London. He understood De Beers to be saying that there had been nothing untoward in its actions. However, the Committee was sure that there was something untoward in the shipment of a large stockpile to London just before the 1994 elections.
Mr Cleaver admitted that De Beers held stockpiles around the world. De Beers, however, maintained that the stockpile that it held at the time in question was substantially less than the Committee had alleged, and it was certainly not accumulated to avoid any kind of duty. It was shipped in 1992 in order to be mixed with other diamonds in London. De Beers denied any stockpiling in order to ship an abnormally large number of diamonds prior to the 1994 elections.
Mr Trent asked if it was De Beers’ view that De Beers had no liability to pay any duty whatsoever on those exports.
Mr Cleaver acknowledged that De Beers had a requirement to comply with the law, but De Beers had obtained an exemption
Mr Gerber asked if members of the Auditor-General’s Office who had gone to London could supply the Committee with information.
The Acting Chairperson said that, before any question was put to the Auditor-General’s representative, he wanted to ask the Director-General of the Department of Minerals and Energy whether or not there had been a stockpile. Also he wanted to ask the South African Diamond Board if there had been a stockpile.
Mr Van Heerden said that the Diamond Board evaluator had commissioned in London two audit reports by PKF to investigate the stockpile.
Mr Nogxina said that according to the Department’s understanding there had been a stockpile.
Mr Chikane said that there had indeed been a stockpile.
Mr Godi observed that the issue had been before the Committee for a long time. It appeared that De Beers was now more willing to provide information. He asked why they had not been willing to provide that information previously, which raised Mr Gerber’s question.
The Acting Chairperson asked for the reason for the difficulty in providing documentation. He asked why it had taken such a long time and such effort to provide it.
Mr Chikane said that the Diamond Board had instituted an investigation.
Mr Petersen said that De Beers had supplied the required information in February 2006 within two days.
Mr Cleaver said that in 1999 it was quite likely that a stockpile might have been built up. He said further that the 1998 agreement was a written agreement in the form of a letter from the South African Diamond Board with the terms and conditions attached. De Beers accepted the agreement by way of a letter dated 13 February 1998. De Beers’ position was that it was a valid agreement in writing, and De Beers had the originals. However, the relevant statute, in De Beers’ view, had not required a written agreement.
The Acting Chairperson said that the Committee was composed not of lawyers but of ‘mere mortals’. He asked for a copy of the agreement, and if De Beers could tell the Committee who was the chief executive officer of the Diamond Board at the time.
Mr Cleaver said that the letter appeared to have been signed by a Mr C J Hambley, Chief Executive Officer, as far as De Beers could tell, for the Diamond Board.
Acting Chairperson said that the Committee was not going to dispute that now, but take that as De Beers’ position for purposes of the Committee’s final deliberations. He asked the Auditor-General’s representative please to help. He asked for any further input from the Auditor-General’s representative in order that the Committee could take an informed decision.
Mr Van Heerden asked if the Committee had copies of the 1987-1991 agreements, and did the 1992 agreement differ in format from the other agreements referred to.
Mr Cleaver said that it was his understanding that there was in 1987 a one-page letter from the Diamond Board indicating an agreement. It was not a formal agreement.
Mr Trent asked if members of the Diamond Board at the time were available and could be called to appear before the Committee.
Mr Chikane said that he wished that the matter could be brought to a logical conclusion. He said that it would be helpful if De Beers and the Treasury could agree on figures to determine whether anything was owed to the state. The legal side of the matter, Mr Chikane felt, could be settled without recourse to the courts.
The Acting Chairperson said that definitely there would not be another hearing on De Beers. That was why he had been determined not to involve the Committee in legalistic discussions.
The Acting Chairperson repeated that the Committee’s view was that De Beers had an obligation to pay any taxes that it should have paid but which it had not paid. If De Beers had not paid taxes that it should have paid, the question remained how the Committee should proceed in the matter. If De Beers did not owe taxes, then that chapter could be closed.
Mr Trent said that he was satisfied that there was nothing more to be gleaned from the parties present.
Mr Gerber said that the 1992 agreement had been open-ended. He asked why there was a need for another agreement in 1998.
Mr Cleaver replied that the 1992 agreement had not been intended as a permanent agreement. Changes in circumstances by 1998 led to negotiation of a new agreement. He was aware that the Section 59 committee had reviewed the agreement.
The Acting Chairperson asked if any other Committee Member wished to ask a question.
Mr Gerber asked if the South African Revenue Service (SARS) had at any time audited De Beers.
Mr Cleaver said that De Beers had been subject to many audits by SARS.
The Acting Chairperson said that he would now review the proceedings and bring them to a close.
He said that the Committee required De Beers to submit its export duty exemption certificates for 1992 and 1993.
The Committee also wanted De Beers to investigate to see if it had paid RSC levies.
The Committee also wanted to indicate here that the Department of Minerals and Energy, the Diamond Board, and the Office of the Auditor-General had all confirmed that there had been a stockpile of diamonds in 1992.
He said that De Beers had a different view. The Committee asked De Beers therefore to give the Committee its information as soon as possible because that was critical to the Committee’s position.
He affirmed that the Members of the Committee were politicians. The Committee had received a report from the Office of the Auditor-General that a large corporate citizen of South Africa had had a stockpile and had taken it out of the country just before the 1994 elections. It had not paid duty.
The South African Diamond Board, which was supposed to be the regulator, had ruled in favour of business rather than the government.
A regime change was imminent.
These factors had aroused the Committee’s concern, and the Committee could not shirk its responsibility to Parliament to ask these questions.
He said that the Committee wanted to send a strong message. No corporation or individual was untouchable. There must be no perception that anyone was above being held accountable. If a corporation or individual had broken the law, the Committee would investigate the matter, as mandated by the Constitution. The Committee could call anyone to account, whether it be a director-general or even an ordinary civilian. In that context the Committee had summoned De Beers. In that context the Committee sent a message that everyone was accountable.
So De Beers was going to co-operate, and there would not be another engagement like the present one. The Committee would make its ruling and stand by it. The Auditor-General would live by it, in terms of reputation and otherwise. De Beers would live with it, and so would the present Diamond Board, and the future Board. The Committee would pronounce on all these matters, including the future role of the Board.
The Acting Chairperson thanked De Beers for appearing before the Committee and trusted that De Beers would provide the documentation requested as soon as possible.
The Auditor-General, the Board, and the Department would help the Committee by reaching agreement on the financial aspect of the matter.
If the Committee had any further questions of the parties present at the meeting, it would ask them telephonically or by letter. There would be no further meetings.
The Committee would complete its report and submit it to the matter to Parliament.
Mr Cleaver expressed De Beers’ thanks for the opportunity to appear before the Committee and assured the Committee of De Beers’ co-operation.
Interaction with Mr Dines Gihwala, curator of the Fidentia Group
The Committee interacted with the curator and co-curator of the Fidentia Group and urged them to conclude the matter as soon as possible. The Committee explained that its aim was to recover money intended for Fidentia’s investors and beneficiaries, including money intended for the use of training.
The curator, Mr Dines Gihwala, said that he and his co-curator, Mr George Papadakis, wanted to co-operate fully, without prejudice, with regard to the assets that they hoped to recover. He asked if the curator and co-curator had privilege in the meeting, to which the Acting Chairperson replied that, in so far as they were appearing before the Committee, they had privilege. However, members of the media were present and the Committee could give no guarantees that what was said might not be reported in the media.
Mr Gihwala said that on taking up the administration of Fidentia, the curator and co-curator had sought to cut costs; other than the Fidentia Football Club, they had not sold a single asset. R49 million had been paid to beneficiaries. Of this, R16 million had been repaid to the Transport Education Training Authority (Teta).
Mr Gerber asked how long would it take to resolve the Fidentia matter. The Committee wanted ‘an end to this debacle’.
Mr Gihwala said that when he took up his appointment as curator, he was told to prepare himself for a task that would take ten years. He said that the curator and co-curator were handicapped in their process. The Financial Services Board was aware of that handicap. It was hoped to produce a final liquidation account by the end of 2007. It was then hoped to make an award.
Mr George Papadakis, co-curator, said that the curator and co-curator had identified Fidentia’s assets to be in three groups: firstly, an equity portfolio, secondly, a property portfolio, and, thirdly, a cash portfolio.
Mr Godi (African People’s Convention) said that the curators had not been categorical with regard to the R49 million, and asked if that sum had included the R16 million.
Mr George Papadakis said that it was separate.
Mr Trent asked what was a reasonable time for curatorship.
Mr Dines Gihwala replied, ‘How long is a piece of string?’ Because of the urgent need of widows and orphans to be repaid, the curators lacked the time and space to build up assets.
To this, the Acting Chairperson responded that the Committee wanted to focus on Teta.
Mr Dines Gihwala said that, subject to court approval, it was hoped to make a distribution by 31 December 2008. The curator and co-curator said that they would try to achieve the highest price in the sale of assets.
Mr Gerber asked, in the interests of the taxpayer, what was the cost of curatorship.
Mr Gihwala said that the curatorship fees were at a discounted rate.
Mr Papadakis said that the Auditor-General had approved the rates.
Mr Gihwala said that he had offered to serve at no charge, but this offer had been declined, because it was thought that if he undertook to do the work pro bono then, because it was a difficult case, the work might be delayed behind more straightforward cases for which normal fees were applicable. So he had agreed upon a fee. However, with due respect to the Committee, the curator had to decline to disclose the agreed fee. He said that it was ‘not appropriate to put my private business on display.’ Moreover, Mr Gihwala, an attorney by profession, did not want to disclose to the Committee the level of the fees that he was charging for fear that he would be subjected by his profession to disciplinary proceedings for charging fees below those recommended by his profession. It was his view that the creditors of Fidentia were getting good value for their money.
Mr Gerber said that the Committee respected his view.
Mr Gihwala said that Teta had also informed them that Teta had engaged lawyers and forensic accountants. It was for Teta to decide if it was getting value for money. Lawyers could not accelerate the speed of what the curator and co-curator were doing already, since the curator and co-curator were constrained by the requirements and processes of the courts.
Mr Papadakis said that liquidation would not have helped.
The Acting Chairperson asked Mr Hennie J Bekker (IFP) if he had any questions.
Mr Bekker replied that he had no questions.
Mr G Koornhof (ANC) asked about Sunset Beach. It was a low valuation. He asked the curator and co-curator if they were going to sue for that money.
Mr Gihwala said that their valuation was R20 million. The curator and co-curator were constrained by the non-recognition in South African law of the doctrine of conversion, whereby property could be attached to exact payment of debt. This meant that a thief could profit from what he had stolen and keep his profit. However, this would not stop the curator and co-curator from suing for the money. He wanted to challenge this doctrine. Since the courts were inundated, the earliest likely trial date was in the first part of 2009.
Mr Koornhof said that the process did not make much sense.
Mr Gihwala said that there were pleadings. Mr J Arthur Brown, former head of Fidentia, had frustrated them every step of the way. January 2009 remained the earliest likely date for a trial. It was better to err on the side of caution.
Mr Gihwala and Mr Papadakis gave the Committee their unequivocal commitment to conclude the matter as soon as possible, but reminded the Committee that they were subject to external procedural constraints such as those of the court. Mr Gihwala said that Members should feel free to contact him. He had left his telephone number with the Committee Secretary, Mr Gurshwyn Dixon.
The meeting was adjourned.
Appendix:
Business Report news article: MPs challenge De Beers over mysterious exports
June 13, 2007
By Michael Hamlyn
Cape Town - MPs are considering whether to call De Beers to give evidence to the financial watchdog committee on public accounts on how it came suddenly to export huge numbers of uncut diamonds shortly before apartheid officially ended and the new democratic government came to power.
The committee was told yesterday that the export of uncut diamonds each year amounted to about R1.8 billion, but that in 1992 there was a sudden spike to R4.67 billion. But the Diamond Board said it had not been able to discover a copy of any agreement allowing the export of diamond without payment of the export levy.
It had no copy in its files, according to Abbey Chikane, who chairs the board. And when the board wrote to De Beers asking for the company's copy, all it received was a copy of a board resolution on the subject.
The chairman of the committee, Themba Godi, asked: "Where is the agreement that allowed De Beers to loot the diamonds out of the country?"
ANC MP Pierre Gerber referred to what happened in Namibia just before that country's independence, when uncut diamonds were similarly exported to be stockpiled in London, in what the MP called "a scorched earth policy".
The committee will consider the possibility of legal action against the company to recover the unpaid levies. The levies arise from clauses in the Diamond Act that require that gems be first offered to local polishers or cutters before being exported. Offering the diamonds locally allows the diamonds to be exported free of the 15 percent levy.
But Catinka Smit of the litigation department of the SA Revenue Service told the committee that the law was very imprecisely drawn. It did not, for example, specify in what way or how often the diamonds should be offered locally. Nor did it prescribe what form an agreement to export should take. It could even be a simple oral agreement, she said.
The director-general of minerals and energy, Sandile Nogxina, told MPs that the imprecision of the act encouraged the government to draw up a new bill that would tighten up the law. That bill, which was first to be called the Beneficiation Bill, has now taken the form of the Diamond Export Levy Bill before parliament.
The bill lays down specific terms under which uncut diamonds should be offered to local cutters and polishers.
De Beers spokesperson Tom Tweedy said uncut diamonds were exported when an equivalent amount of diamonds were imported, and when the diamonds themselves were not of sufficient quality or size to make it worthwhile cutting them here. "Local cutters are more expensive than those in India or Asia."
He later said: "De Beers keeps a record of its agreements and we are happy to assist the board should it require copies of agreements that we have." An agreement in section 59 of the Diamond Act "has been an evergreen agreement, which is reviewed annually by passing a resolution, unless there are material changes in any of the terms or technical details".
This had happened last year, when particular types of diamond were added to a section that deals with specials, which are diamonds of a colour, size or type of a higher value reserved for South African diamond cutters and not exported."
Public Finance Management Act (PFMA) implementation: briefing by Treasury & SAMDI
STANDING COMMITTEE ON PUBLIC ACCOUNTS & JOINT BUDGET COMMITTEE
29 August 2007
PUBLIC FINANCE MANAGEMENT ACT (PFMA) IMPLEMENTATION: BRIEFING BY ACCOUNTANT
GENERAL & SAMDI
Co-Chairpersons: Ms L Mabe (ANC) Mr T Godi (PAC)
Relevant documents
Progress Report on Implementation of Public Finance Management Act by
Accountant General
Building Capacity for Effective Financial Management in Public Service:
SAMDI presentation
Audio recording of meeting
SUMMARY
The Accountant General spoke on the implementation of the Public Finance
Management Act and its Regulations by Departments. He said the Act was being
adhered to more closely each year, but the levels of adherence were not
satisfactory. He had interesting comments about the misinterpretation of the
role of internal auditors and the incorrect deployment of accountants, amongst
other trends. Generally he could see progress and targets were being attained,
but there were also good and proper reasons why the standards were not being
implemented. He outlined a diagnosis and not a justification for certain poor
and unacceptable standards. Generally the poor standards were the result of the
lack of a work ethic and a lack of management and leadership rather than due to
the perennial excuse of lack of skills.
The presentation by the South African Management Development Institute (SAMDI)
outlined the attempts to collaborate with the three tiers of Government to
train officials to have an understanding of, and implement, the PFMA. SAMDI
emphasised that its intention was not to take over or replace but rather
collaborate with the Sector Education and Training Authorities. Members were
concerned that attendees at training courses were the incorrect attendees,
having insufficient authority to thereafter implement the policies and
strategies to which they had been exposed. Alternatively attendees treated
attendance at the course as relief from their departmental duties and were not
diligent in their attendance at, or attentive to, the courses presented.
MINUTES
Implementation of Public Finance Management Act (PFMA) and Regulations by
Departments
Mr Lesetja Kganyago, Treasury Director General, introduced the Accountant
General.
Mr
Freeman Nomvalo, Accountant General, said that this was the eighth presentation
on the PMFA before this Committee. He personally was of the opinion that the
former constant references to skills capacity and shortages had been overplayed
and that the role players concerned should now accept accountability, and
responsibility, for their actions or lack of actions, as the case might be.
Further
he urged all persons concerned to study, and make use of, the reports by the
Auditor General (AG) This was the only way that the Administration of South
Africa could and would be improved so that there was in fact service delivery.
He added that there were improvements as almost without exception, reports were
being provided more timeously and there was greater adherence to budgets but in
both respects there was room for greater improvement, even by the best role
players.
The major challenges remained internal audits, risk management, internal
control and performance managements.
Internal Audits
Mr Nomvalo said that it seemed that there were some role players who
did not understand or take the importance of internal audits sufficiently seriously.
Internal audits themselves frequently required qualification in respect of
internal control. He was of the opinion that the Internal Auditors should
become proactive, rather than reactive, and insist on compliance by the
Departments. On the other hand some Departments were complying with their
Internal Auditors but the question arose was this effective compliance with the
PFMA Act in the light of the Reports by the AG. He conceded that there were
many vacancies in many Departments but he added that the role of the Internal
Auditor was erroneously interpreted. He illustrated that a receptionist at the
front desk could dispense receipts on production of payments, and at the end of
the working day collate the amount of money received, and balance such against
the receipts issued and the total of the receipts issued, and similarly collate
these figures weekly, fortnightly, and monthly. It did not take an auditor, or
even a graduate, to perform such function.
He was of the opinion that there was a misallocation of resources because
either the function and purpose of internal auditing was not properly
understood or the persons appointed as Internal Auditors were not appointed at
the appropriate level with the authority their positions demanded. This inappropriate
or misuse of auditor staff led to their changing to other departments or to the
private sector, where they obtained greater job satisfaction. Associated with
the question of the role of Internal Auditors was their immediate access to the
CFO when necessary. It all turned on the status accorded to the Internal
Auditors within their Departments and by the CFO. This status was more
important than their job descriptions which may well be grandiosely misleading
and differ from the actual status accorded the individual.
In terms of Treasury regulations a Quality Assurance of the Internal Auditors /
Audits was required every five years and this forthcoming year was the fifth
year and would require such Quality Assurance. Additional to this being ongoing
work in progress there was also the question of a National Framework and
National Training of Internal Auditors to ensure uniformity.
Interwoven with this was the fact that in an age of shortage of accountants and
accountancy skills, there was the incorrect deployment of accountants in
positions which were either too low in the hierarchical organogram or because
of personality factors, either from the CFO or even the accountants themselves,
led to the curtailing of the Internal Audit function and process.
Risk Management
This was regarded as a management tool, and as such played an increased
role and there was an increasing demand for data to be pulled out or extracted
from the relevant records and where deficiencies were found for disciplinary
processes to be taken to determine the responsibility of those concerned. This
was tied up or interwoven with training and although there were 203 officials
in training, the optimum use of their training and skills was not being made.
There were programmes to help the provinces and municipalities establish and
implement certain programmes and these would be implemented and officials from
his department rotated to ensure compliance by the provinces and
municipalities.
The AG had drawn attention to the fact that the minimum was Level 2 internal
controls but many of the departments and municipalities had not implemented
this. The framework had now been established with a template, which could be
established and imposed from 2007, and with ongoing work towards establishing
support strategies.
Asset Management
Here the challenges were twofold. Firstly certain departments such as
Defence have an enormous volume of assets to be retained in the legal system
but there was no stability and training in this field. Secondly there were
departments which had a high incidence of turnover of assets, especially at
Level 6-12. He was of the opinion that the relevant Accounting Officer could
take this more seriously and he was engaging with them about this on an ongoing
basis.
Supply Chain Management procedures
There was ongoing implementation of the procedures and again the task
was to persuade and convince the Accounting Officer that the Accounting Officer
was responsible and accountable for the alignment of the Supply Chain Procedures
in line with BBBEE requirements.
With regard to performance, there were ongoing workshops to ensure the
implementation of the requirements in terms of legislation so that there was
assistance of the Auditor General in his work.
Conclusions
Mr Nomvalo stated that he could see progress and targets were being
attained, but there were also good and proper reasons why the standards were
not being implemented. Chief of these was the reason of the multiplicity of
different standards and the lack of a suitable reporting framework. He had met
with representatives of the Accounting and Auditing professions the previous
week for another meeting on the standardization of the framework. This was
another work in progress.
He was intending to use the Internal Audits as an early warning report system
and to this effect was devoting staff and resources to implement this plan.
Additionally he was working towards acquiring these reports earlier in the year
so that rectification work could be undertaken, where necessary, to ensure
compliance with Treasury requirements and forestall any adverse audit reports
by the AG. The provincial bodies were improving but unfortunately there was
always room for improvement.
Further, he was working towards the training within government departments of
chartered accountants, but fully in compliance with the standards of the
profession. The first ten candidates would be beginning their course in January
2008. He hoped that this would have an impact on the shortage of skills.
Another aspect of concern was under-spending which amounted to 2%. In this
regard National Government, notably the Department of Home Affairs, was
“guilty” while the other two tiers of government, especially Local Government,
was improving. However, overall there was an improvement and this question did
not relate to inefficiencies. However, it must be remembered that these were
the preliminary numbers. A matter of interest was that Parliament itself was
not spending all its money but further he could not comment, as he did not have
access to all the data. Unlike the Departments, which have to return all
unspent funds, Parliament retained the funds. His task was to ensure compliance
with the PMFA Act. The task of the respective Accounting Officers was to ensure
compliance with section 38 of the PMFA by their Departments.
South African Management Development Institute (SAMDI) presentation
Mr Oliver Seale explained that SAMDI was transferring to an academy, so as
not to impose itself upon the area of the Sector Education and Training
Authorities. He pointed out that 43% of all level staff in Provincial
Departments reported that they had had no training exposure in 2006. SAMDI was
reconstituting its mandate and was intending to change 100 000 person training
days (PTD) per year to 1 000 000 to approach the international norm of 5 PTD
per annum per employee. The emphasis was on collaboration with existing
structures and not replacement thereof. SAMDI and National Treasury had
identified ten challenges but these were merely the tip of the iceberg. The
implementation strategy for the capacity building for financial management was
in place and has been rolled out since July but the industrial action of June
2007 had had a markedly deleterious effect on this. Capacity building for financial
management in the municipalities (JIPSA ASGISA projects) was supported by
Liberty Life and internal audit training and assistance was supported by Old
Mutual.
Discussion
Mr V Smith (ANC) remarked that he was pleased that the Treasury
Department was not in the “guilty” category. Since 1999 the AG had been
producing qualified reports on Departments emphasising the necessity for
internal controls, maintenance of a full and up to date asset register,
separation of duties and so on and yet you say part of the problem was the lack
of skills. He felt that SCOPA could no longer accept this, the lack of skills
could no longer be an excuse. In his opinion it was not a lack of skills. One
must comply with legislation and regulations but they were fobbed off with the
“lack of skills” story. What skills were in short supply? He was of the opinion
that this problem could not continue and that a skills shortage could no longer
be offered as an excuse. The focus was on the procurement budget and the asset
register. He was of the opinion that a matriculant, not a graduate or an
accountant, should be able to maintain such. He felt the skills shortage was in
management skills in middle management.
Mr E Trent (DA) agreed with Mr Smith. SCOPA could no “longer accept the excuse
of a lack of skills.” Skills and capacity went hand in hand. In fact there was
no shortage of skills for the skills required to defraud the Government on a
massive scale existed and were being implemented. He was of the opinion that
what was lacking was an appropriate “work ethic” from top to bottom.
Additionally, he wished to know who comprised the steering committee of SAMDI
and finally what was the time frame with regard to the plan and monitoring to
make a difference?
A committee member remarked that that the changes to SAMDI were exciting.
Mr Nomvalo replied that there was no ‘critical information’ tests but they
needed a critical institutional railway to produce such.
Ms Dreyer (DA) asked what progress there was with monitoring departmental expenditure,
especially Home Affairs. She asked for clarity on the figure not spent by
Parliament.
Ms Dambuza (ANC) stated that lower level people should not be sent on SAMDI
courses just to have a departmental presence at the courses. All course
attendees should be monitored both while on the courses and on return to normal
duties to determine the efficacy of the courses. Proceeding to the vacancy
rates, she asked what retention strategies were in place to retain staff. The
expense and interacting between departments seemed to be a lack of planning.
Departments applied for budget allocations and did not spend such allocations
appropriately and then claimed to have made savings. Employees could not work
without tools and she wondered what the Human Resources departments were doing
to assist employees.
With regard to SAMDI, she tended to agree with Mr Trent that what was required
was a change in the work ethic and she felt that leadership would provide
effective management and create a different work ethic. She felt that even
Senior Mangers should go on training. She was of the opinion that there should
be standardised synergies which would or could lead to a staggered roll out and
essentially there were no quick fixes to the problems. It all rested upon Management
to provide effective leadership. If the staff at the higher levels lacked
specific accounting knowledge perhaps there should be a specific unit of
“firefighters”. What seemed to be lacking was knowledge among the managerial
units.
The Chair remarked that the training needs had already been identified and that
this was a work in progress but that the departments had problems.
Mr Nomvalo replied that the questions and issues raised were important and that
what he had outlined was a diagnosis and not a justification for the poor and
unacceptable standards. Section 38 of the PMFA did not require capacity, it
required compliance. He conceded that in certain areas there were shortages of
skill. For example in Internal Auditing there were shortages but often those
with the skills were not employed or deployed in the specific area required, or
where they could make an effect. To this effect there were service providers
who could provide leverage, training and supervision. He was of the opinion
that there could always be strategies and a search for the required skills.
With regard to accounting skills it was not only a question of having chartered
accountants but of accountants. Use could always be made of interns in training
to maximise the effect of what skills existed. He conceded that it was a
question of attitude.
As an example he referred to the Chief Finance Officers who were appointed and
held the title but had neither the training, skills nor experience to perform
the work. This unfortunately occurred in the Municipalities where one could
find cashiers holding the position of CFO. There were too many cases of square
pegs in round holes. He agreed that the work ethic could be greatly improved
upon and added that financial management required processes not skills, merely
the energy to implement the processes. Sufficient training together with
supervision could ensure compliance with requirements. Turning to Risk
Management, he conceded that there were technical issues but there was support.
A South African company had produced an acceptable software programme but the
implementation thereof required planning and continuity, neither of which were
skills.
With regard to the Department of Home Affairs, most of the problems had been
identified. There were systemic issues but these had been reported to the
Minister who has appointed a task team. The issues had been identified and
progress was being made. Earlier training did not take into account all the
issues but the treatment of Section 6(1)(d) has motivated the staff and
progress and the benefits would soon be seen.
With regard to Parliament the exact figures could not be seen. It was in the
region of R104 million and comprises both under-spending and vacancies. Whereas
all other departments were accountable to Treasury, it was well documented that
Parliament held that it was not accountable to Treasury. This was an area
beyond his competence and authority to comment upon. However, he was of the
opinion that a modus operandi needed to be arrived at.
With regard to the problem of vacancies and retention strategy, he felt that
this was inevitable. Governmental employment practices were too rigid and this
placed a challenge especially when there were opportunities elsewhere. He
reminded all that he had presented a diagnosis not a cure.
He conceded that there was a lack of planning but the overcoming of this
problem was a question for the executive authorities to combat and devise the
necessary strategies and approaches and put them in place.
Mr D Gumede then took the floor and while commending the Department expressed
the opinion that it was a “people problem at middle management level”, which
was giving rise to all the adverse audits by the AG. He conceded that there
might be adequate strategies, approaches and protocols but middle management
was not implementing these. He asked what were the qualifications of middle
management for he felt the weaknesses at this level were giving rise to poor
morale and disaffection among the staff. He added that the diligent were not
being commended, and promoted, while the less than diligent were being promoted
to middle management, compounding the problems and leading to disaffection. The
punishing of those when there was no implementation was a problem as
implementation was out of the hands of those punished; while those who had
control and were not implementing were not being punished. Finally he asked if
the high vacancy rate arose not from a skills shortage but from management
incompetencies and what analysis of this had been done.
Ms Hlengethwa (ANC) asked about those employees who went on training courses.
What was the responsibility of those who were their superiors to monitor their
performance when they returned to their posts? She was of the opinion that many
regarded their training courses as “holidays.”
Mr T Mofokeng (ANC) raised the problem of solving the accountability issue. He
felt that this was compounded by senior officials being placed on suspension,
which lasted two, or three years on full salaries. When the disciplinary case
was finalised the department lost it and the person was reinstated. He felt
that this was a lack of discipline of those conducting the disciplinary
enquiries. The decision to proceed with a disciplinary enquiry should be made
at the right time. Then when there were questions the officials concerned left
for “greener pastures” but in reality they left to avoid hot water.
Mr Trent added that as a “diagnosis” the departmental officials present were to
be congratulated but he felt the higher officials should not interfere with the
training assessments which he felt were an excellent starting point. With
regard to Parliament’s underspending, he felt that the ball was in their court
for they, the Members of Parliament, must do something about this.
Mr V Smith (ANC) agreed and said that he too was impressed with the production,
as a report. He was of the opinion that SCOPA were specialists and the
department presented the diagnosis but that SCOPA must utilise the powers
contained in Section 81 and fire people. Placing them on suspension did no
good. A few firings would be a salutary lesson to all concerned. He reiterated
the view that it was not a skills shortage but a lack of management or
leadership, which was the problem. He then proceeded to ask to what extent the
labour laws were impacting upon poor performance delivery by the departments.
Ms Dreyer said that she felt that Parliament should be like Caesar’s wife,
beyond reproach. With regard to vacancies in the Public Service she wished to know
at what level they occurred and the percentage thereof.
The Chair said that she felt that there were no monthly figures provided by
Parliament as to the under-spending. With regard to the skills shortage, she
wished this neither to be over or under estimated. She conceded that there was
a skills shortage but she felt it was aggravated by having too many square pegs
in round holes as a result of wrong promotions.
Mr Nomvalo agreed that the problem was the implementation or control of an
acceptable work ethic but he was of the opinion that there were capacity
problems which arose from leadership which failed to implement the right
corrective measures or do so timeously. Some Departments had competent people
but the DG was never in the office. There was one occasion when the CFO had to
go to the airport to have the DG sign the annual report for the Department. In
such circumstances when the DG was away, the CFO acts, but without the
authority and so he would not be effective. Often although there was a job
description and requirements for appointment, because of political influence
the wrong person was appointed. It all came down to Administration!
Administration! Administration. Leadership was important. With regard to
courses there was one instance where an attendee had sloped off early and had
been disciplined for it. At the enquiry he had given evidence but because he
was unable to state that the accused had left at 13h00 or 15h30 or 16h00 hours,
the accused had been found not guilty and absolved.
With regard to the international norm of five days at courses, he felt that
everyone required the re-charging of batteries, monitoring and mentoring and
that perhaps five days were too few for this but it was necessary.
The AG was going to qualify departments, then meet with the DGs and departments
concerned and focus on the future, not the past, for effective management to
ensure that there would no longer be adverse audit reports regarding the lack
of documents, supervision and the whereabouts of the assets. As had been stated
earlier, such activities did not need high skill levels but merely the will to
enforce them. What was required was that in future there must be no pulling
wool over eyes and the people would respond appropriately.
Any dismissal of staff must be in terms of the labour laws which he felt were
an attempt to introduce equity to labour relations for the labour laws were
based on fairness. If human beings were afraid then there would be
inappropriate reactions, which would bring the wrong message to all concerned.
He was of the opinion that there was a fear of dealing with problems up front.
If they were dealt with at an early stage before they could be regarded as
“serious” then all problems could be solved proactively rather than reactively.
He felt that management must manage.
Wasteful expenditure to avoid under-spending was not defined and must be
identified properly in terms of the PMFA and if no action was taken then this
gave rise to major questions.
Vacancies must be treated with fairness and equity. When vacancies were
identified it took ages for the selection panels to be formulated, the
shortlisted to appear before the panels and not selected. It was this time
wasting process which led to skills in short supply being recruited by the
private sector which operated more swiftly. He suggested that when a vacancy
was identified that simultaneously with the stage of establishing the job
criteria and the decision to advertise, the selection committee be formulated
and advised of the dates when they were to meet and be required to enter such
in their diaries.
Mr Seale stated that training, capacity and performance could not be separated,
as they were all inextricably intertwined and that the effectiveness of the
training to be established so that the impact of the training could be
measured.
Mr Nols du Plessis (Chief Director: Specialist Services, Treasury) said that it
all amounted to a people problem for people were not doing what was required of
them. Chapter 10 of the PMFA set out what was required. Disciplinary procedures
were to take place in terms of the provisions of the Labour Relations Act.
There were 3 to 4000 cases of financial mismanagement where it was the
responsibility of the CFO who did not enforce regulations and no action in
terms of Chap 10 was taken. He suggested that the right or correct signals
should be sent out as a salutary lesson and any money lost should be recovered.
The Chair stated that they were happy with the presentation but felt that a
closed-door session going into a focus on departments might be beneficial and
advantageous.
Ms Letibe remarked that the presentation was of a gloomy nature but wanted to
know what the general trends might be What had been the general indicators over
2001 to 2006 was there a declined an increase in misconduct and a failure to
apply leadership.
Mr Swart wanted to know whether this would be applied to the municipalities as
well.
Ms R Mashigo wanted to know what the relationship between SAMDI and the SETA
was. She wanted to know whether SAMDI was planning to take over the SETA and
just what was the role of SAMDI?
Mr Titha commended the presenters on their diagnosis of the lack of skills and
lack of capacity. He felt that if the wrong person was selected for a training
course, this was wasteful expenditure especially since with the costs involved,
the trainee did not add value. Were the departments aware of the diagnosis?
Mr Mnchunu said that when MPs tried to assist it appeared as interference and
he wanted to know how they could work together. Additionally at the end of the
financial year no one seemed to account for the money spent.
Mr Trent felt that the Central Government was transferring money and only about
90% was being spent and that perhaps the conditions were too onerous. Further
with regard to Supply Chain Management and Asset Management he felt that they
were two sides of the same coin.
Mr Godi (PAC) remarked that the AG also provided a report outlining the
problems and he asked to what extent these reports mirrored the AG. Out of the
28 departments, which were the problem departments? He felt that a focus on
such department would be beneficial. Additionally Treasury wished to have the
PMFA applied and he wanted to know whether it was not time to apply Section
6(1)(c). He asked to what extent were all the Directors General utilised in
complying with the PMFA. With regard to fiscal dumping, how were the CFOs
monitored and observed. What measures were there to monitor training for it
could be wrong training, or the wrong person being training?
With regard to the people issues, it seemed that having the hierarchy in mind
and with compliance and management in mind, the lower the level, the less
responsibility was taken or demanded.
The Chair wished to know in terms of the division of revenue, what percentage
went to training
Mr Seale replied that the responsibility of SAMDI was not to take over from the
SETAs but to work in collaboration, especially with cross departmental issues.
The left hand of government needed to know what the right hand of government
was doing. Training was not to be regarded in the abstract but that there
needed to be a more realistic assessment of training.
Mr Nomvalo said that the general trend was that the PMFA was being adhered to
more closely each year, but of course the levels of adherence were not
satisfactory. In addition there were increasing levels of reporting required
and achieved and so the perception might be disadvantageous to the departments.
Even with regard to asset management there were increasing requirements each
year and these were in advance of the developments by the Departments and so
the levels of achievement were not necessarily deteriorating.
In terms of leadership, this was focussed on the DGs and the CFOs. There were DGs
who left everything to the last possible moment. However, they were successful
in bringing about changes of attitude among the DGs. With regard to Local
Government, he was of the opinion that they were halfway between the issues of
the past and where they should be. Last year was the first year that
municipalities had to report in terms of PMFA and although nothing was
satisfactory, there were ongoing meetings and the challenges in skills and
accountancy requirements were being met.
With regard to training he agreed that if the person who should not be on the
course was there, it was a waste and also where there was a person on training
but no plan by the department for utilising him after training. The picture was
being monitored and analysed. He has written to municipalities about the
requirements and municipalities were taking disciplinary action against non
compliers.
Wasteful expenditure instances were being analysed to see where, and why, such
arose and what could be done to minimise or obviate it in future.
Mr Mnchunu’s questions require interaction between Portfolio Committees that
have oversight functions. Supply Chain Management was a problem with political
influences which people shy away from confronting. In the municipalities
especially there needs to be a recognition of, and challenge to, the
relationship between the executive and the political authorities, as there
would always be an issue of conditions between Treasury and the departments.
Money being made available where there was no capacity to spend it, would
always be a problem but there was a responsibility to develop capacity. The
difference between Asset Management and Supply Chain management was recognised
as a weak link but it would be monitored and attended to. The problem was where
Supply Chain Management acquires, asset management supposedly preserves and
Supply Chain needed to dispose of the (missing) asset.
The problem was to get the departments forwarding the correct information
timeously to Treasury and then Treasury acting on it. It was different from
four years ago and there were now systems of analysis. The aim was to
anticipate what the AG would report, before he reported it and to install or
implement the necessary corrections instantly.
Section 6(2)(c) of PMFA allowed investigations and Treasury was trying to
anticipate, to be proactive, to obviate adverse audits from the AG.
Finally there was a forum of DGs at which mutual problems were highlighted
discussed and attempts made at solving the problems. But above all what was
required was a change of attitude among the Financial Officers.
The meeting was adjourned.
Interrogation of Auditor General’s Reports on Procurement at Departments of Justice & Trade & Industry; Interrogation of Auditor
STANDING COMMITTEE ON PUBLIC ACCOUNTS
(SCOPA)
22 August 2007
INTERROGATION OF AUDITOR GENERAL’S REPORTS ON PROCUREMENT AT DEPARTMENTS OF
JUSTICE & TRADE AND INDUSTRY; INTERROGATION OF AUDITOR GENERAL’S REPORT:
CIPRO (COMPANIES & INTELLECTUAL PROPERTY REGISTRATION OFFICE)
Chairperson: Mr T Godi (PAC)
Documents handed out
Report of the
Auditor General on an investigation into Procurement at the Department of
Justice and Constitutional Affairs March 2007
Audio recording of meeting
SUMMARY
The Auditor General had submitted a report on procurement policies and
practices at the Department of Justice and Constitutional Affairs, as well as
at the Department of Trade and Industry. Both Departments were interrogated on
issues raised in the reports.
CIPRO
MINUTES
Auditor General’s Report on Procurement Policies and Practices: Department of
Justice (DOJ)
The Chairperson stressed that the ultimate aim of the SCOPA hearings was to
ensure full accountability and to save needless expenditure.
Ms N Hlangwana (ANC) noted that the report by the
Auditor General stated that there had not been timeous
performance in the Department and she wished to know firstly what had been the
cause of such delays and secondly what steps had been taken to assure that this
would not prevail again in the future.
Adv Menzi Simelane,
Director General, DOJ, stated that there were areas of work of the Department
which had not been satisfactory, and that the Department had embarked on a
process to rectify such a situation. There were areas of Departmental practice
which were not satisfactory. However, of necessity there were numerous service
providers and their sheer number gave rise to some of the problems that had
both been encountered and reported on in this Auditor General (AG) report.
The Chairperson stated that his understanding of the questions was that he
should be speaking to the weaknesses of the staff in not doing what they were
supposed to have done, and further what mechanisms had the Department
implemented to ensure that such errors and omissions did not recur.
Adv Simelane stated that in his view there were no
staff weaknesses. Problems had arisen because of the changeover from a Tender
process to a Supply Chain Management system, and the implementation of an
effective system of planning. He added that the process of Supply Chain
Management, as opposed to a Tender process, had not been fully mapped out. The
contracts for supply to High and Magistrate’s Courts of a recording system had
expired, and further contributed to the problem. The new recording system was a
combined recording and transcription service.
The Chairperson interposed that there seemed to be a lack of planning.
Adv Simelane replied that the combined recording /
transcription service reflected technological advances and was what was on the
market.
The Chairperson reiterated that it seemed that the Department’s problems had
been occasioned by a lack of planning, since it appeared that the Department
had been taken by surprise at the ending of the contract. He wished to know
what measures had been taken to ensure that there was no repetition of this
when the current contract expired.
Adv Simelane assured the Chairperson that all
processes were being reviewed and that contracts were being monitored to
establish when they expired and when they needed review or replacement. The
Department was confident that the system had improved and there would not be
problems in the future.
Ms Hlangwana then wished to know what disciplinary
processes, if any, had been taken against employees, arising from the problems
identified in the report.
Adv Simelane stated that disciplinary processes
against employee officials had been implemented, but not concluded.
The Chairperson wished to have further details of the disciplinary processes.
Adv Simelane then replied that the change from the
Tender process to a Supply Chain Management process required a review of job
descriptions and a performance review was also being undertaken.
The Chairperson wished to know whether detailed information was available.
Ms Sandra Gomm, Chief Financial Officer, DOJ, replied
that the original appointments had been made in terms of traditional
procurement, but the new system of Supply Chain Procurement Management required
new skills. The problem was that the system taken over had been corrupt, and
the new system being implemented required reorganised structures, and filling
of new posts. Management was in the process of getting the posts filled.
Ms Hlangwana stated that she felt that this was no
justification and that systems must be created and put in place.
The Chairperson intervened, and stated that he was now apparently faced with
conflicting versions. Firstly, he had heard explanations that the predicament
arose as a result of the new systems required, yet there was also mention of
disciplinary processes against employed officials.
Adv Simelane explained that this appeared to be
conflicting, but it could be explained by the fact that although there was a
new system and new challenges, the officials had nonetheless made some
elementary mistakes and basic errors, which he felt should not have required
intervention at management level.
Ms Hlangwana expressed concern about the
transcription system.
Adv Simelane explained that the former transcription
service had only met part of the Courts’ requirements, and additionally there
were unforeseen demands in certain provincial areas from transcripts relating
to certain cases. There was continuous monitoring of the newly implemented
systems.
Ms Hlangwana noted that it had been found that five
service providers had been contracted to do work, but that there had been no
documentation as required by regulation. She asked what processes were in
place, or being put in place, to ensure compliance.
Adv Simelane replied that the aspirant contractors
did not comply with all requirements for the completing of bid documents and it
had been found that documents to support the contracts were lacking. As part of
the new Supply Chain Management system now implemented there was a point by
point checking system, and if one point could not be satisfactorily completed
then the process could not proceed to the next point. He was of the opinion
that this step by step process should greatly assist the Department, the
officials and the contractors. It was a question of document management and
abiding by the process.
Ms Hlangwana then asked whether this would be the
last time there were such questions raised.
Adv Simelane replied that although he wished to
provide a definite affirmative, his experience proved that there was always
likely to be a problem when human beings and money were intertwined, and so he
could not provide a straightforward unqualified affirmation.
The Chairperson asked whether the implementation and enforcement of the systems
would not pick up problems before they needed the attention of management.
Adv Simelane confirmed that they should do so. If
not, then he would deal with the issue. He was of the opinion that there should
be a significant improvement as a result of the systems having been put in
place.
Ms Hlangwana asked whether there was consideration
and verification of the information supplied by bidders in the Supply
Management Chain system.
Adv Simelane conceded that this had not been part of
the system previously but that it was now implemented. Additionally there were
now procedures in place for the security vetting of employees.
Ms Hlangwana drew attention to the fact that four
members had not attended the Supply Management Chain training. She asked the
reasons, and the consequence of such non attendance.
Adv Simelane replied that this was now part of the
due process implemented and that in fact all the members had attended such
courses.
Mr E Trent (DA) asked for an assurance that all the negligent officials had
been disciplined. He noted that negligence was not confined to any one area. He
asked, in the case of officials not attending courses, how many, and the
reasons for non attendance.
Adv Simelane conceded that of the six relevant
officials, four had not attended the courses in Supply Chain Management
systems.
Mr Trent drew attention to the fact that the Public Finance Management Act
(PFMA) was implemented in 1999, eight years ago. In terms of this Act the Accounting
Officer was required to implement a system that was appropriate to the
intention of the Act. Even now, eight years later, the Department was still
encountering problems in implementation. He felt the time for excuses had long
past. If two thirds of the required officials had not attended courses he felt
that this was a severe dereliction of duty by them. He also believed that SCOPA
must make an example of them, for unless this was done officials would still
continue to ignore their duties and responsibilities.
Mr Trent then referred to the fact that the audit report highlighted that there
had been 38 % over-payment of suppliers, which he regarded as wasteful
expenditure of the taxpayer’s money. He asked for comments why action should
not be taken against officials from the Department.
Adv Simelane responded that officials went on
training courses regularly and on an ongoing basis. He could not say why these
four had not gone on their required training, but he could say that
disciplinary action would be taken against them. It was not correct to say that
the Department had not attended to, nor undertaken training in compliance with
the PFMA.
The Chairperson pointed out that although the Supply Chain Management was a new
process and that there was continuous training, it
still remained a fact that the PFMA was not a new development.
Adv Simelane replied that whilst this was correct,
Supply Chain Management as a conceptual system had only been introduced from
2004 and thus was a relatively new concept requiring adjustment and adaptation.
Supply Chain Management required a differing approach from the Tender Process
System, and it was in respect of these changes that the officials had to be
brought on board with training.
The Chairperson wished to know whether there could be reference to specific
cases, and asked if there had been deliberate non compliance.
Mr Trent highlighted that this sector was not exempted from complying with the
regulations. The required system was not in place, and he did not accept the
excuses.
Mr Trent noted that the Department had paid higher prices twice. He queried
whether this should be considered a wasteful expenditure of State monies. He
also asked if these monies had been recovered or whether any attempts to
recover had been taken.
The Chairperson stressed that this Committee was particularly concerned about
wasteful expenditure of state money.
Adv Simelane replied that no attempts had been made
to recover this additional expenditure, for it was regarded as properly
incurred, since certain courts had required extraordinary urgent transcripts of
cases. The Legal Advisers were of the opinion that there was nothing untoward
about these extraordinary payments.
Mr Trent noted that out of 46 payment batches, only two had goods received
notes completed. He asked of the Auditor General whether this was general
practice.
Adv Simelane replied that samples had been taken and
that these showed that they related to urgent transcription cases.
Mr Trent then stated that he had requested the Auditor General to reply to his
question.
An official from the Office of the Auditor General,
stated that the service provider had not provided any basis upon which it was
charging. It was a principle to only make payments in terms of the relevant
contract conditions and terms. In the opinion of the Auditor General the
Department must put in place and implement a system to identify the basis of
payment.
The Chairperson said that he felt this was a fair comment.
Adv Simelane acknowledged it was a fair comment and
added that legal opinion had been sought regarding the necessity of the extra
work charged for. He had been satisfied that this was in fact required.
Mr Trent noted that there did not appear to be any supporting documentation to
prove that the services had been rendered satisfactorily. He was of the opinion
that this was a grave oversight, and opened the door to possible corruption.
The Department must ensure that the work had not only been done, but done
satisfactorily.
Adv Simelane conceded that this was so.
Mr Trent then queried why there was no action to recover monies paid improperly
or in excess of the contracted amounts.
Adv Simelane undertook to check this matter, and
assured the Members that there would be efforts to recover monies.
The Chairperson asked for the assurance that monthly reports would be provided
in this and other gray areas.
Mr Trent then referred to page 5 of the AG’s report, where he had highlighted
discrepancies in mileage. He asked what the Department was doing about these
instances, and further what it was doing to ensure it did not happen again.
Adv Simelane stated that this aspect was referred to
the relevant authority for action. He added that consideration was being given
also to possible aspects of fraud, in addition to the possibility of
Competition matters.
Mr Trent then wanted to know the amount of the monies in question.
Adv Simelane said that the full amount might well be
in the region of R40 million.
The Chairperson referred to page 8 of the Auditor General’s report in which he
had highlighted concerns raised by the Accounting Officer. He enquired of the
progress in settling or satisfying such concerns.
Adv Simelane replied that other than the matter of a
permanent appointment, which depended upon finalisation of a job description
and its formal evaluation, every other concern had received attention.
The Chairperson asked whether this had overcome the lack of trained staff.
Adv Simelane replied that people had been trained,
but had not yet been appointed to permanent positions as their job evaluations
were still to be completed.
The Chairperson asked whether this included the re-constitution of the data
base centre committees and was assured that it did.
The Chairperson asked about document management
The Director General stated that document management in the Department was now
completely under control and that the filing system was also receiving
attention.
The Chairperson sought clarification and confirmation that this included suppliers.
Adv Simelane assured him that it did.
Mr Trent then referred to verification of the documents submitted in support of
consideration for Preferred Provider status, and asked whether these were being
properly vetted and verified. The AG had referred to the fact that the
Department had not known or abided by the rules and that there had not been
proper validation of supporting documents. Mr Trent was concerned to see that
the Department would abide by the rules, and take the necessary steps against officials
who did not apply the rules properly.
The Chairperson said that the Department was taking steps, but queried whether
any steps were being taken against officials. He suggested that the Committee
await a report from the Department on that point.
Mr Trent wished to know what steps were taken to ensure compliance with the
regulations regarding preferential purchases.
The Chairperson pointed out that in his report the AG had requested the
introduction of an eight- point process, and that the Committee should await a
report on the implementation of this process.
Mr Trent and the Chairperson held differing views, but the Chairperson stressed
that the issue was whether the system did work, and that was the question the
Committee would like to have answered.
Mr P Gerber (ANC) asked how the contracts were advertised. He asked how and why
replies were expected in four days.
Ms Gomm noted that contracts were required to be
concluded urgently. After more intense scrutiny they were found to be faulty;
and cancelled.
Mr Gerber wished to know whether these cancellations and requests were done in
the printed media or by telephone.
Adv Simelane said they had been done in accordance
with standard procedures.
The official from the Auditor General stated that normally a Department must
show quotations, but if the amount of the contract was below R200 000 then a
different procedure applied from those above R200 000. If all possible
suppliers had been contacted by telephone, then this would be regarded as acceptable
if all other procedures and regulations were in place.
Mr R Mofokeng (ANC) asked whether the same procedures
were being followed, two years later, or whether the Department had changed the
procedures in this time as a result of lessons learned. If so, he asked whether
these lessons were learned only for this Department.
Adv Simelane stated that it was clear that great
attention had to be paid to the verification process. The Department was
particularly vigilant about the procedure for some processes were conducted in
bad faith.
Mr Mofokeng said it seemed to him that the service
providers obtained significant business from Government. The DOJ was not the
only department involved. He wondered if it was not possible to introduce a
widespread system to cover all departments and suppliers to government.
Mr Trent wished to revert to the payments to suppliers of transcription
services. He asked why there was a difference between the provinces’ payments,
despite the fact that there did not seem to be significant differences either
in the size of the province or the work.
Adv Simelane admitted that there were different
payments. However, the differences were based on the volume of the work in each
province. Gauteng was geographically the smallest
province, but had the largest volume of work in the department.
The Chairperson thanked the Department for its explanations. He hoped the next
report would give evidence of improved training, discipline and a strengthened
management function, so that the Department gave good service.
Procurement Policies and Practices in Department of Trade and
Industry (dti): Interrogation of AG report
Mr D Gumede (ANC) stated that the Committee
appreciated all the hard work that was being done by the Department of Trade
and Industry (dti) but it had certain specific areas
of concern. He asked whether there was now full and proper implementation by
the Accounting Officer of the Procurement Policies for Supply Chain Management
in accordance with procedures and regulations.
Mr Tshediso Matona,
Director General, dti, assured the Committee that he
personally had been aware of the shortcomings, and had personally investigated
the issues around Supply Chain Management (SCM). He had then undertaken
measures to improve the performance by the Department, and these measures were
initiated even before the report by the AG had highlighted the shortcomings. He
was certain that by the time of the next audit these issues would have been
satisfactorily attended to by dti. As far as he was
concerned, the gap occasioned by the changeover from the Tendering Process to
Supply Chain Management had been picked up and understood. Supply Chain
Management policies and procedures were being implemented fully, and were also
updated in all areas. SCM was now under the control of the Accounting Officer
for Procurement Policies. In addition a system of risk management had also been
implemented. The department was now fully compliant.
Mr Gumede then asked whether there had been any
teething problems.
Mr Matona replied that if there were, he would ask
for assistance, but thus far there were none.
Mr K Naidoo, Chief Financial Officer, dti, interposed that initially the officials had not fully
understood SCM as opposed to the Tendering Process, but with monthly meetings
devoted to SCM there were now no issues of concern emerging.
Mr Gumede posed a question relating to the comments
of the Accounting Officer on page 7 of the AG report. He asked what progress
there had been regarding the appointment of consultants, and what had been done
on the transfer of their skills.
Mr Matona replied that there was no guideline for the
appointment of consultants, and that they would be appointed as required. Their
appointment was regarded as being within the SCM discipline. There had been a
request that any appointment of consultants must be properly motivated and
their appointment was to follow the proper procedures and be in accordance with
regulations.
The Chairperson wanted a report in respect of remuneration.
Mr Matona responded that the drawing up of a
guideline for the remuneration of Consultants was work in progress.
Mr Gumede wished to know if, when considering use of
consultants, dti would give thought to the most
economic options.
Mr Matona assured Members that the cost of
consultants was at the forefront of considerations. The appointment was the
special task of the Quality Officer in the SCM procedure. A rigorous analysis
was implemented, and consultants were only appointed when absolutely necessary.
The Chairperson pointed out that he saw some contradictions. He was of the
opinion that the necessity for consultants could be avoided by the appointment
of properly trained staff, and asked for comment.
Mr Matona replied that an audit of the staffing of
the Department had been performed, based on a number of criteria. However, this
had not included certain criteria relating to the Tender Committee. Subsequent
developments revealed these criteria to be essential, and they had been
included to try to eliminate the weaknesses.
Mr Naidoo added that requirements had been placed
before the Tender Committee, but that these had now been changed to comply with
the guidelines imposed upon the dti and all other
government departments. He considered that there was compliance.
Mr Gumede then asked whether the changes introduced
in the SCM, especially for consultants, meant in effect that the decision
making was at a higher level of authority than before.
Mr Matona responded that when there was a request for
the appointment of a consultant, the Director General must be fully informed of
the reasons and the standards or criteria upon which the decision was made.
Only after approval by Mr Matona himself would the
matter proceed further.
Mr Gumede then asked for an explanation on the
current staffing levels and the vacancies, if any.
Mr Matona replied that as at March 2007 two-thirds of
the vacancies had been filled, so in theory there was a 60% reduction in the
vacancies listed in the report. However, because of staff turnover and internal
promotions the percentages had not really changed to that extent. He pointed
out further that when an internal promotion had been made the staff complement
had not been changed, but the new vacancy then arose at a lower level.
The Chairperson commented that internal promotions did not seem to assist in
reducing the vacancy rate, but merely placed the vacancies at another level.
Mr Matona conceded that this was so. He added that
this is a challenging issue, but it was being addressed by the Department.
Recruitment personnel had been engaged to secure the necessary skills, but the
pool from which qualified individuals were sought was highly competitive.
Recently the Department, having gone through an intricate process to select a
certain candidate, was told that he decided to accept an appointment elsewhere.
Dti was targeting Masters students
at the universities, but it was acknowledged that this was a complex problem.
Mr Gumede remarked that staffing was a major problem,
and internal promotions did not resolve the low level vacancies. The matter was
compounded by salary levels.
Mr Gumede wished to know whether any possible
conflicts of interest among staff and procurement members were considered
before tenders were awarded.
Mr Matona responded that other than the incident
referred to in the previous audit report there were, to his knowledge, no
conflicts. However, dti was very conscious of the
possibility of conflict and this was constantly in the forefront of its mind.
Mr Gumede asked whether the unfavourable comments by
the AG about the lack of consistent application of the Preferred Procurement
Policy were being addressed.
Mr Matona replied that the dti
had corrected the weaknesses highlighted, was implementing an improved scoring
system for Black Economic Empowerment (BEE) and was applying it, and therefore
was confident that dti was complying with
legislation.
The Chairperson remarked that in the report there was reference to the CFO
being a consultant and not holding a permanent position.
Mr Matona pointed out that Mr Naidoo
had been appointed, and that dti was no longer using
consultants in the field of financial management.
The Chairperson wished to know whether dti was
working on skills transfer.
Mr Matona assured him that this was happening.
A member sought clarity on the definition of consultant, as he wondered whether
dti was applying this term consistently with the
definition in the PFMA.
Mr M Stephens (DA) referred to page 8 of the report, and the problems surrounding
non-signature of a contract with a consultancy consortium.
Mr Matona stated that the contract had now been
signed.
Mr Stephens asked how many consultants had been engaged without signed
contracts, and whether there were still any consultants without signed
contracts.
Mr Matona replied that there had only been this
particular instance. Since then all consultants had signed contracts and no
consultants were engaged without signed contracts.
Mr Naidoo elaborated that in this instance dti had engaged the consultant and allowed it to start
work. Dti then wished to expand the requirements, but
the consultant objected to extension of the terms and conditions and had
refused to sign until the parties had reached concurrence on the question of
the expanded duties and agreed extra remuneration. It had signed the contract
once these points were clarified. This had been an exception to the general
rule.
Mr Stephens noted paragraph 5.2.2 of the report, stating that the contracts
were signed, and a project manager was overseeing the work, for which payment
was made on completion. He asked what mechanism was in place for validating the
quality of the work, and for assessing whether the work done served the
purposes. It seemed to him that too much latitude was allowed to the project
manager and the consultant, who could both be too easily satisfied.
Mr Matona replied that it was left to both the
consultant and the project manager to satisfy themselves as to the standard and
necessity of work performed. The project manager was also required to evaluate
the standard of the work and to sign off the work before the payment was made.
Random checks were made throughout the continuation of the work, as well as
internal audits, to satisfy dti that there was proper
validation or verification.
Mr Stephens asked at what stage the standard of the work required of the
consultants was established.
Mr Matona replied that when a need for consultants
was established, the terms of reference would be clarified, and there was
approval and monitoring of the work performed by the project manager concerned
Mr Stephens commented that the standards of reference need to be established
and agreed in advance, and compliance with those terms of reference must be
monitored, otherwise dti could face litigation. He
felt the requisite standard of work should be set out clearly in the contract
documents.
Mr Matona emphasised that he was describing the
current practice. This was set up as a result of the disputed contract, which
was now regarded as a learning step from which current practices and procedures
emerged. The dti endeavoured at all times to spell
out, upfront, the required needs and standards. He accepted the points made.
Mr Stephens appealed to the dti to rectify all areas
where the AG had stated that there was no, or insufficient, compliance with
regulations and protocols.
Mr Matona stated that this had been done.
Mr H Bekker (IFP) was concerned that there was
insufficient monitoring and evaluation of the work done by the consultants. He
would regard the lack of signature of the consultant’s contract as negligence
and he wondered who had paid for the job, and whether the person neglecting to
ensure that there was a signature had been identified
Mr Matona noted that this was a matter for an
internal audit.
Mr Naidoo clarified that after the essentials of the
contract had been agreed upon, dti had wanted to
extend frame of reference. The consultant declined to sign until these aspects
were properly sorted out. As certain of the work was required urgently, the
consultant had started this work, but had not attended to any of the work
relating to the extra requirements. The contract had been signed once all terms
had been agreed upon. All parties were aware of the situation at all times.
Mr Bekker addressed the question of the Preferential
Procurement Policy. It seemed that one contractor had, seemingly arbitrarily,
benefited by the departmental addition of between 3 and 20 points to its bid.
He wished to know who had been responsible for this addition and whether it
possibly amounted to corruption.
Mr Matona replied that it was obviously a matter for
concern, but that he was not in a position to say that it had been corruption.
He did not know off hand, who had been the contractor. He said that there was
sometimes an attempt to assist a contractor who seemingly was qualified for the
contract but had not fully completed all tender forms because of lack of
understanding. The Department tried to cover all areas and was upfront with its
requirements that contractors qualify in terms of broad based black economic
empowerment (BBBEE), but notwithstanding these attempts aspirant contractors
often did not complete the draft contract forms clearly. In this instance there
had been R2 million wasted expenditure.
Mr Bekker wished to know whether the contractor
concerned had taken legal action against the Department.
Mr Matona replied that there had been no consequences
arising from this incident, which had taken place a long time ago.
Mr Bekker expressed the view that the Department had
been extremely fortunate.
Mr V Smith (ANC) had concerns about the criteria upon which the consultants
were selected or appointed, and further asked if they were they appointed with
the transfer of skills by consultants in mind.
Mr Matona replied that the skills and transfer of and
expertise of the consultants was an issue that had attracted different
interpretations, but there was always reference back to the guidelines of
Treasury and Government, and dti would follow new
policies as they were updated. These guidelines around SCM had been issued in
2004, and dti had changed its policies and
documentation after that.
Mr V Smith said that the cost of R2 million could in fact have been a cost to
the Department and this situation was untenable. He would like the persons
responsible to be identified.
Mr Matona agreed that the irregularity itself was not
acceptable. However, an identification would involve
another costly forensic audit, and he believed this would amount to throwing
good money after bad. He firmly he believed similar instances would not arise
again as firm controls were now in place.
Mr Smith agreed with the policy of not throwing good money after bad. However,
he wished to stress that this mistake had been inexcusable. He urged all
departments and sections within the dti to take
cognisance and be aware of the dangers.
Mr P Gerber (ANC) asked what would be done to overcome potential conflicts of
interest.
Mr Matona replied that every action regarding SCM
tenders was taken in terms of guidelines and procedures.
Mr Naidoo added that if there was a declaration of a
conflict of interest by a member of the procurement committee this member was
asked to recuse himself and
take no further part in the process. There was stricter vetting of persons
appointed to any function where there might be a conflict of interest.
Interrogation of qualified audit reports of Companies and Intellectual
Property Registration Office (CIPRO)
Mr Keith Sendwe, Chief Executive Officer, CIPRO gave
the background to the qualified audit report and adverse comments made by the
AG. He said that these events had occurred before his own appointment in August
2006. Since his appointment he had been endeavouring to turn the situation
around and had the benefit of the assistance of Mr Renier
du Toit, who was appointed
as Chief Financial Officer of CIPRO from January 2007.
Initial investigations revealed that the problems had been occasioned by three
serving officials, against whom disciplinary proceedings were being taken, Another six officials had left the employ of CIPRO, but
investigations against them were proceeding in conjunction with the National
Prosecuting Authority (NPA).
He stated that a SCM (Supply Chain Management) process had been installed and
after intensive training it was working well. Further, there had been an
intensive evaluation of the revenue generated by CIPRO. All items received were
now recorded in the general ledger. There were extensive checks to ensure
compliance with regulations and procedures. There were quarterly internal
audits, an asset register had been established and was updated monthly, and
performance agreements were drawn up for every member of CIPRO management. It
was expected that the budgetary requirements would be achieved by March 2008.
In addition there were to be audits of the Information System and where
necessary IT equipment was being replaced. Above all quarterly reports were
being submitted to SCOPA.
Discussion
Mr Trent was concerned by the fact that the CEO had stated that everything was
working “quite” well.
Mr Sendwe asked to be excused a degree of modesty by
use of the adverb “quite”. He assured SCOPA that everything was being attended
to in terms of Treasury regulations, and he hoped that there would be no
problems or questions in the future.
Mr Bekker stated that before coming to the meeting he
had consulted the Website operated by CIPRO. He was disturbed both by the
outdated and sparse information available on this site. He had searched for
details about close corporations with which he was familiar, and had received
some information about the members, but when he had cross referenced by the
names of such members he had encountered a blank.
The CEO conceded that there were still operational difficulties with the
website, which had been updated from 1 January 2007. He said that there were
delays of a week for updated information on close corporations and three weeks
for information on companies. He stated that CIPRO was working towards making
website information about close corporations available within 24 hours, and information on companies available within 48
hours.
Mr Smith congratulated the CEO on the turnaround but wished to have assurance
that those persons involved in the disciplinary hearings would, if appropriate,
be provided with written warnings, and that any appropriate results would be
referred to the NPA for the necessary action. Moreover he sought an assurance
that very severe action would be taken against anyone involved in similar
actions in the future, whether high or low level officials. He finally asked
under what guidelines the SCM principles were being applied.
Mr Sendwe assured Members that even the highest level
officials would be included in the investigations and that, where necessary,
applicable reports would be put in writing and forwarded to the NPA. With
regard to SCM everyone including management had attended training. All persons
concerned with procurement had been verified and validated in regard to the outside
interests, and copies of the information were affixed to the records of every
meeting concerning procurement. Every procurement decision followed this
procedure, was submitted to the CFO for approval, and finally came to him as
CEO for ultimate approval.
Mr Trent (DA) accepted that there had been some progress in reforming CIPRO. He
emphasised that CIPRO played a very important role in the wheel of South
Africa. He asked if CIPRO’s management were satisfied
with their registration times, and asked if they were investigating whether the
product could be improved.
Mr Gerber said that he too had gone into the website and still did not find the
information or the operations satisfactory. He requested that this be looked
into.
The Chairperson stated that other matters could be dealt with in the Annual
Report and was of the opinion that much still required to be done. There was
still a problem with the computer programmes and hardware. CIPRO should
concentrate on improving skills, and to attempt to match, if not better,
similar institutions elsewhere in the world.
The meeting was adjourned..
Fidentia / Transport Education Training Authority (Teta) Investment: interrogation
PUBLIC ACCOUNTS STANDING COMMITTEE
21 August 2007
FIDENTIA /
TRANSPORT EDUCATION TRAINING AUTHORITY (TETA) INVESTMENT: INTERROGATION
Chairperson: Mr T Godi (PAC)
Documents handed out:
Presentation by
Transport Education Training Authority
NOT RECORDED
SUMMARY
The Committee permitted the Transport Education Training Authority to give
a short presentation on the background to the investment that it had made with Fidentia. The Financial Services Board had become aware of
and notified the Authority of the misappropriation of the funds invested. The
Committee interrogated the circumstances surrounding the investment and asked
upon what criteria the investment in Fidentia had
been made, the stage at which TETA had become aware of a possible misappropriation,
and the steps taken for recovery of the funds before appointment of the
curators. Further questions were asked around how TETA perceived its fiduciary
duty with regard to this and other investments, the nature of any other
investments and the reasons why investments were being made, apparently
contrary to its prime mandate. The Committee also asked what disciplinary
actions had been taken against Board members and employees of TETA, and
interrogated the possibility of recovery of the funds.
MINUTES
Interrogation of investment by the Transport Education Training Authority
(TETA) with Fidentia
The Chairperson welcomed the delegation and Members. He indicated that in view
of the close inter-relationship between the Department of Labour and the Sector
Education and Training Authorities, including the Transport Education Training
Authority (TETA), he would permit a short presentation, although this was not
usual in this Committee.
The Chairperson also expressed his concern that the curators of Fidentia were not present. He indicated that when a
parliamentary committee such as SCOPA required persons to appear before it,
they should do so, no matter that they were only indirectly concerned with the
subjects under discussion. If necessary he would utilise the parliament's
powers to enforce attendance.
Presentation by Transport Education Training Authority (TETA)
Mr Van Mkosana, Director General of the Department of
Labour, thanked the Chairperson for the opportunity to be present.
Mr June Dube, Chairman, TETA, stated that a written
presentation had been tabled. It was not possible to provide more specific
details than were contained in this overview. Other processes and
investigations had been put into operation after the emergence of the scandal,
and subsequent reports would contain details of the results of these
investigations.
Dr Johan de Beer, Acting CEO, TETA, noted that the TETA had the function of
providing education, training and quality assurance on training in the
transport sector.
Mr Dube stated that Fidentia
had been placed under interim curatorship in February
2007 and the curatorship order was made final in
March 2007. The executive officers of Fidentia had
then been arrested. The curators appointed by the Court had called for the
attendance at a meeting of all involved with Fidentia,
whether as creditors, debtors or holding executive positions in Fidentia, and subsequent to their enquiries had begun a
process of liquidating the assets of Fidentia, in
particular the movable assets. A further meeting with the curators would be
held on 24 August, when further interim reports were expected and it was also
hoped that there would be further clarity on the situation.
Mr Dube stated that TETA began internal
investigations, and held an extraordinary meeting of the TETA Board on 24
February 2007. As a result of this meeting the auditing firm KPMG had been
mandated to perform a forensic audit of TETA. This had been followed up on 3
May 2007 with a progress report and a full report was produced on 7 June 2007.
HE requested that the full content of the report should not be publicised as
this could well hinder, if not jeopardise, further ongoing investigations.
The Chairperson agreed, and appealed that there should be no leaks of the
report.
The Chairperson asked whether any disciplinary steps had been taken against any
TETA employees, and what the status of any disciplinary measures might be.
Mr Dube continued that KPMG had agreed to co-operate
with all other bodies, especially the Scorpions, in the ongoing investigation
of Fidentia. At this stage it was not known what
precise role the CEO had played, other than that he had been involved in
placing the investments. He had been placed on special leave pending further
investigations and was not present at the premises nor
in contact with the other employees of TETA.
Dr de Beer conceded that to date it had been established that R177 million had
been lost from funds under the control of TETA. However, he claimed that TETA
was still able to perform its mandate. Currently TETA was working in
co-operation with the Department of Transport to develop programmes and skills
in the transport sector, in readiness for round-the-clock transport facilities
throughout the 2010 Soccer World Cup in all places connected with it. It was expected that at the end of the
present financial year there would be a balance of R120 million available for
the usual activities of TETA, notwithstanding the loss incurred by the
investment in Fidentia.
Mr Van Mkosana, Director General, Department of
Labour, said that from that Department's point of view there was close
co-operation with the National Treasury regarding the Fidentia
events. The Department was also in co-operation with the curators for the
recovery of the monies invested. It was also involved in implementing revised
systems and processes to prevent recurrence of such mishaps. This was being
extended to incorporate the other Sector Education and Training Authorities (SETAs) but there was a need to strike a delicate balance
between administering and monitoring the situation while not interfering in the
activities of the SETAS. If necessary,
administrators could be appointed.
Discussion
A member of the Committee stated that in his view it was totally unacceptable
that the curators of Fidentia had not responded to
the request for their attendance at this meeting. He also felt it was incorrect
that TETA was not being regarded as a prior creditor, especially in view of
media reports that the creditors were contemplating a payment to creditors of
20c or 40c in the rand. Additionally he was concerned that the process was
protracted. He wished to hear from the curators why it had been decided to
adopt a curatorship rather than an insolvency
procedure. He also would like to know the final anticipated costs of the curatorship, as it must be remembered that public money was
at stake. He also thought the curators could be more transparent in their
public statements.
The Chairperson reiterated that of prior importance was clarity on this matter,
and confirmation that members of the Boards of the SETAs
would be working in the best interests of the stakeholders, who were the
public.
Mr Mkosana stated that that was what the Department
of Labour was attempting to do.
The Chairperson then asked that the questions and answers should confine
themselves to the narrower issues. SCOPA required an explanation of the
incident, as opposed to the TETA policies. It was not so much concerned with
what had happened as to elucidate how it had happened and who was going to take
responsibility and accountability for the decision to invest in Fidentia, which had no track record, was largely unknown,
yet was offering rates over 2% more than established investment agencies. There
were questions surrounding the involvement of the Board in the series of
events.
Mr Dube said that these points had been explained,
and the events should be examined in the light of the guidelines provided by
the National Treasury (NT) and the guidelines and policies adopted by the TETA
Board.
Mr V Smith (ANC) said it seemed that the NT policies were adapted by the Board
and applied as an investment policy. In terms of these policies, all proposed
investments in excess of R100 million were to be debated and voted on by the TETA
Board. However, this appeared to be the current policy, which amounted to
shutting the stable door after the horse had bolted. He noted that ultimately
the Board held responsibility and must be accountable. The role of the Chief
Executive Officer (CEO) was being investigated, but he personally felt that the
CEO must not be made a scapegoat. The CEO would doubtless claim to have been
merely part of the entire process. The Board had apparently approved the
processes, which seemingly had been followed.
He took note of the fact that the CEO had been effectively suspended on full
pay, and the process, however long it took, was presumably following its
course. Whatever the outcome of that would be, there would be some unhappiness.
The Chairperson asked Mr Dube, as leader of TETA,
whether he accepted accountability for the investment in Fidentia.
Mr Dube replied that it was the Board in its entirety
that was accountable.
The Chairperson agreed that it seemed that responsibility fell squarely on all
Board Members. He asked whether the Members of the Board had applied their
minds to the questions before them at the time of the investment, as it seemed
to him that they had not done so properly and fully. The crisp question was how
the Board had approved of the investment in Fidentia,
and whether that approval was in line with approved policies. guidelines and regulations.
Mr Mkosana stated that there was a difference in
policy and regulations for investments above and below the figures of R100
million.
Mr Dube said that the investment sub committee had
reported to the Board on the benefits to be secured by investing in Fidentia. The finance sub Committee of the Board had
considered the ramifications. The full Board of TETA had confirmed the
investment in Fidentia. He noted, however, that the
TETA Board as constituted in 2003 differed from the present TETA Board.
Mr Dube stated that the disciplinary process against
the CEO would be
a long process, in order to comply with all relevant requirements, and the TETA
Board awaited the response from the CEO, who could use every legal right
afforded to him in terms of legislation.
Mr George Strauss, TETA Board Member, intervened to point out that at the
time of the investment TETA had a Council and not a Board, and that the Council
had a different composition and powers. Additionally he felt that the outcome
of the KMPG and other enquiries were needed before taking any further action.
Mr P- Gerber (ANC) wished to have clarity on the differences in ratios between
short term, medium term and long term investments in 2006. With regard to
medium and short term investments, he asked what institutions had been used for
investments and what percentage had been placed at which institution. He also
asked for an indication of what percentage of investments, whether short,
medium or long term, had been directed to Fidentia.
Mr Dalpat Naran, CFO, TETA,
stated that all short term investments had been honoured.
Mr Gerber said that this did not answer his question, which had called for
specific information.
Mr Naran then replied that R177 million had been
invested in Fidentia. After addition of interest this
was expected to rise to R251 million. Fidentia had
received 60 % of TETA’s investments.
Mr Gerber asked whether this meant that 40 % had been invested with other
institutions.
Mr Naran confirmed that the other money was held with
Standard Bank
Mr Gerber said that he was not interested in current or cheque accounts, but
merely wanted information on TETA's investments.
Mr Naran conceded that the only investment was
through Fidentia, the other monies being TETA normal
funds.
Mr D Gumede (ANC) wanted to know whether the TETA
investments were done in terms of Treasury regulations and upon what criteria
the decision to invest in Fidentia had been taken.
Dr de Beer said that TETA was required to make two types of payment to its
creditors in terms of its mandate. Mandatory payments were initially made twice
a year but they were now made quarterly, when the relevant parties notified TETA
that there had been compliance with the training requirements, thus triggering
the payment in terms of the contractual obligations. These payments fell
outside the normal operating expenses. The second type of
payments were discretionary payments, which were made twice a year.
These were termed "discretionary" to cover payment for producing
persons with scarce skills.
The Chairperson asked whether such payments came from the general kitty.
Mr Gumede wished to know at what point such payments
became due.
Dr de Beer stated that the payments would be made on satisfactory conclusion of
the relevant training programme.
Mr Gumede wished to know the criteria for
satisfactory completion of the programmes.
Mr Naran replied that these were the same as they had
been in the past. On conclusion of the programmes, the mandatory payments fell
due.
Mr E Trent (DA) wished to know about the accountability of the TETA Board
Members. The
investments might have been made in terms of policies and
regulations, but he would like to know who bore the final accountability or
responsibility. He also asked what precisely the TETA Board had done in
relation to the investments when notified by the Financial Services Board (FSB)
that Fidentia seemed to be questionable. He asked how
the TETA Board had reacted to the information from the FSB and what damage
control measures had been implemented.
Mr Dube answered that the Board's mandate was to
invest with the "big four": South African banks. There were no
supplementary documents, however, and what Fidentia
had been reporting was taken at face value.
Mr Trent noted that he was essentially saying that Fidentia
was producing untruthful reports. He reiterated that the FSB had reported its
concerns about Fidentia in November 2006, and he
asked specifically when, if at all, had TETA done
anything in response to those concerns.
Mr Strauss said that Fidentia had been placed on one
side as soon as TETA was aware of this.
Mr Trent asked whether copies of the documentation from Fidentia
were available.
.
Mr Strauss stated that there had been full compliance with the requirements,
insofar as it was understood that the investment was being done through the
A-rated banks. However, Fidentia did not do what it
had undertaken to do, and also did not report correctly on what it was doing.
The TETA Board had accepted at face value the information presented by Fidentia.
Mr T Mfokeng (ANC) referred to the forthcoming
meeting with the curators, and asked for elucidation on the purpose of the
meeting. Additionally he enquired whether the Board of TETA had specifically
applied its mind to the subject of investment in Fidentia.
Dr de Beer replied that scheduled meeting with the curators of Fidentia was intended to ascertain the amount, and the time frame, of
payments to be expected arising from the curatorship
work of the curators. A firm of attorneys had been appointed to work on behalf
of the TETA Board with the curators.
Mr Trent was of the opinion that there were still questions to be answered by the
TETA Board.
The Chairperson referred back to a previous comment, and wished to know what
was the difference between the Board and the previous Council for
TETA.
Mr Dube replied that he had been a delegate from a
Trade Union, and had served on the Council of TETA in that capacity. .
The Chairperson replied that this explanation did not distinguish between the
duties and obligations of a Council and a Board member.
Mr Dube said that a Council was set up while a Board
was appointed, in terms of legislation, with more extensive powers.
The Chairperson noted this answer. He said that it seemed that the Board had
made a decision based on an incentive to invest.
Mr Dube stated that the investment decision had been
taken in accordance with policies and guidelines. If the amount to be invested
was less than R100 million the decision could be made by the CEO, with the
support of the Board. If the amount for investment exceeded R100 million then it was
required that the whole Board meet and consider the options.
Mr M Stephens (DA) wished to know what arrangements there had been for
obtaining access to the invested capital, prior to maturity of the investment.
Mr Naran stated that the minimum investment period
was 12 months, and the investment period ran from November to November.
Mr Stephens wanted to know how this affected the liquidity of the investment.
Mr Naran stated that the investment was required to
be with the "big four" of the AAA banks and that there were 30 day,
60 day and 90 day periods during which notice could be given for the repayment
of the investment.
Mr Stephens asked whether this meant that all the capital could have been
withdrawn after 30 days.
Mr Naran said that in terms of the contractual
arrangements R35 million could be withdrawn after 30 days, and R65 million
could be withdrawn after 60 days.
Mr Stephens wished to know what action had been taken by TETA in November 2006
when the FSB had first alerted TETA to the possibility of complications. He
also asked whether any actions had covered the full R251 million expected from
the investment. He further enquired when the Council was converted to a Board.
Mr Dube said that he had only become involved in
2004. The Board had not been told that the investment was in Fidentia. It understood that the money was invested in the
major banks. Quotations had been placed before the Board. These showed an
expected 8% return from Standard Bank, 8.5% from ABSA Bank and 10,5% from Fidentia. No alarms were
raised at the time about the additional 2%. R177 million capital was invested,
and the expected return at the end of the investment would have increased this
amount to R251 million.
Mr Naran elaborated further, saying that the R251
million figure was a year on year end result. Although
the expected contribution to the balance sheet was R251 million, the capital
paid to Fidentia in this investment was in fact R174
million. An amount of R15 million, which fell below the R100 million mark for Board approval, was paid to Fidentia
by TETA in September 2003.
Mr Mfokeng said he was concerned about the CEO being
on paid leave until his disciplinary hearing, as he felt that this was misuse
of public money. He believed that if the payments to TETA extended past August
2007 the Committee might well later have a problem with the Board of TETA.
Ms N Hlangwana (ANC) asked why these steps had been
followed.
Mr J Dube said that because of the magnitude of the
amount of money involved and the questions raised, it would be necessary for
the disciplinary proceedings to be procedurally and factually correct.
Therefore the TETA Board had been painstaking in their investigations and
preparation for the hearing. The charges were served on the CEO the previous
Saturday and the hearing was set down for the forthcoming Friday. It was
unknown at this stage whether there would be any applications for
postponements.
The Chairperson was pleased to hear of the careful approach to the disciplinary
proceedings.
Mr H Bekker (IFP) enquired whether the R177 million
was paid as one amount or a number of smaller amounts.
Mr Naran said that R71 million was paid over in April
2003, R50
million in July 2003 and a further R50 million in April 2004.
Mr Bekker asked if the whole Board had approved of
the investments, whether any Board member had expressed reservations or had
voted against such investment. He asked if the decision to invest was
unanimous, and, if not, who had voted against it.
Mr Strauss responded that no one had been opposed to the investment, as it had
seemed to be a good investment and since all the preliminary vetting of Fidentia had been favourable.
Mr Trent was concerned that the warning from the FSB in November 2006 seemed to
have been ignored.
Despite the fact that money could have been withdrawn after 30 and 60 days, as
stated earlier, nothing had been done to withdraw from the investment with Fidentia. He asked whether the Board Members had not heeded
the warning, and whether they had conducted a probity examination of Fidentia.
Mr Strauss said that these investment were placed in
2005 and Fidentia was only investigated in 2006.
Mr Stephens enquired as to the opinion of the State Law Advisers on the
differences in the implications between curatorship
and liquidation of Fidentia. He commented that 20c or
40c in the rand seemed a very low payment, and commented that the curatorship might well be protracted. He did note that a
firm of attorneys had been appointed to assist.
Dr de Beer said that there had been discussions with KPMG and the attorneys
regarding the differing benefits offered by curatorship
or liquidation, and the best approach to adopt. The decisions were taken in the
best interests of TETA. It now seemed that Fidentia
had laundered money but the exact details were not yet known. It had been the
advice of the legal advisers to proceed with an application for curatorship rather than liquidation.
Dr de Beer added that the lawyers had been hired on a contingency basis, and
they would be paid 2.5% of whatever amount was recovered. If nothing was recovered
then they would receive nothing.
The Chairperson pointed out that this did not in effect change matters, as TETA
would still not be repaid.
Dr de Beer stated that whatever contingent fee would be paid to the lawyers, if anything at all, was not included in any budget
and would not therefore affect TETA's operational
costs. If anything was recovered, then the payments to the lawyers would be
deducted from that money.
Mr Gerber was concerned that any amounts paid to the lawyers could amount to a substantial
figure, and he pointed out that this money would be money that TETA did not
benefit from.
Dr de Beer said that there would be greater clarity after the forthcoming
meeting with the curators.
Mr Mofokeng was of the opinion that in future TETA
should look to its history in investing, and properly assess the risks
associated with the investment and the investment advisers before embarking on
any action.
Mr Strauss said that whilst the investigation processes and the disciplinary
actions were long and involved, they could not be short circuited. Despite the
opinion of SCOPA that the Board was responsible, he stressed that the members
of the Board had taken the decision in good faith on information presented.
Mr Dube added that there would be greater clarity on
many issues after the hearings, disciplinary procedures and criminal
prosecutions.
Mr Stephens wished to know where the suggested figures of 20c or 40c in the
rand came from.
Mr Dube said that these amounts had first been
provided at a meeting with KPMG in February 2007 .
Dr de Beer added that these might not be the final figures. Although they were
mentioned at an early stage, the final outcomes of the curatorship
investigation would determine the amounts.
The Chairperson stressed that he wished the SETAs to
deal with their money in the way intended, and that the benefits should
ultimately go to the widows and orphans who had suffered. He reminded those
present that the ultimate aim was a better life for all.
The meeting was adjourned.
Interaction with the Minister of Minerals & Energy on SCOPA 62nd Report 2005: SA Diamond Board
STANDING COMMITTEE ON PUBLIC ACCOUNTS (SCOPA)
12 June 2007
INTERACTION WITH THE MINISTER OF MINERALS AND ENERGY ON SCOPA 62ND
REPORT 2005: SOUTH AFRICAN DIAMOND BOARD
Chairperson: Mr N Godi (PAC)
Relevant documents:
Scopa 62nd Report 2005: South African Diamond Board (Appendix 1)
Business Report news article (Appendix 2)
Diamonds Act 29 of
2005
Audio
Recording of the Meeting
SUMMARY
The Committee had intended that the meeting should bring closure to issues
pending since 2005. The attendance of the Minister of Minerals and Energy was
therefore considered crucial. Meetings had been postponed a number of times as
a result of the Minister’s non-attendance, and the Committee was becoming
despondent about the delay in reaching finality.
The export of diamonds without the payment of export duties was a point of
contention, particularly as local beneficiation was government’s main
objective. The Diamond Act made it clear that diamonds should only be exported
once local avenues have been exhausted, but the conclusion of an agreement
between De Beers and the Diamond Board had led to the export of tons of
diamonds. There was no documentary evidence of such an agreement between De
Beers and the Diamond Board. The only evidence that existed pertains to a Board
resolution taken in 1992. There was a request for De Beers to be summoned to
appear before SCOPA, so that the matter could be clarified.
MINUTES
Ms A Dreyer (DA) expressed her dissatisfaction at the absence of the
Minister. She did not want the Committee to create the impression that
non-attendance was viewed lightly. In the past, meetings with the Minister had
been postponed on a number of occasions, and with a wide range of excuses from
the Minister’s office. This should have been the last of the series of efforts
to engage the Minister. Some people had heard the night before that the
Minister would not be attending, but the majority had only been informed that
morning. If the Minister had given timeous notice of her non-attendance, the
meeting could have been postponed as its main purpose was to hold discussions
with the Minister herself.
Mr D Gumede (ANC) said that it was unfortunate that the Committee was not
informed well in advance, but that the matter on the table was whether or not
the accounting authority could account fully with regard to the matter before
the Committee. If the accounting authority present could account fully in the
absence of the Minister, they should be allowed to do so. If the Committee was
dealing with stewardship of the Department, the correct accounting authority of
the Department was indeed present. The Chairperson of the Diamond Board was
also present, and he was the correct accounting officer for the Diamond Board.
If any member of the delegation was of the view that they could not account for
certain matters, they should say so. If the intended discussion pertained to
changes in policy, the meeting could not proceed without the Minister. However,
if the matters to be discussed did not relate to changes in policy direction,
the delegation present could provide an adequate account.
Mr E Trent (DA) said that he did not feel the delegation could account for the
most crucial issues.
Mr Sandile Nogxina (Director-General, Department of Minerals and Energy) said
that he would like to submit two apologies. The first apology was for his
absence from the previous hearing, due to circumstances beyond his control. His
absence was definitely not out of disrespect, as he had a high regard for
parliamentary committees, and many people could attest to this.
Mr Nogxina said that he also wished to extend an apology on behalf of the
Minister, Ms Buyelwa Sonjica, who had taken ill during last week. He regretted
that the Committee was not informed in time.
The Chairperson said that the meeting was being held from 09h00 to 10h00 because
the Minister’s office had indicated that she would be available during this
specific time. He did not want to spend too much time on discussing the
Minister’s non-attendance, and the Committee should proceed with interaction
with the delegation.
Mr P Gerber (ANC) said that there were certain matters that had been dangling
in the air for a long time, and that finality was desperately needed. He
referred to a briefing document from the Minister and said that diamonds valued
at R820 million were sent to London. This shipment was not accompanied by
payment of export duties. There was no documentary evidence from the Diamond
Board stating that it had authorized such a large shipment. If one took the
basic weight of a carat, then it would be 3.99 tons of uncut diamonds that had
left the country. The export of uncut diamonds had come to about R1.8 billion
each year, but this amount had risen to R4, 6 billion in 1992.
Mr Nogxina said that the root of the problem being faced could be found in the
interpretation of the provisions in Section 39 of the Diamonds Act. Section 63
of the Act was clearly designed as a carrot-and-stick mechanism to encourage
diamond producers to fulfill their obligations in terms of local beneficiation.
Section 63 further required producers to offer their diamonds to local cutters.
If there was no buyer, the producer would have to enter into an agreement with
the Diamond Board, subject to the provisions of Section 39 of the Act.
According to this section, once the Board is satisfied that the efforts aimed
at local beneficiation had been exhausted, the Board could then allow for the
diamonds to be exported without the payment of export duties. However, the Act
itself did not describe the formalities on how agreement should be entered into
between the parties concerned.
Mr Nogxina said that examination of the Board records showed that some of the
agreements, from 1998 up to 2004, were indeed written up in accordance with the
provisions of Section 39. The Department could not, however, lay its hands on
any copy of such agreements before 1998. The closest thing that was found was
the Board resolution of 3 December 1992. Interestingly, this Board
resolution contained what appear to be the terms and conditions of a new
agreement which was entered into between the Board and De Beers. It was in
terms of this Board resolution that all unpolished diamonds produced by De
Beers would be exported free of export duties.
Mr Gumede asked whether the South African Revenue Service (SARS) was not
concerned by the non-payment of export duties.
Ms C Smit (Specialist Tax and Legal Advisor, SARS) said that SARS has no legal
standing on the issue, as it has never been mandated to collect export duties
on uncut diamonds.
Ms Smit that the law did not give precise and specific directions on how
diamonds should be offered locally, and confirmed that it was not clear on the
nature of agreements to export diamonds.
Mr Nogxina said that the lack of clarity in the Bill with regard to these
issues had led to attempts to tighten up the law. The Diamond Export Levy Bill,
which was initially called the Beneficiation Bill, was currently before
Parliament for consideration.
The Chairperson asked for an account of diamonds that appeared to have been
looted out of the country by De Beers.
Mr Trent said that the Committee should refrain from terminology such as
“looted” as the issue being discussed was a legal matter.
Mr Gerber compared the situation to what took place in Namibia in the period
just before its independence, when uncut diamonds were also exported for
stockpiling.
Mr Nogxina said that an untenable situation had arisen. Section 3 of the
Diamonds Act enjoins the Minister to appoint a Board whose members were mainly
drawn from the diamond industry, which the Board was supposed to regulate. A
clear conflict of interest has been created where the referee and the player
was one and the same person. Several legal opinions have been sought on the
matter, and a number of investigations have been carried out in relation to the
provisions of Section 39. In June 2001, the Chairperson of the Diamond Board
was given a specific mandate from the Minister to clean up the Board, in light
of the conflict of interest aspect.
Mr Nogxina said that the Committee could summon any entity to appear before it.
The Committee should therefore summon De Beers, and request a copy of the new
agreement that was entered into between De Beers and the Diamond Board.
Mr Abbey Chikane (Chairperson, Diamond Board) said that he had personally written
to De Beers, who had replied that there were no agreements prior to the
resolution of December 1992.
Mr Trent said that there was clearly no documentary evidence of an agreement,
and that the entire matter was based on a resolution taken at a Board meeting.
He was uncertain whether or not a Board decision is legally binding.
Ms Dreyer said that the Committee should request a copy of the Board minutes.
Mr V Smith (ANC) said that De Beers must be held to account. He repeated the
call for De Beers to be summoned to appear before the Committee, and added that
perhaps the Minister of Finance should also be present at the meeting.
The Chairperson said that the way forward had to be determined without delay.
The meeting was adjourned.
Appendix 1:
Sixty-Second Report of Standing Committee on Public on
Public Accounts: South African Diamond Board, dated 14 September 2005:
1. Introducion
The Standing Committee on Public Accounts, having heard and considered evidence on the Annual Report and the Report of the Auditor-General on the financial statements of the South African Diamond Board (Board) for the year ended 31 March 2003/ 2004 tabled in Parliament and reffered to it, reports as follows:
2. Investigation relating to the export and sale of diamonds in terms of the Diamonds Act, 1986 (page 29-31 of the annual report)
The Committee noted with concern the significant weaknesses highlighted in the audit report with regards to the export and sale of diamonds. The following issues were raised:
a. validity of exemptions given under section 63 of the Act to diamond producers and dealers by virtue of agreements entered into in terms of section 59 of the Act;
b. limited documentation for Section 59 agreements;
c. the drastic decline in export duties;
d. differences and disputes between the Government Diamond Valuator (GDV) and the SA Diamond Board relating to the role and functions of the GD; and
e. The length of time the above issue remain unresolved.
Having heard and considered the views of National Treasury, SA Diamond Board, the Department of Minerals and Energy and the Auditor-General, the Committee is of the view that this matter has been unduly prolonged.
The Committee is aware of the many administrative initiatives to resolve these issues but notes the failure of these to produce positive result.
The Committee therefore recommends that:
a. the relevant state institutions initiate legal proceedings with a view towards resolving the section 59 exemption in question – a special meeting should be convened by the Auditor General for this purpose within 30 days after this report has been adopted by Parliament;
b. the Board ensures that all South African produced diamonds be valued in SA on a fair market basis;
c. the Board strengthens its efforts to increase local beneficiation of SA diamonds; and
d. the Board confers with the Department of Minerals and Energy to finalise and implement the new legislation.
The Committee expresses its disappointment at the inadequate representation from the Department of Minerals and Energy at the hearing and insists that future representation be at an Accounting Officer level.
Conclusion
The Committee requests the Board to furnish it with a progress report covering all the above-mentioned issues within 60 days after this report has been adopted by Parliament.
Report to be considered.
Appendix 2:
Business Report news article June 13 2007: MPs challenge De Beers over
mysterious exports
By Michael Hamlyn
Cape Town - MPs are considering whether to call De Beers to give evidence to
the financial watchdog committee on public accounts on how it came suddenly to
export huge numbers of uncut diamonds shortly before apartheid officially ended
and the new democratic government came to power.
The committee was told yesterday that the export of uncut diamonds each year
amounted to about R1.8 billion, but that in 1992 there was a sudden spike to
R4.67 billion. But the Diamond Board said it had not been able to discover a
copy of any agreement allowing the export of diamond without payment of the
export levy.
It had no copy in its files, according to Abbey Chikane, who chairs the board.
And when the board wrote to De Beers asking for the company's copy, all it
received was a copy of a board resolution on the subject.
The chairman of the committee, Themba Godi, asked: "Where is the agreement
that allowed De Beers to loot the diamonds out of the country?"
ANC MP Pierre Gerber referred to what happened in Namibia just before that
country's independence, when uncut diamonds were similarly exported to be
stockpiled in London, in what the MP called "a scorched earth
policy".
The committee will consider the possibility of legal action against the company
to recover the unpaid levies. The levies arise from clauses in the Diamond Act
that require that gems be first offered to local polishers or cutters before
being exported. Offering the diamonds locally allows the diamonds to be
exported free of the 15 percent levy.
But Catinka Smit of the litigation department of the SA Revenue Service told
the committee that the law was very imprecisely drawn. It did not, for example,
specify in what way or how often the diamonds should be offered locally. Nor
did it prescribe what form an agreement to export should take. It could even be
a simple oral agreement, she said.
The director-general of minerals and energy, Sandile Nogxina, told MPs that the
imprecision of the act encouraged the government to draw up a new bill that
would tighten up the law. That bill, which was first to be called the
Beneficiation Bill, has now taken the form of the Diamond Export Levy Bill
before parliament.
The bill lays down specific terms under which uncut diamonds should be offered
to local cutters and polishers.
De Beers spokesperson Tom Tweedy said uncut diamonds were exported when an
equivalent amount of diamonds were imported, and when the diamonds themselves
were not of sufficient quality or size to make it worthwhile cutting them here.
"Local cutters are more expensive than those in India or Asia."
He later said: "De Beers keeps a record of its agreements and we are happy
to assist the board should it require copies of agreements that we have."
An agreement in section 59 of the Diamond Act "has been an evergreen
agreement, which is reviewed annually by passing a resolution, unless there are
material changes in any of the terms or technical details".
This had happened last year, when particular types of diamond were added to a
section that deals with specials, which are diamonds of a colour, size or type
of a higher value reserved for South African diamond cutters and not
exported."
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Qualified Audit Reports 2005/06; Integrated Financial Management Systems: briefing by National Treasury
STANDING
COMMITTEE ON PUBLIC ACCOUNTS (SCOPA)
23 May 2007
QUALIFIED AUDIT REPORTS 2005/06; INTEGRATED FINANCIAL MANAGEMENT SYSTEMS:
BRIEFING BY NATIONAL TREASURY
Chairperson: Mr T Godi (PAC)
Documents handed out:
National
Treasury: Audit Outcomes 2005/ 2006
Integrated Financial
Management Systems (IFMS)
Report
of the Auditor-General on audit outcomes for the financial year 2005/06
SUMMARY
The National Treasury
team presented on it audit outcomes for 2005/06. Its focus was on the
improvements and challenges related to audit reports received from government
departments and public entities. They also looked at the consultative nature of
policy development, capacity building and improvement of financial controls
within government.
A presentation on the Integrated Management System (IFMS) was also delivered.
The objectives of the IFMS is to consolidate and replace aging financial
systems with modern integrated financial management systems solutions.
MINUTES
The National Treasury team who made the presentation to SCOPA consisted of
Mr Lesetja Kganyago (Director-General: National Treasury), Mr Freeman Nomvalo
(Accountant General), Mr Nols du Plessis (Chief Director: Specialist
Services),and Mr Bobby Maake (Chief Director: Systems)
Mr Freeman Nomvalo (Accountant General) focused on National Treasury's
initiatives to deal with the qualifications issued by the Auditor General after
auditing the 2005/06 financial statements of departments and public entities.
He gave an overview of where national departments are in terms of qualified
audit opinions. In 2004/05, they had 7 qualified audit reports, 3 clean audit
reports and 26 unqualified but with "emphasis of matters". In
2005/06, the figures were 11 qualified audit reports, 4 clean audit reports and
21 unqualified but with "emphasis of matters". He pointed out that
Treasury kept increasing the compliance requirements for departments, because
they are moving from purely cash-based accounting to more comprehensive accounting.
With regards to Provincial Departments the percentage of unqualified audit
opinions for 2005/06 was 55% (compared to 67% in 2004/05). Percentages for
unqualified audit reports for Public Entities was 60% (compared to 84% in
2004/05).
Audit concerns noted the following trends: internal audit and audit committees,
risk management, internal controls, performance information and asset
management.
Risk management had taken a back seat in the provinces. Consequently, the
department has increased capacity with regards to risk management in the past
year. A lot of qualification issues in audit reports relate to a lack of
internal controls. Either there are no policies in place or the policies are
not being followed.
Mr Nomvalo indicated that asset management is the biggest item in government
that must be controlled.
With regards to Treasury initiatives, they intended to revise the Internal
Audit Framework and tighten areas that needs to be controlled. Treasury staff
had been deployed to sit in the audit committees in various departments to
respond to issues that come up, together with departments.
An internal audit indaba was hosted to bring internal auditors together to
share information and success stories.
In compliance with international standards there is a continual check on the
health of internal audits within departments at least every five years. Mr
Nomvalo’s office facilitates a quality assurance review with departments which
points out weaknesses and what needs to be done.
Treasury is reviewing their risk management framework. They have acquired a
user friendly risk management tool which was made available to all departments.
Training sessions were done and a risk management forum was established to
enable them to share information and experiences.
An Internal Control Framework as well as a Performance Information Framework
had been developed. A Financial Management Training Strategy was also
developed. Other initiatives of Treasury includes asset management, an early
warning report, materiality framework, monthly management reports, supply chain
management reports and implementation of Generally Recognised Accounting
Practice (GRAP).
SCOPA had posed
written questions which asked how Treasury ensured conformity between the
different accounting standards which includes GRAP, Generally Accepted Accounting
Principles (GAAP), International
Standards and Municipal Audit Standards. Mr Nomvalo indicated that due to the
different natures of public entities, municipalities and government
departments, the National Treasury prescribes different reporting frameworks.
Generally Accepted Municipality Accounting Standards (GAMAP) is the only
standards that might have some inconsistencies with other standards. GRAP
standards uses exactly the same principles as GAAP. The only difference is with
regards to public sector specific issues for instance regarding taxes . Public
sector standards however are aligned to private sector standards as far as
possible.
With regards to helping the departments with capacity, Mr Nomvalo indicated
that any new reforms that are introduced follows a consulation process followed
by a policy document or framework. Workshops are held to assist and support
departments with new policies. Treasury requires cooperation from departments.
With regards to SCOPA's written question on what guidelines are in place to
develop policies in departments, Mr Nomvalo indicated that Treasury’s process
is similar to the aforementioned consultation process being followed to support
departments.
With regards to progress with the Amendment Bill for the Public Finance
Management Act (PFMA), Mr Nols du Plessis (National Treasury) said that good
progress has been made. They are still busy with an internal consultation
process but will soon submit the Bill to the Director General and the Minister
for approval in order to take consultations outside the Treasury. Their
legislative programme indicates submission to Cabinet on the 22 August and
tabling at Parliament by the end of October.
Discussion
Mr E Trent (Inkatha Freedom Party) asked what NT’s view is on the
Division of Revenue Act issue which is a serious problem. Departments indicated
that some of the conditions attached to funds are too onerous for them to
comply with. Mr Trent asked if NT can look at making conditions less onerous
but still effective.
Mr Trent also asked Treasury to unpack their risk management tool. He requested
feedback on performance contracts within the various departments
Mr M Stephens (DA) said that risk management and internal audit functions are
internationally recognised as a problem area. Internal auditors do not
necessarily understand financial risk management. He asked to what extent are
skills training done to address this.
Mr T Bonhomme (ANC) asked why Treasury did not isolate or quarantine those
departments, such as Defence, Correctional Services and Home Affairs, that had
problems with qualified reports.
With regards to onerous conditions, Mr L Kganyago indicated that these
conditions are negotiated with departments. Conditions are revised every year
and departments need to make input regarding conditions. Departments need to be
specific and indicate to Treasury what specific conditions are unreasonable.
Mr Kganyago said that performance contracts and staff should be assessed in
terms of these contracts.
Regarding Treasury’s risk management, Mr Kganyago said that they use a
cost-at-risk model. Treasury reviewed the treasury operations of big state
owned enterprises to determine the likelihood of guarantees given to state
enterprises being called. Mr Nomvalo added that the risk management tool gives
them the ability to host information about risk such as risk rating across
departments. The risk management tool ensures that there is not duplication of
effort. There is a conceptual difference between risk management and internal
audit functions. In smaller organisations the function could be done by one
individual. Internal auditors need to be up-skilled to deal with risk
management issues. In the past year internal audit training was done and
problem areas were identified which will be focused on.
A committee member asked Treasury what advice was given to the Department of
Justice given that first they had three years of qualified reports, then clean
reports for two years followed by a qualified report again in 2005/06. A
question was also posed on how Audit Committees are appointed.
Mr Bonhomme asked who the Accounting Officer is in a case where there is a
Commissioner and Chief Executive Officers (CEO) within state institution.
Mr Trent asked what Treasury does when public entities do not submit their
accounts. He also asked which legislation indicates who audits performance
information. In terms of the Public Audit Act, the Auditor General (AG) audits
performance information, but the PMFA might have the same provisions. He asked
whether these provisions would be tightened.
Mr P Gerber (ANC) asked for clarity about top departmental and parastatal
officials who might be members of other boards, and how it might influence the
work that they are supposed to do for departments.
Mr Kganyago replied that DGs are not allowed to serve on any boards. The DG
does not sit on boards because Treasury renders an oversight function. Treasury
officials do sit on other boards, including public entities, but are not
allowed to take remuneration for that.
Mr Kganyago said that the PMFA aims to measure performance information.
Auditing performance information would also be a new function for the Auditor
General.
Mr du Plessis indicated that the Public Audit Act provides for the auditing of
performance information and for performance audits which is different from the
auditing of performance information. The PMFA amendment process will strengthen
non financial performance information but will not include detail. A
Performance Information Framework is being developed which will including
criteria for performance information. This framework is easier to manage as one
can change the framework on a yearly basis.
Mr Nomvalo explained that the Department of Justice did not have effective
financial management over Monies in Trust and this had led to the qualified
report. The other reason for a qualified report was the Department of Justice’s
leave records. Further information on
this was on page 121 and 122 in the Report of the Auditor-General on audit outcomes for
the financial year 2005/06 .
The Acting CFO of that Department is always working closely with Treasury to
resolve these and other issues.
Mr Nomvalo noted that if there is a Commissioner and a Governing Board, then
the Governing Board becomes the Accounting Authority as directed by the PFMA.
The CEO is accountable to the Board and the Board is accountable to the
executive authority. The PFMA is being reviewed and this governance arrangement
will be discussed.
Mr Nomvalo indicated that when public entities do not submit their accounts,
Treasury will write to public entities directly and also through the relevant
Minister to further compliance. In some cases Treasury received feedback. There
has not been punitive measures yet but Treasury has been communicating with
public entities in order to solve these problems.
Mr Nomvalo indicated that Treasury spends a lot of time on capacity building
and training.
Integrated Management System (IFMS)
Mr Bobby Maake (Chief Director: Systems) explained that the objectives of
the IFMS are to consolidate and replace aging financial systems with modern
integrated financial management systems solutions. The IFMS is a mixture of in-house system and
an off-the-shelf system. He said that the challenges they faced included access
to appropriate Information Technology (IT) skills, access to appropriate
functional skills by user departments, alignment of policy implementation with
rollout of system solutions and alignment of departmental core systems with the
IFMS architecture.
Discussion
Mr Bekker asked to what extent SA systems will be based on
international examples for instance from Britain and Australia.
Mr Bonhomme asked to what extent open source technology is being used for the
IFMS. To what extent will existing systems have to be tweaked in order to
communicate with the IFMS?
Mr Maake indicated that Minimum Operability Standards (MIOS) are being defined
and when that is done most systems, including the IFMS, should be able to
integrate seamlessly. All systems that are developed in the interim should also
comply with MIOS.
Mr Maake noted that open source software poses challenges. It is not as open or
as free as is generally stated. There are also issues of support and security.
He indicated that they have adopted open standards which can be integrated with
open source.
With regards to basing IFMS on international examples, Mr Maake said that
off-the-shelf software would require customisation of more than 10% of the
software which is not desirable. While some international off-the-shelf systems
are based on full accrual, Treasury’s system is still based on modified cash.
The IFMS will be fully rolled out by 2011. Different phases of IFMS will be rolled
out and early releases can be expected by 2008/09.
Mr Trent asked if Treasury will be able to train people to use the IFMS. Every
time systems change there is the need to train lots of people.
Mr Maake replied that
usually many people start training but only a small percentage finish training.
There is a need to do something different than just "training"
people. He indicated that computer literacy is still a problem with staff.
The meeting was adjourned.
Pan South African Language Board (PANSALB), Playhouse Company, Land Bank & Agricultural Research Council: SCOPA hearings
STANDING COMMITTEE ON PUBLIC ACCOUNTS
09 MAY 2007
PAN SOUTH AFRICAN LANGUAGE BOARD (PANSALB), THE PLAYHOUSE COMPANY, THE LAND BANK AND THE AGRICULTURAL RESEARCH COUNCIL: INTERROGATION OF ANNUAL REPORTS 2005/2006
Chairperson: Mr N T Godi (PAC)
Documents handed out:
Annual Report: PANSALB
PANSALB: Auditor General’s Report
Annual Report: The Playhouse Company [available later at www.playhousecompany.com]
The Playhouse Company: Auditor General’s Report
Annual Report: The Land Bank
The Land Bank: Auditor General’s Report
Annual Report: The Agricultural Research Council [available later at www.arc.agric.za]
The Agricultural Research Council: Auditor General’s Report
SUMMARY
The Pan South Africa Language Board appeared before the Committee, who questioned the new CEO whether she had been aware of the difficulties before taking appointment, and noted her comment that the Board believed that with the right capacity it could turn around, noting that it had a huge mandate. Further questions were raised about capacity constraints, poor leadership practices in the past, details of the procedures that led to the current CEO’s appointment, the exit report of a former employee, and whether the Board had a Human Resources department. The Committee demanded that information on human resources be forwarded to the Committee within two weeks. A forensic audit had highlighted many irregularities and Members questioned what course of action would be followed to address them. Members pointed to missing information, the poor quality of proof reading in the Annual Report, and pointed out that public sector entities such as the Special Investigations Unit might be more suitable to undertake forensic audits than consultant corporates.
The Playhouse Company had obtained three qualifications in the report and there were problems with staff, vacancies and internal financial management. The Company stated that all the qualifications had been addressed and recfitied. Questions were asked on the risk management policy being put into place, the review of internal auditing procedures, whether supply chain management was in place, non-compliance with regard to vacancies, and explanation of irregular expenditure arising from a grant from the Department of Arts and Culture.
The Land Bank had experienced problems of losses, liquidity, credit and overexposure, and the Committee was concerned that the previous CEO had not attended a meeting in 2005, and the current CEO was not present at this meeting. Questions were asked as to how much time the Chairperson was present at the Bank, which other Boards he sat upon, how the Boards and Committees were structured and why separate payments to board members of the Bank and the Insurance arm were paid. Further questions were asked on the bonuses paid to the CEO and CFO, whether sufficient time had been allocated to major decisions at meetings, the skills development plan, the problems of vacancies and people in acting positions, the streamlining of the processes, the management problems, and the quantum of loans granted to individual clients in relation to the equity of the bank. Specific questions were asked on the criteria used, a loan granted to a wholesaler, that was 122% above the bank’s equity, and the rationale behind the ratings in relation to Afgri. The policies relating to loans were questioned. Members were concerned about the loan debtors and recusal of managers where they had an interest, contingent liabilities, and the concern over loss of R31 million despite Land Bank having paid to keep a farm running. The Committee commented that the reconstruction costs paid to a consulting house was unnecessary, and that the State Information Technology Agency should have been called upon. SCOPA would be following up on practices of outsourcing despite internal resources being available.
The Agricultural Research Council had not reported vacancies in the annual report and lack of capacity appeared to be the root cause of weaknesses, which were identified as including poor internal controls, segregation of duties, the accounts receivable qualification, non-implementation of supply chain management, changes to financial statements and non-disclosure of plant and property accounting. Members questioned the steps being taken to address this lack of capacity, the vacancies, the vacancies specifically in the finance section, the payment of ex gratia bonus and leave payments, and the valuations attached to unlisted shares on the balance sheet.
MINUTES
Pan South African Language Board (PANSALB): Interrogation of audit report 2006
The Chairperson expressed his appreciation for the important role PANSALB played in promoting language equality in the country, and in addressing the marginalisation that many languages had been subjected to. He asked why the Chairperson was not present.
Father Smangaliso Mkhatshwa, Deputy Chairperson, PANSALB Board, said that the Chairperson was conducting interviews elsewhere at Parliament.
The Chairperson noted that the CEO had been in her position for two months, and asked whether she was aware of the situation at PANSALB at the time of her engagement.
Ms Ntombenhle Nkosi, CEO, PANSALB, replied in the affirmative, and added that she had been engaged in discussion with the former Acting CEO of PANSALB.
The Chairperson asked what Ms Nkosi meant by “engaged”.
Ms Nkosi replied that she meant that she had been briefed about the general situation and the various audit reports that had been conducted.
The Chairperson asked whether she had been made aware of these matters before or after her appointment.
Ms Nkosi said that if the Chairperson was referring to the financial matters of PANSALB, then she was not aware of these matters prior to her appointment, as people outside of PANSALB were not privy to internal matters.
The Chairperson said that after reading the Auditor-General’s report and various other documents, he had reached the conclusion that PANSALB was a sinking ship.
Ms Nkosi said that PANSALB believed that with the right capacity, the organisation could steer itself into safer waters. She said that the enormity of the challenge PANSALB was facing should be clear when looking at its huge mandate and the resources provided for achieving this mandate.
The Chairperson asked whether the main problem was capacity constraints and whether poor leadership had contributed to this problem.
Ms Nkosi said that this was true and that the new leadership appointments would address these issues.
The Chairperson said that past management practices had let the organisation down, and that her predecessor, in particular, had not performed adequately.
Ms Nkosi said that the former CEO did not have a Chief Financial Officer (CFO).
The Chairperson noted that this could not excuse her frequent absences from Board meetings and from the workplace. He said that this had nothing to do with not having a CFO. The Chairperson said that he did recognize capacity constraints, but that this did not excuse poor leadership practices.
The Chairperson said that the report submitted by the Executive Committee of PANSALB made it necessary for him to ask for details of the procedures that led to Ms Nkosi’s appointment. He said there had been queries about documents that had to be submitted prior to her engagement, and that this caused a shadow of doubt with regard to her appointment.
Mr Mkhatshwa noted that he was also a member of the Executive Committee of PANSALB, and that the report submitted was correct. He said that the proper procedure was followed. The position was advertised in newspapers, and ten candidates were short listed and interviewed. Ms Nkosi had a qualification obtained in the United States of America, and this qualification was submitted to the South African Qualifications Authority (SAQA) for verification. The Board gave powers to the Executive Committee and Ms Nkosi was appointed on this basis. Mr Mkhatshwa confirmed that all areas of concern with regard to the CEO’s appointment were addressed at Board level. He added that not all members of the Board had supported Ms Nkosi’s appointment.
The Chairperson said that he was asking these questions in the interests of leadership practices, as it was poor leadership that had led to the past situation at PANSALB. He said that a leader should only be appointed if all members of the Board were in agreement.
The Chairperson referred to the exit report of a former employee, and asked for comment.
Mr Mkhatshwa said that it was not good practice to write a report when out of the organization, as problems raised could be better addressed when the person was still inside the organization.
Mr E Trent (DA) asked whether a Human Resources (HR) department was in existence and, if so, why there was no information on this in the annual report.
Mr Mkhatshwa replied that an HR department was in existence, but that PANSALB had been following Treasury guidelines in the compilation of their annual report.
Mr Trent said that PANSALB should forward this information to SCOPA, as it was essential for the Committee to have information about vacancies at the institution, before reporting to parliament.
The Chairperson asked that the information concerning human resources be forwarded to SCOPA within two weeks.
The Chairperson referred to the forensic audit that had highlighted many irregularities within the Department. He asked for confirmation that the CEO had been correctly briefed, and had read the annual report. He asked what course of action she planned to embark upon to address the issues raised.
Ms Nkosi said that after being briefed by the former Acting CEO, she had held a meeting with all the staff of PANSALB, including the provincial managers, where she had disclosed the findings of the audit report, so that all staff members could be made aware of the seriousness of the situation at PANSALB. She had also indicated at the meeting that the audit would be extended to provincial managers and their departments.
The Chairperson referred to reports of problems with segregation of duties, inadequate asset management and supply chain management, poor office management, inadequate financial reporting procedures, and poor internal control mechanisms. He said that these were fundamental issues within any organisation.
Ms Nkosi said that she and the CFO had designed a plan to address these issues, and that policies in this regard would be in place within three months. She added that an excellent risk management policy was now in existence, and had already been implemented.
Mr P Gerber (ANC) said that there was a great deal of missing information, for example, salary and chronological information. He asked that this information should be included in the next annual report.
Mr Gerber remarked that PANSALB was supposed to see that language was used properly, but yet there were a number of spelling errors in the annual report. He asked that this matter be addressed in subsequent reports.
The Chairperson referred to the forensic audit of Deloitte and Touche. He said that with regard to issues such as conflict of interest and problems with procurement, the CEO would have to follow up and satisfy herself that these matters were being addressed. He said that public sector entities such as the Special Investigations Unit (SIU) had powers to interrogate, and might be more suitable to undertake forensic audits than corporates.
The Chairperson concluded the review by saying that he hoped all the issues raised would be addressed.
The Playhouse Company: Interrogation of Annual Report 2006
Mr Mahmoud Rajab, Finance Committee Chairperson, The Playhouse Company, offered apologies for the absence of the company Chairperson, who could not attend for personal reasons.
Mr Trent acknowledged that many general improvements seemed to have taken place at The Playhouse Company, but that the main concern of SCOPA was to address financial management issues. He said that the audit history was of concern, as three qualifications had been obtained. Mr Trent felt that the Auditor-General had not judged the company too harshly, as there was a strong awareness of problems with staff, vacancies and internal financial management.
Mr Rajab said that he would like to rebut any suggestions that the financial situation of The Playhouse Company was in any way lacking.
The Chairperson pointed out that the very fact of three qualifications made it evident that the financial situation of the company was wanting.
Mr Rajab said that all issues raised by the Auditor-General had already been rectified.
Mr Trent asked whether the issue of deferred income had been resolved
Mr Rajab replied that it had.
The Chairperson asked for, and received confirmation that all the areas of qualification had been addressed.
Mr Trent said that the Auditor-General’s report showed that no risk management policy was in place, and asked for clarity.
Mr Rajab replied that the services of a professional auditing company had been engaged for this purpose, so the matter was being addressed.
Mr Trent said that the Audit Committee was reported not to have reviewed internal auditing procedures, and apparently did not take vigorous action.
Mr Rajab said that the company’s Audit Committee operated under the control of an external chairperson, and that meetings were held regularly.
Mr Trent asked whether supply chain management was in place, and Mr Rajab said that it was.
Mr Trent asked for more information on non-compliance with regard to vacancies and Mr Rajab replied that all senior management posts had already been filled.
Mr Trent asked for an explanation of the item on irregular expenditure.
Mr Rajab conceded that this was an area of concern for The Playhouse Company. He said that the matter was best approached by referring to correspondence from the Department of Arts and Culture, relating to the payment of a R5 million grant to The Playhouse Company. The Department of Arts and Culture had stipulated that R500 000 of this amount should be ring fenced for payment to a company that would be recording compact discs (CD’s). The Playhouse Company approached the Department for clarification and was informed that this was the basis upon which the grant would be awarded. The money was handed over and this was documented. Mr Rajab said that The Playhouse Company had acted with as much transparency as possible, and had acted in compliance with the grant conditions.
Mr Trent asked whether The Playhouse Company had any involvement with the entity that recorded the CD’s and whether any tender process had taken place.
Mr Rajab replied that The Playhouse Company had no involvement with the recording company, and that the matter was strictly between the recording company and the Department.
Mr Terence Nombembe, Auditor-General, South Africa, said that the expenditure was recorded in the financial statements of the Department of Arts and Culture, and that the issue was raised as a matter of emphasis in the report on The Playhouse Company.
The Land Bank: Interrogation of Annual Report 2006
Mr Gerber said that the Land Bank had been one of the pillars of development in South Africa, but members of Parliament and the public have become increasingly sceptical of the institution over the past few years. There had been problems of losses, liquidity, credit and overexposure and said that what was happening was worrisome and totally unacceptable, which were contributing to slow demolition of a solid institution. Mr Gerber said that it was also worrying that in In 2005, the previous CEO could not attend a meeting with SCOPA because he was in Angola, and the current CEO was not present at this meeting.
Mr Lungile Mazwai, Chairperson, Land Bank Board, said that the CEO had arranged a family trip abroad, partly related to personal stress, before notification of today’s meeting, and that the Acting CEO had fallen ill and had been booked off for the week.
The Chairperson said that this did not give a good impression of the organization.
Mr Gerber concurred and said that it was becoming a habit for key people not to be present and that this was unacceptable, as they were paid from taxpayer’s money.
Mr Gerber asked how much time Mr Mazwai spent at the Land Bank, and whether he had an office on the premises.
Mr Mazwai replied that outside of meetings, he spent no time there, and did not have an office on the premises. He said that he sat on various committees so was present at committee meetings, Board meetings and meetings with Departments and Ministries.
Mr Gerber asked if he sat on other boards and Mr Mazwai replied that he sat on the Board of Trustees of Netcare.
Mr Gerber noted that the CEO had received a bonus of R1 million and the CFO had received a bonus of
R390 000. He asked Mr Mazwai to explain these bonuses.
Mr Mazwai said that the bonus paid to the CEO was a performance bonus in the sense that when he was contracted, certain outcomes were agreed upon. The delivery of a turnaround strategy for the Land Bank was the main outcome that was identified. Mr Mazwai pointed out that the CEO had been appointed in terms of the Land Bank Act, and was therefore accountable to the Board, which had approved his bonus. The CFO was contracted by and accountable to the CEO, and his bonus was therefore decided by the CEO. When the CFO was appointed, he had to forfeit a bonus from his previous company. The bonus paid to him was therefore in order to recompense him for having to forfeit the bonus at his previous company.
Mr Gerber asked whether the bonus paid to the CEO had been discussed at the Remuneration Committee.
Mr Mazwai confirmed that it had.
Mr Gerber asked whether Mr Mazwai had attended that specific Remuneration Committee meeting
Mr Mazwai replied that he had been present.
Mr Gerber said that the minutes of that particular meeting stated that a few matters regarding the CEO’s bonus remained unresolved. According to the minutes, there were no measurable outputs for the payment of the bonus. It was also stated that a recruiting agent had advised the CEO that he would automatically be paid a bonus in the first year. Mr Gerber said that it was therefore questionable whether the bonus was performance related.
Mr Mazwai said that the basis on which the Board had approved payment of the bonus for the CEO had been documented in the minutes of the Board meeting. The Remuneration Committee made recommendations to the Board, who would then make the final decision on a specific matter.
Mr Gerber asked how often the findings of the Remuneration Committee were altered by the Board, and Mr Mazwai replied that in certain cases, there were factors that were not taken into account by the Remuneration Committee, but which were subsequently addressed by the Board.
Mr Gerber said that at the Land Bank Bosberaad, there were 22 items on the agenda, and the meeting lasted for two hours and 20 minutes. One item referred to the R1 million bonus and another item referred to a 9% increase for the CEO. He wanted to know if sufficient time was being spent on major decisions, and how much time was given to discussion of the CEO’s bonus and increase.
Mr Mazwai replied that it was more important that the right work had been done and that the correct information had been considered, prior to the decision being made. He added that if the correct information was at hand, a two-day deliberation was not required to make a decision.
Mr Gerber mentioned that a skills development levy had been paid, but that no skills development plan was in place. He asked for clarity on the skills development levy.
Mr Mazwai said that in terms of legislation every employer must pay 2% of payroll to government, and that a skills development programme should be built around this. He said that the CEO had attended a skills training programme.
Mr Gerber asked whether the insurance subsidiary formed part of the Land Bank.
Mr Mazwai confirmed that it did, and added that it occupied the same building as the Land Bank.
Mr Gerber asked why the insurance entity had a separate Board, and why members of the Land Bank were paid separately when they sat on the insurance Board.
Mr Mazwai replied that the insurance subsidiary was seen as a separate committee, and had a similar status to the Audit Committee, for example. The insurance subsidiary had been constituted in accordance with the Companies Act, and not the Land Bank Act, so therefore had a different legal structure. Mr Mazwai added that the Board of the Land Bank did not sit simultaneously with the insurance subsidiary Board, so separate payments were in order.
Mr Gerber asked whether it was morally correct for people to be paid separately.
Mr Mazwai replied that Board members who sat on the Audit Committee, for example, were also paid separately, the principle being that the two meetings did not sit simultaneously. He added that Land Bank executives who sat on committees were not paid separate amounts in addition to their salary, and that separate payments were only made to non-executive members who sat on different Boards.
Mr Gerber said that the Auditor-General’s report had shown that the Land Bank had 114 terminations, 141 vacancies, and 26 employees with acting appointments in higher positions. He asked what was being done to solve this problem.
Mr Mazwai said that there were five components to the turnaround strategy and one of these was to fill management posts. Part of the exercise involved attempts at re-skilling and re-training within the organisation in order to fill these posts. He added that many vacancies had been created during a previous streamlining exercise.
The Chairperson pointed out that streamlining usually referred to the merging or lessening of posts.
Mr Mazwai replied that the process was called business process redesigning. He said that problems were caused by the fact that it took too long to process applications, and methods were explored to streamline this process so that there were not so many steps and people involved in the processing of one application.
The Chairperson remarked that this streamlining exercise was intended to make the organization leaner, when in fact the organization had to expand, in order for vacancies to be filled.
Ms A Dreyer (DA) said that it seemed the root cause of the Land Bank’s slide downwards was a management problem. She referred to the Auditor-General’s report and said that she would like to know whether or not the Land Bank was a bank. Ms Dreyer said that the Auditor-General’s report showed that the quantum of loans granted to individual clients was very high in relation to the equity of the bank. She asked for details about the criteria that were used with these loans.
Mr Mazwai said that this was referred to as concentration risk. He added that most of the losses and impairments had been incurred with loans advanced between 1998 and 2001.
Ms Dreyer said that one specific loan was 122% above the bank’s equity, and asked for an explanation.
Mr Litha Nyhonyha, Audit Committee Chairperson, The Land Bank, said that this was an issue of concentration risk. He said that the Land Bank had a Credit Committee that reviewed decisions of this nature. He added that steps have also been taken to streamline credit approval procedures, and that the high rate in this regard had been revised. Mr Nyhonyha explained that in the case referred to by Ms Dreyer, the loan had been granted on the basis that the company was a wholesaler. The Land Bank had examined their systems, track record and how well they managed in the past. Mr Nyhonyna said that the concerns expressed by SCOPA with regard to this case would be taken into consideration.
Ms Dreyer said she was not satisfied with this response as specific questions were not being answered. She wanted to know who had approved this specific loan.
Mr Mazwai replied that the Board had approved the loan and that the criteria used were the concentration risk factor, and the fact that the Land Bank needed to make money in commercial business in order to drive its developmental mandate. He added that the Land Bank also needed to make its own money and accumulate its own reserves. He said that as a developmental finance entity in the agricultural sector, the Land Bank could not diversify. The Land Bank also needed to make profit as farmers and markets were getting bigger and consolidation was taking place on an increasing scale. Profit was essential so that the Land Bank could lend to co-operatives and contribute to food security.
The Chairperson said that in terms of the Bank’s risk rating, he had observed that there were entities with a rating of 1 in a particular year, and then a rating of 4 in the following year. He asked what this meant in relation to the Land Bank’s rating process.
Mr Mazwai replied that with regard to Afgri, the rationale was that if this company went insolvent, the Land Bank would not have to write off the R2.2 billion owing, but that this amount would only be written off if everyone that Afgri had made loans to also went insolvent. He added that the Land Bank had lost a lot of capital as a result of new accounting standards and bad loans in the past that had to be written off.
Ms Dreyer said that the Auditor-General had referred to the Land Bank’s credit policies as robust, but that she considered this a rather diplomatic description. She said that she understood that the Land Bank did not perform credit checks on step-up loans.
Mr Mazwai replied that this was one of the reasons that step-up loans had been stopped. He said that these were loans in the range of R200 to R18 000.
Ms Dreyer said that she also understood that the Land Bank did not require security.
Mr Mazwai replied that as far as he was aware, the Land Bank always required security.
Ms Dreyer said that this was quite reassuring and asked whether the Land Bank had a policy that provided guidelines for the granting of loans.
Mr Mazwai said that it did.
Ms Dreyer asked whether this policy was adhered to.
Mr Mazwai said that it was. He said that loans above R120 million were referred to the Board, and loans under this amount were dealt with by management. He added that this system was consistently adhered to.
Ms Dreyer observed that the potential rolling of loans was open to abuse. She said that a client who owed the Land Bank R4 000 would borrow this sum from a micro-lender and repay the Land Bank. This client would then step up to an amount of R8 000 and would repay the micro-lender and pocket the remaining R4 000. The Land Bank would not be repaid and this would become a bad debt.
Mr Mazwai said that this was another reason that step up loans had been stopped. He added that the establishment of MAFISA also meant that this form of lending was no longer necessary.
Ms Dreyer said that government was committed to helping the Land Bank and asked whether they had received anything yet.
Mr Mazwai replied that they had been verbally advised of a cash payment, but that nothing had been received at this stage.
Mr V Smith (ANC) referred to page 86 of the annual financial statement relating to loan debtors and other interests. He said that the report referred to a former General Manager (GM) of the Land Bank who, along with two other GM’s, had interests in entities that had received loans from the Land Bank. He asked for clarification with regard to a possible conflict of interests, and asked how one could be sure that the proper recusals were in place when the decision to grant the loans had been taken.
Mr Mazwai replied that the managers had indeed recused themselves at this point, and had not played a part in the processing of the applications. Declarations of interests were also made at Board meetings, which meant that all members were aware of the interests of other members. He added that the Board was very strict in this regard.
Mr Smith replied that he was satisfied with this explanation but that SCOPA would remain vigilant bout the situation.
Mr Smith referred to contingent liabilities, and pointed out a sum of R31.7 million. He said that the Land Bank had a client that was being liquidated and had appointed someone to manage the assets of that client. He asked why costs were incurred to maintain the assets of a client that was being liquidated. He added that the appeal in that case had been lost, so it was obviously a bad decision.
Mr Mazwai replied that the principle behind this was that the land of the client must be maintained as this land was the security that had been provided for the loan. Land Bank could not allow the land to lay fallow but must work it in order to maintain the value of the security. . The Bank kept the farm running so that it could be sold as a going concern at an increased value.
Mr Smith said that the bottom line was that R31.7 million had been lost.
Mr Mazwai concurred that this was the case.
Mr Smith said that this would be taken into account when SCOPA made its recommendation to Parliament.
Mr Smith asked for an explanation of reconstruction costs.
Ms K Pillay, Senior Manager: Finance, The Land Bank, said that reconstructive costs covered the consulting house that was assisting the Land Bank with its turnaround strategy. She said that the amount of R16 million was for the rollout of the SAP system.
Mr Smith said that this was unnecessary expenditure as the public entity State Information Technology Agency (SITA) could have been approached for this purpose.
The Chairperson added that this was a very important issue, and was also applicable to the contracting of forensic auditing services. He said that the SIU had more powers than private auditors and that SCOPA would follow up this practice of outsourcing rather than using the governmental internal resources that were available.
The Chairperson concluded the review by saying that the Land Bank had appeared before SCOPA in 2005, and that many recommendations had been made. The same issues had, however, arisen at the present meeting and he hoped that the situation would improve shortly.
Agricultural Research Council (ARC): Interrogation of Audit Report
Mr Gerber said that the Council’s vacancies were not reported in its annual report. He said that the Auditor-General’s report had cited lack of capacity as the root cause of a number of weaknesses. These weaknesses included poor internal controls, segregation of duties, the accounts receivable qualification, non-implementation of supply chain management, changes to financial statements and non-disclosure of plant and property accounting. He said that if lack of capacity caused so many problems, the vacancies had to be reflected. He asked what the Council was doing to address this lack of capacity and skills.
Mr Elton Bosch, Deputy Chairperson, Agricultural Research Council Board, said that the Board was not happy about having to appear before SCOPA. He said that the plant and property non-disclosure had led to the suspension of the CFO, and that the matter had been resolved. He said that the accounts receivable matter had also been resolved as a qualification. Poor internal controls did not relate to qualification issues, but were process issues. He said that the ARC had instituted new internal control measures such as increasing the range of internal audits, and improving risk management and fraud control mechanisms. Mr Bosch said that the supply chain management issue was a case of non-implementation of policy. He said that the policy had now been implemented. With regard to changes to financial statements, the disclosure requirements had changed, hence the changes to the statements. He said that in terms of performance information, there was miscommunication between the Auditor-General and the then-CEO regarding the information that had to be submitted. The correct information was not submitted, but the performance information was disclosed.
Mr Gerber said that he was still not satisfied with regard to information on vacancies.
Dr Shadrack Moephuli, CEO, Agricultural Research Council, said that page 49 of the annual report provided an account of the organisational breakdown and showed that there were 2 698 vacancies. He said that many of these vacancies were created when consolidation of institutions took place and that many people had resigned during this consolidation period. Dr Moephuli said that these vacancies were in relation to the period under review, and that he could not really shed light on these vacancies.
The Chairperson said that what the Committee really wanted to know was whether the issue of capacity constraints had been identified subsequent to the report, and how the Council intended to address this issue.
Dr Moephuli replied that since the report, there had been many new appointments, but also many resignations. He added that job and competency profiling had taken place in order to identify critical skills.
The Chairperson asked for details on the vacancy situation in the Finance Division.
Mr Clifton Changfoot, Acting Chief Financial Officer, Agricultural Research Council, said that job and competency profiles had been done, and that there were currently 43 vacancies in a staff complement of 280.
Mr Trent said that SCOPA focused strongly on financial management, so would require a proper breakdown of staff structures and vacancies within the Finance Division. He added that this would facilitate identification of areas of weakness within the financial management spectrum.
Mr Gerber asked for an explanation of ex gratia bonus and leave payments.
Mr Bosch said that an ex gratia bonus was basically a performance bonus. Leave payments referred to accrued leave that was paid out when a staff member exited the organization. He said that this practice had since been amended in line with standard labour practices, and that staff were now encouraged to take leave rather than to accumulate days.
Mr Gerber said that the unlisted shares on the balance sheet appeared to be very nominal valuations and asked whether proper evaluations could be provided.
Mr Bosch replied that the Auditor-General had not indicated that the unlisted shares were incorrectly valued, so the ARC considered these valuations to be correct.
The Chairperson concluded the Review by saying that the Committee would be awaiting the next report of the Council, and would juxtapose this new report against the issues discussed at the present meeting.
The meeting was adjourned.
Audited Financial Statements of the Justice Department & Guardian Fund: hearings
STANDING COMMITTEE
ON PUBLIC ACCOUNTS (SCOPA)
8 May 2007
HEARINGS ON AUDITED FINANCIAL STATEMENTS OF THE JUSTICE DEPARTMENT &
GUARDIAN FUND
Chairperson: Mr T
Godi (PAC)
Relevant Documents:
Department of Justice Annual Report 2005/06 [available at www.doj.gov.za]
Auditor General
Report
Audio
Recording of the Meeting
SUMMARY
Members of the Committee met with the Department of Justice in order to
discuss the audited financial statements of the Department of Justice and the
Guardian's fund. The Chairperson begun by asking the Department to provide
clarity on whether the extraordinarily long investigations were the norm in the
Department. Members felt that something needed to be done to deal with the
issue of financial incompetence amongst governmental staff, and that the
committee would not allow this type of situation to continue. Other members
felt that the Department needed to provide clarity on why certain offices had
been excluded from the audit.
MINUTES
Discussion
The Chairperson begun by asking the Department to provide clarity on
whether the extraordinarily long investigations were the norm in the Department
Adv M Simelane (Director-General: Department of Justice) replied that the
Department relied on and used the suspensions as a way of persuading others to
speak up against transgressions.
The Chairperson asked the Department to state whether the problem in the
investigations was due to the lack of staff or the large amounts of
transgressors, and also to what extent did the vacancy rate impact on the
Department's ability to have officials freed from other responsibilities and
extraditing the investigations.
Adv Simelane replied that the vacancy rate was high; however the vacancy rate did
not affect departmental operations. As the Department strengthened the auditing
processes, it discovered a great deal of transgression. It was also important
to note that when the Department choses someone to perform investigations, it
had to be someone with the right expertise that was able to deal with serious
matters through its disciplinary process. The Department currently had four
members under suspension, who had been charged with serious matters, and the
investigations were still pending.
The Chairperson stated that he was concerned by the length of the investigation
periods, and said that they needed to be shortened. He then asked the
Department to elaborate on what has been done to deal with the issue of the
personnel files.
Adv Simelane responded that the records in the Department's files were the
responsibility of a unit called the Registry. The Department discovered that
the unit was incorrectly placed, and had now been moved to the Director
General's office. The Department felt that it if all units were placed in one
area, it would be easier to access to information. A new system had been
implemented, in which personnel files were checked on a regular basis, and
taking people into account on the mismanagement of files.
The Chairperson asked the Department to comment on what was being done to
correct the performance information situation.
Adv Simelane responded that the Department had developed an indicator metric to
ensure the alignment. The Department had also sent out the relevant
requirements for performance information to all the units, and a memo would be
issued to each of the units on what was required regarding performance
information.
Ms S Gomm (Chief Financial Officer) responded that the performance indicator
metric was based on a strategy that had been approved in August 2005.
Mr T Bonhomme (ANC) raised the issue of inventory management, and asked the
Department to provide clarity on how one ensured that there were no stock
shortages.
Adv Simalane stated that the Department had dedicated resources to training the
necessary officials, and the situation occurred as a result of individuals not
following the very necessary management processes.
Mr Bonhomme asked the Department to state whether the situation would once
again occur
Adv Simalane responded that it the situation did occur, it would not be of the
same magnitude.
Mr Bonhomme asked the Department to provide clarity regarding the issues around
the software tangibles.
Ms Gomm replied that software was placed under current expenditure; however the
auditor had a different opinion. The Department was awaiting feedback from
treasury in order to determine the way forward.
Mr Bonhomme asked the Department to state whether something would be done after
there was a report back.
Ms Gomm replied that the Department was waiting on feedback from treasury and
the auditor general. One also needed to bear in mind that the software was
internally generated, and there was no external market for it.
The Chairperson stated that it seemed that the problem had not been fully
resolved and that issues arising from inventory management were sorted out.
Mr V Smith (ANC) asked the Department to provide details surrounding the status
of Mr McKenzie.
Adv Simalane replied that Mr McKenzie’s had been contracted to assist with the
Moneys in Trust.
Mr Smith asked the Department to provide clarity on the status regarding the
vacancy levels around financial management, as it was no longer acceptable that
government did not have financial management personnel.
Adv Simalane replied that there was still a 30% vacancy rate, and no
significant movement in the filling of posts. The Department has begun a
work-study programme, which would provide clear indications on the type of
financial processes that were in place.
The Chairperson asked the Department to elaborate on when a work-study dealing
with the competency of those in employment and the high vacancy rate would be
available.
Adv Simalane stated that the work-study should be resolved by the end of July
Mr Smith asked the Department to provide clarity on what the status was in
terms the Department’s ability to manage Moneys in Trust.
Mr A McKenzie (Project Manager: Moneys in Trust) stated that in terms of the Money’s
in Trust, there used to be a situation where there was individual incompetence,
which had been resolved. The Department was currently in a situation where
there was organizational incompetence, in that there was still is no system
capable of achieving a sound system of financial management.
Mr Smith stated that something needed to be done to deal with the matter, and
the Committee would not allow that type of situation to continue.
Mr Trent stated that Guardian Fund has massive amounts of money, yet performs
dismally. It would be rather silly to raise various issues, as the same answers
would be provided.
Mr T Nombembe (Auditor General) stated that he was conscious of the fact that
the issue dealt with massive volumes, and a cashbook situation. There should be
a basic system where cash received was actually captured; there was no need for
a complicated system. The problem in the Department was one of internal control
issues rather than the systemic issues.
The Chairperson stated that it was time to put issues of Moneys in Trust and the
Guardian Fund aside, as there was no point in pursuing them. Also there were
certain issues that had been discovered to go way beyond issues raised by Mr
Smith, and the issues need to be followed up upon.
Mr Trent stated that the Guardian Fund had been set up to protect the most
venerable people in society and therefore something needed to be done to
improve the situation.
Adv Simelane replied when dealing with the Moneys in Trust issue, one discovered
that there were flaws in the accounting and the management of funds. What the
members and Auditor General had alluded to, were matters that the Department had
already perused, and whatever measures and steps were taken, there would still
be opportunities that would make fraud easy.
The Department was making progress with the Guardian Fund, and was ensuring
that correct systems were in place. There should be a different debate on the
Guardian Fund, which was about development, and therefore should be
administered by the Department of Social Development. A big challenge still
remained in the handling of maintenance money. Receiving money should not be
the business of the court, the courts business should be to ensure that that
the necessary action was taken if the payment is not made. Raising such matters
enabled the Department to elevate the systems that were in place.
The Chairperson stated that the issues surrounding the Guardians Fund and Moneys
in Trust was another debate, however a receipt should be given whenever someone
paid money to a court official.
Adv Simelane replied that court officials received money with no information on
the sender; this made it difficult for officials to issue receipts.
Mr Trent asked the Department to provide clarity on why the Grahamstown and
Cape Town offices were excluded form the audit.
Ms Gomm replied that the Department had asked the auditors to reduce the scope
of the auditing, as the same findings that the auditor found in one office would
be done in all the offices. The decision on which officers would be audited and
the ones that wouldn’t was one that the auditors took. It was important to note
that the Department provided the auditors with all the information from the
offices that were not audited.
Mr Smith requested that SCOPA meet with the Justice Portfolio Committee,
together with treasury in the near future, in order to sort out the matter. He
then asked the Department to provide details on the progress regarding the
forensic audit.
Ms Gomm replied that it was the Department that requested a forensic
investigation, as it suspected irregularities in the contracts. The findings
confirmed that there were indeed irregularities in the supply chain management
systems; however the report had not formally been tabled.
Mr Smith asked the Auditor General to State when the report would be tabled
Mr Nombembe replied that the report was in its final stages, and would be
available soon.
Mr Trent asked the Department to provide clarity on the criminal assets
recovery accounts
Ms Gomm replied that the criminal assets recovery accounts were published separately
and audited for 05\06, and had been tabled. It is a qualified report, as a
result of the disclosure of assets under the curator's control.
The Chairpersons asked if the matter had been raised with the auditor general
and national treasury
Ms Gomm replied there had been discussions and the Department was awaiting
guidance from the national treasury
The Chairperson asked national treasury to provide clarity on the matter.
Mr Msulwa Daca (Chief Director: Accounting Services, National Treasury) that
the issue is under the hospices of the National Prosecuting Authority. Treasury
is busy trying to thrash out various opinions with the prosecuting authority in
order to achieve finality on the matter.
Mr Trent asked whether the issues around the asset register had been resolved.
Ms Gomm replied that the question should be tabled to the National Prosecuting
Authority.
The Chairperson said that there were lots of problems, and that some of the
issues raised by the
Director General were policy issues, the matters raised regarding the vacancy
rate were generic problems, whereas the issues raised the role of government were
issued that needed a different approach. The Committee could only hope matters were
speedily resolved.
The meeting was adjourned.
Department of Environmental Affairs & Tourism, Marine Living Resources Fund, National Parks Board: interrogation of Audited Fina
STANDING
COMMITTEE ON PUBLIC ACCOUNTS (SCOPA)
28 March 2007
DEPARTMENT OF ENVIRONMENTAL AFFAIRS AND TOURISM, MARINE LIVING RESOURCES FUND,
NATIONAL PARKS BOARD: INTERROGATION OF AUDITED FINANCIAL STATEMENTS 2005/06
Chairperson: Mr T
Godi (PAC)
Relevant Documents:
Department of Environmental Affairs and Tourism (DEAT) Annual Report
2005/06 [available later at www.environment.gov.za]
Marine Living Resources Fund Annual Report 2005/06
South African
National Parks Annual Report 2005/06
Department of
Environmental Affairs & Tourism (DEAT) Audit Report 2005/06
Marine Living
Resources Fund Audit Report 2005/06
South African
National Parks Audit Report
Audio Recording of the
Meeting
SUMMARY
The Marine Living
Resources Fund had appeared before the Committee in August 2006, when the
Committee had expressed doubts about whether there still needed to be a
separate entity. The Committee had now recommended that the Fund be
reincorporated into the Department of Environmental Affairs and Tourism (DEAT)
to have proper accounting authority and management. It was agreed that the
Department should have until 12 May to obtain the comments of National Treasury
and the Accountant General and to report back to the Committee. Members asked
questions on the abalone industry levies, the costs of consultants for the long
term rights allocation process, the fact that ex-employees were contracted in,
the costs of the new vessels and their state of repair. Further questions were
asked about the employment of labour brokers, the international trips, and
whether the accounting systems had been revised to deal with the qualifications
and comments of the Auditor General. This led to discussion of the main
priorities, and revision of specific systems was interrogated. Issues of skills
and capacity were raised. Approval of the budgets, correction of opening
balances, meetings of the audit committee and irregular expenditure were
debated.
The Auditor General had raised a number of matters of emphasis in respect of
the Department's audit report. Members questioned the existence of strategic
plans, the filling of posts, the vacancy rate, the fact that performance
information required by the Auditor General had not been supplied, the reasons
for the delay in final submission of the financial statements, and the
Auditor-General's comment that there was lack of monitoring. The non-compliance
with the National Environmental Management Act was discussed and it was clear
that the Department had no oversight nor power to force other departments to
comply.
South African National Parks Board was asked by the Committee to explain the
fact that internal controls were not always effectively managed, and to outline
the new disaster recovery and securing plans. The Committee questioned the
staff retention problems and noted that a solution had to be found to avoid
constant reports on these matters in the audit reports, and asked how the Board
would instil better responsibility in staff. Further issues addressed included
the physical appearance and state of the rest huts and the park gates, non
compliance with National Treasury Regulations, purchase of helicopters, long
term finance leases, the holding and sale of ivory, the zoning of the land, the
possible integration of national and provincial conservation, the closure of
Skukusa airport, the land valuation processes and reflection of values in the
balance sheet, compliance with fire control regulations, and the grants.
MINUTES
Marine Living Resources Fund (the Fund): Interrogation of Audit Report
The Chairperson indicated that last year the Committee had expressed some
doubts about the need for the entity, and there was a need to re-engage with
it. The reports on the Marine Living Resources Fund were not particularly
encouraging and there was a poor general perception of it. It was necessary for
the entity to focus on its core mandate and operate as expected. Issues needed
also to be discussed with the Department of Environmental Affairs and Tourism
(DEAT) in order to decide collectively how to move forward.
Mr P Gerber (ANC) noted that this entity had been before SCOPA three times in
the last six months. On 16 August 2006 the question was raised whether it
should be a separate entity or should be re-incorporated into the DEAT as a
directorate, similar to the situation with the licensing authority of the
Department of Minerals and Energy. There were further issues around governance.
SCOPA had then adopted a resolution, which, in Clause 5, noted that the Fund
was being administered by seconded employees of DEAT, and that it was unable to
exist independently without a grant. The Committee had recommended that it be
reincorporated into DEAT so that there could be proper accounting authority and
proper management. Mr Gerber asked for feedback.
Ms Pam Yako, Director General: DEAT, said that the Department was due to report
back to SCOPA in 90 days, which would expire on 12 May. Her view was that there
should be adherence to the resolution, but that the question needed to be
addressed whether incorporating the Fund into the Department would relate only
to accounting, or to all other matters. This was work in progress. The views of
the Accountant General and National Treasury (NT) were still needed. A further
question related to whether the Fund should merely collect revenue, or ensure
there was no over-fishing. DEAT thought its mandate was the latter. She asked
that the DEAT be permitted to give a full answer after 12 May.
The Chairperson agreed that this was reasonable. There was a process that
needed to take into account a variety of factors in the course of the
discussions. He would have expected that subsequent to the engagement in August
2006 DEAT would have had some formal engagement with NT.
Mr Gerber raised questions about the abalone industry. Clause 2.2 of the
resolution noted that the average market price for abalone was around R2.2
million to R5.9 million a ton. The companies who had the quotas were charged
only R25 000 a ton to take out abalone. The difference between these prices was
substantial and DEAT therefore needed to address it seriously. He noted that South African National Parks
(SANParks) were able to fix market-related prices for sales of ivory.
Ms Yako stated that there were two issues. Abalone was but one example of
several fish species. The levies charged on an annual basis were reasonable.
DEAT was required, in terms of the Act, to set the fees, with concurrence of
the Minister and the Fund, which unfortunately could not be obtained in the
previous year. DEAT was working on cost-recovery payments and was seeking
agreement with the industry in regard to costs and the increase of fees on a
number of species. Fair value needed to be determined. The comment in relation
to abalone was worth investigating, but there was a process between what was
anticipated as a price obtainable on the market, and the gazetted value. She
pointed out that the comparison with SANPARKS was not ideal as the latter was
regulated differently and was not in the ivory trade business, nor regulated
those who did trade. DEAT, unlike SANPARKS, had both a conservation and
industry promotion role.
Mr Gerber wondered if there had been a cost-related survey done on the whole
abalone industry, including the policing and SARS revenue.
Ms Lilly Zondo, Corporate Executive: Auditor General, said that she could not
comment at this stage.
Mr D Gumede (ANC) said that if DEAT could not recoup the costs then this would
cost the citizens more in tax.
The Chairperson suggested that this question also should be deferred to a later
meeting.
Mr Gerber indicated that people paid per ton for fish and abalone, yet for
seaweed the quotas were allocated per geographical area.
Mr Gerber indicated that pages 7, 8 and 51 of the Annual Report had indicated
that about R45 million was spent on long term rights allocation processes,
covering the costs of external consultants to ensure independence of allocation
quotas. However, elsewhere in the report a figure of R29.8 million was given.
He asked which was correct. Mr Abdullah Ismail, Chief Financial Officer: Marine
Living Resources Fund, said that the total for the consultants was R29.6
million. The R45 million was inclusive of travelling and the whole process.
The Chairperson noted that there was also an amount shown for professional and
special services (non-government). He asked if this was separate from the
consultancy fees.
Ms Yako noted that the figure given was the sum total of all the figures, which
included consultants, temporary staff, and other items.
Mr Gerber noted that the process was costly, and the need for independence was
stressed. He asked why, in that case, ex-officials of the Department had
received large contracts. He asked how this could be explained, and what
guarantees there were that the process was correct.
Ms Yako said the process was designed in 2004. Staff from DEAT were delegated
to make key decisions after a process of verification. The initial scoring of
the applications was done outside the Department. During 2004 there were many
requests for explanation of the policies and how the rights would be allocated,
as it was quite involved. There was considerable time spent in explaining the
processes, and that was not initially budgeted for. In February 2005 two
officials running the process resigned. The Minister had decided that since
they were the most experienced and knowledgeable, they should be recruited back
in a different capacity, and the provisions on secondment of officials were
used. if this had not been done the process would have stalled further. Both of
the resigning officials had occupied key posts in the rights allocation
process.
Mr Gerber indicated that they had resigned three months before the process
started and, as architects of the process, they must surely have known that
they would be asked to move into the new posts. This was precisely why the
process was criticised. He felt it was completely unacceptable.
The Chairperson commented that this was similar to the Department of
Correctional Services where former staff were appointed as directors of
contracted-in companies. This was something that the Department could not have
foreseen. He felt that measures should have been put in place to try to avoid
this. He agreed that this was regrettable and unfortunate.
Ms Yako clarified that the process had cost R45 million but the cost of those
ex officials was R2.8 million. Another bid to the value of R14 million did not
go to an ex-member of staff. She stressed that not all the consultancy fees had
been paid to ex-employees.
The Chairperson said that the problem was not the amount, but the fact that
ex-officials were sitting on the other side. He said that perhaps this could
not have been foreseen but the practice was unacceptable.
Mr R Mofokeng (ANC) agreed that the principle of paying ex-employees on new
contracts was wrong.
Mr Gerber noted that DEAT had given R501 million for the purchase of new patrol
vessels and had allocated further amounts to operations and maintenance. He queried
the two figures mentioned in the report for Far Ocean Marine and asked whether
the amounts paid were in respect of the patrol vessel or the new research
vessel.
Mr Ismail stated that R101 million was for the building of the new vessel but
this was spread over a two year period
Mr Gerber said that the ship Aghullas would be replaced at an estimated cost of
R600 million, and a transaction advisor was appointed. He asked what capacity
the Fund had to take decisions on appointment of transaction advisors and
whether DEAT had any assistance.
Mr Ismail replied that National Treasury Regulations stated that purchase of
capital items in excess of R250 million needed to be investigated as possibly
running through public/ private partnerships. National Treasury advised the
Fund to contact the PPP Unit, who then advised that a transaction advisor must
be appointed to do a proper costing in view of the R600 million involved.
Mr Gerber noted that there were four vessels built but two were in harbour and
one had a problem with the deck. He asked what the situation was at present.
Mr Monde Mayekiso, Deputy Director-General for Marine Coastal Management,
reported that the vessels were being used. Two had had minor accidents and were
de-commissioned for a short while.
Mr Gerber asked if the accidents were due to structural manufacturing defects
or negligence.
Mr Mayekiso advised that the vessels were still running. There were no
structural defects. The skipper of the vessels had performed an incorrect
manoeuvre in the harbour.
Mr Gerber noted that the previous Annual Report had listed
"miscellaneous" items that in the 2005 year had risen to R10.9
million. He asked what this represented.
Mr Ismail was not sure off hand what this was but would send a formal report.
Mr Gerber noted that the Annual Report noted that cash held in short-term
investments had decreased from the previous year, down to R3.8 million. He
asked what had happened to the amounts invested in the previous year.
Mr Ismail replied that capital amounts were paid out on capital projects.
Mr Gerber noted that there was no PAYE deducted from payments made to labour
brokers, and no exemption certificates were submitted for them. There were four
labour brokers used. He asked what these people did, and why there was a
problem.
Mr Ismail said that the qualification had been addressed, and certificates had
now been issued. If the relevant information was not received from the labour
brokers, then the Fund would simply deduct PAYE at 35%. The appointments by the
brokers related predominantly to new sections, where the skills were needed
while institutional design was being built. The positions were generally in
customer service sections, at level 4.
The Chairperson asked if labour brokers were the same as recruitment agencies.
He personally did not approve of these agencies.
Mr Ismail confirmed that this was so.
Ms Yako noted that labour brokers would handle only temporary staff. This was
because at the time there was a need to employ staff, but permanent
appointments had not yet been made. The best way to recruit at a temporary
level was through such agencies.
Mr Gerber noted that there were 65 international trips undertaken during the
year, and about 900 working days were spent overseas. He asked if there was a
policy on trips, and what were the criteria.
Ms Yako stated that further details on each trip could be determined and
forwarded to the Committee. There were four types of trips. Cruise and
fieldwork involved patrols, generally between Namibia and Angola, for research
or compliance, and was a daily job, although it was performed outside South
Africa, and therefore reflected as overseas trips. Capacity building
conferences, such as scientific conferences, were attended. There were also bilateral
meetings and courses, especially in Norway, with whom South Africa had funding
and bilateral cooperation agreements. Finally there was attendance at
multi-lateral conferences, such as International Whaling Conventions, or
Council on Fisheries, to negotiate quotas.
Mr Gumede stated that Item 4.2 of the Auditor-General's (AG) Report had stated
that certain items could not be verified. These included continuous accrual and
monitoring of fishing levies, which was run on a manual system, where there
were no proper financial statement to support the accrual basis of accounting.
He asked if the accounting system was revised in order to cater for correction.
Ms Yako indicated that in August DEAT had reported that it was in the process
of revising and moving to the Integrated Financial System. It was on test for
three months, up to March 2007, and would be fully implemented from 1 April
2007. It included internal controls, for either a manual or electronic system.
The problem had therefore been resolved. All debtors were now on a proper
register and DEAT was working on proper reconciliation. Age analysis had been
looked at. There were still some other problems, relating to information on
debtors. In terms of current legislation, the catches of fish must be landed
and verified on site, in order to assess the levies and quotas. This assumed
that at all times there would be a Fund official on site. There were some
instances where skippers landed outside normal working hours. DEAT did not have
sufficient capacity to run a 24-hour service. This led to non-payment of some
levies. The Vessel Monitoring System
would give online information, especially for line fish. The industry was
complaining that the new system was too expensive, but at the same time this
must be weighed up against the current difficulty in verifying information
accurately.
Mr Ismail added that in working with the Auditor General it became clear that
it was difficult to reconcile the landings to revenue. A change in company
policy was needed. Assessment of revenue on landing posed a challenge. If DEAT
could change to the levy being charged once a month, after a declaration form
was forwarded, this would cater for problems in compliance and the systems
would be able to interface on a direct invoicing system. If the declaration
forms were not received, DEAT would withdraw the rights. DEAT had integrated
the Marine system, which was a portal, and this was also interfaced and under
control through those systems.
Mr Gumede noted that he would have expected capacity to be placed where there
was the most revenue, and would have preferred more explicit answers. He asked
for a specific answer directed to the various points in the AG's report, to
assure the Committee that each item had been properly addressed.
Mr Ismail confirmed that debtor systems and procedures had been developed,
specifically for licence fees, chartering of vessels, confiscation, harbour and
levy income. The Fund had also developed a Revenue Management Unit under the
office of the CFO to capacitate that.
Mr Gumede asked for the three main priorities of the Fund.
Mr Ismail said that these were to ensure that funds were collected, that they
could be reconciled, and that in order to do so, there needed to be changes to
the accounting policy and systems so that the marine administration system
interfaced with the financial system.
Ms Yako added that reconciliation meant that there must be updated information.
Every levy holder must have the completed forms, the data from the harbours and
all receipts, so that all source documents were in place. Once that was done,
there must be reconciliation of income to those documents. All systems must
interface properly with each other. The permit system was captured on one
system and updated to another system, and this too must be reconciled.
The Chairperson said that the AG was of the opinion that all shortcomings were
due to the lack of a proper integrated accounting system. He felt that the
substantive part of the Fund's report should have dealt with a proper system,
before any matters of capacity were raised. He accepted that the systems were
now in place.
Mr Gumede stated that the Auditor General had noted that supplier statements
for 24 supplier accounts could not be provided as no reconciliation system was
in place. He asked whether such a system was now in place.
Mr Ismail confirmed that in November 2006 the new financial system was
launched. One of the modules dealt with accounts payable. This was integrated,
from the request for a purchase order through to invoice. Individual files were
created for each creditor and there were monthly statements. All suppliers were
informed that no payments would be made without a statement, which forced a
reconciliation.
Mr Gumede said that the AG had noted that the reversal of an accrual for vessel
operating costs and a reversal for commission paid, were incorrectly allocated.
This was due to lack of systems for preparation, reviewing and approval of
journal entries.
Mr Ismail stated that there was previously no system or policy on journal
entries. Now there was a policy to sign off on all journal entries. In answer
to a further question, he clarified that the Senior Manager would have to sign
off before the matter was referred to the CFO.
Mr Gumede reported that the AG had said that the opening balances of the prior
year could not be confirmed, hence there was uncertainly on the completeness of
the balances for the next year.
Mr Ismail said this had been discussed with the AG. The balances on fixed
assets and accounts payable would be restated. There was also an exercise under
way for accounts receivable and debtors, and this was an extensive exercise
being addressed through the debt management policy. The AG had been asked for
his opinion, and had said that if nothing was done and it exceeded the
materiality criterion, then he would have to give a disclaimer. The matter was
the subject of ongoing discussion and work
Ms A Dreyer (DA) noted that the Fund had been in existence since 1998 and there
had been five consecutive negative audit reports, with the last three being
disclaimers. DEAT on the one hand expected the entity to increase its own
revenue and become less dependent on the Department, yet it appeared that it
was incapable of looking after its revenue, and expenses had been over stated.
The AG had noted 24% staff vacancies on the old establishment, or 46% on the
new establishment. There was inadequate capacity in the office of the CFO. She
said that none of the plans would be able to be implemented if there was not
sufficient capacity. She asked whether there were staff to implement the plans,
and what was being done about the vacancies.
Mr Mayekiso stated that the issues of skills and capacity were raised last
year. At the time, it was indicated that there would be three new directors to
improve management. Two directors had been appointed and another would be
appointed in the new few weeks. Insofar the apparent increase in the vacancy
rate, not all the positions in the establishment were funded in the past.
Funding was now to be given, and this would address the issues. There had been
some resignations, but positions were now being filled more quickly. Staff had
been trained in accrual accounting, instead of cash accounting systems.
Ms Dreyer noted that there would be a full complement of senior staff next
week. She asked if there was a staff retention policy in place.
Mr Mayekiso stated that there was one, which was the same as that at DEAT.
Mr Mofokeng noted that the
qualifications had also included fruitless and wasteful expenditure. There was
non-compliance with laws and procedures. He asked why the Fund was not
complying with Treasury Regulations.
Mr Ismail stated that the question related to the Emphasis of Matter, but there
were four items listed by the AG. The AG had said that performance information
was not listed in the Annual report. This was, however, listed in the DEAT
Annual Report. It had been an oversight not to include it also in the Fund's
report. The item on the budget related to approval, and he could confirm that
subsequently all approvals were obtained, so this matter would not recur. Risk
management strategy had now been developed, and this had been adopted by the
Audit Committee. In regard to the non- compliance with Generally Accepted
Accounting Practices, a Chartered Accountant had been hired to ensure that the
Fund was adhering to all the practices so that there would not be recurrence of
this matter either. The materiality framework had been approved, and this had
now been discussed and agreed with the office of the AG.
Mr Mofokeng asked if staff and management were aware of their non-compliance
with Treasury regulations. He noted that Section 65(1) of the Public Finance
Management Act (PFMA) had not been adhered to. He asked if there was lack of
capacity or of accounting knowledge.
Ms Yako stated that this had been dealt with at a previous meeting.
The Chairperson said there was no need to go into the matter again.
Mr Mofokeng noted that the audit committee should have sat four times, yet had
only sat twice in the year under review.
Mr Ismail agreed that the Charter did state that there should be four meetings.
During 2006 there were four sittings and dates for the prescribed four sitting
had already been set for the new year.
Ms Dreyer reported that the Chairperson of the Audit Committee had noted that
the Committee could not meet regularly as management was unavailable. She asked
why management was not available, and what priority management attached to such
meetings.
Mr Mofokeng said that attendance of the meetings was regarded as a priority,
but there had been a problem in the past. That error had been corrected and
four meetings had been held this year.
Ms Dreyer asked if this was due to a change of attitude and asked who was
attending.
Ms Yako said that attitude had not been the problem. The management of the
audit committee, reporting and minuting had now been moved to the office of the
Deputy Director General. It was oversight rather than attitude that had been a
problem. The management of Marine and Coastal Management (MCM) had not reported
to Parliament, and this issue had somehow fallen through the cracks.
Ms Dreyer said that it was vital for DEAT to attend these meetings to ensure
that it kept its finger on the pulse of financial management.
Mr Gerber found the non-attendance unacceptable. He pointed out that during the
August 2006 meeting Mr Mayekiso had said that it was difficult to say why
management was not available, and he could not give reasons for the
non-attendance.
The Chairperson noted that this issues had now been corrected. He was concerned
that the 2005/6 Annual Report had repeated problems that were raised in the
previous year.
Ms Dreyer said that no entity could function without an approved budget.
However, the budget was submitted late, and even the extension to 31 January
was not met. The budget was only concluded on 3 April and approved by the
Executive on 1 June. There was no proof that the budget for 2005/06 was
approved in concurrence with the Minister of Finance. If there was no proof of
approval, then she would think that any spending then amounted to unauthorised
expenditure.
Mr Ismail stated that the Fund submitted a budget to DEAT. At that time there
had been an overstated budget of and there needed to be understanding of the
real income. From 2002 to 2004 the Fund had received a large capital amount for
the building of vessels, and had sold a large amount of abalone. It was
effectively spending more than it was generating, although the figures
mistakenly reflected that it had a huge earning capacity. The budget was
revised three times to try to set the revenue more correctly. A proper budget
process was followed this year. Section 10 required the concurrence of the
Minister. A letter from the previous Minister had subsequently been traced,
relating to exemption.
Ms Dreyer said that the budget process was not something that came from
nowhere. The Fund should have been able to get some indication, from the
previous six years, of the true figures. She felt that it could have been drawn
on time.
Ms Yako confirmed that in normal circumstances it would be possible to use an
incremental budget. In 2005 and 2006 the incoming Managers took over. When they
took office they realised that the money was overstated, and had then tried to
come up with a realistic budget. Technically they should have asked the
Minister to approve the overstated budget, but they knew that it was were incorrect. She agreed that in the
circumstances there had, strictly speaking, been no budget approved.
Ms Dreyer said that the Fund had carried on spending as they could not hold up
on their work pending the authorisation. She asked if that spending had been
approved, or if it was not unauthorised expenditure.
Mr Ismail said the Public Finance Management Act's statement of unauthorised
expenditure related to spending in line with levels of authority. He did not
think that such spending where there was not an approved budget would amount to unauthorised spending in
terms of the PFMA.
Ms Dreyer felt that this was a moot point.
The Chairperson said that it would be important to look at whether there had
been correction.
Ms Dreyer said that in 2004 there was a disclaimer, and the validity and
accuracy of those balances could not be confirmed. This led to uncertainty on
the 2005 financial year. She asked if this had been resolved.
Ms Yako said that there was now certainty on opening balances for accounts
payable, and assets. There was still
more work to be done on debtors and levies. She referred back to the three
priorities mentioned earlier. DEAT was seeking accuracy on the files and the
source information. Attempts were being made to resolve all issues.
Ms Dreyer noted that the CFO and the Deputy Director General stated in the
Annual Report that the Fund was likely to be a going concern in the year ahead.
She asked on what basis that statement had been made.
Mr Ismail said that Generally Accepted Accounting Principles defined a
"going concern" as one that was liquid and could therefore fund its
activities in the future. It was on that basis that the statement was made.
The Chairperson noted that the liquidity of the Fund was due to the generosity
of the Department. The choice still needed to be made whether this should
continue as a separate entity, or reincorporated.
Mr Mofokeng said that the Fund had moved from the cash basis to the accrual
basis of accountants. A firm of consultants was appointed at a cost of R3.2
million to assist in the process. There were problems and another firm was then
employed at a further cost of R1.3 million. Approval was granted by the Acting
Director General of DEAT to institute legal proceedings against the first
service provider. He asked how far the process had gone, and why the R3.2
million had not been noted in the financial statements.
Ms Yako stated that this had been reported on in the August 2006 meeting.
Another report would be made in May, but the matter was still sub judice. The
State Attorney was dealing with the matter and a date had been set.
Mr Ismail said that this was not listed as fruitless expenditure at this stage,
since the State Attorney had not confirmed that the money could not be
recovered. In fact there was a strong possibility that the money to the first
service provider would be recovered.
Ms L Mashiane (ANC) asked whether the unauthorised expenditure had been
approved at a later stage.
Mr Ismail said that the capital budget was approved and was ring fenced for the
building of the vessels. The process to get the executive to sign off on all
items was not approved, but the capital expenditure certainly was.
Mr E Trent (IFP) commented that although there were accounting policies, there
were a number of variances that appeared without any notes to explain them.
Examples were confiscated assets, the cut in the subsidy from DEAT, that
resulted in the Fund going into deficit. These should have been explained more
specifically. The accounting policies should also be set out in detail. He
asked when the Fund had started depreciating the assets, and noted once again
that although the depreciation had increased by almost 100%, there was no note
to explain this. He asked if the Agulhas had been written off. He asked if the
5% depreciation on vessels was realistic.
Mr Ismail noted the variances and would give written comments. He confirmed
that the revenue had dropped by 50%. The depreciation increase related to the
four new compliance vessels on the books. The replaced vessels were of a much
lower value than the replacement ones. 5% was an acceptable depreciation value.
The new accounting standards for fixed assets required revaluation annually,
based on impairment, and this was being done. The Agulhas was 28 years old and
it could still be used, but after 30 years of use insurance became an issue.
Mr Trent noted that the assets only increased by R50 million in the balance
sheet, which did not appear to correlate to the rise in depreciation. He asked
if the new vessels were reflected in the balance sheet.
Mr Ismail noted that the 2004/05 year had noted an increase of R113 million,
and 2005/06 reflected an increase of R81 million, so the assets were reflected.
Depreciation was based on those values. The value of the old vessels was R5
million but now this had increased to R125 million.
Department of Environmental Affairs and Tourism (DEAT): Interrogation of
2005/06 Audit Report
Ms Dreyer noted that there were matters of emphasis in the AG's report on DEAT.
The information technology strategic plan to be used as a basis for the upgrade
had not been prepared although this was supposedly receiving attention She
asked what had been done and if there was a policy framework in place.
Ms Yako confirmed that the Master Systems Plan was in place.
Ms Dreyer asked if there were staff with the required skills and knowledge in
place to implement the policy.
Ms Yako said that seven additional posts were required, but the staff had not
yet been appointed.
Ms Dreyer commented that if the necessary staff were not in place, then this
would affect the process from day one. She asked when they would be appointed.
Ms Yako explained that implementation of the plan was not dependent solely on
these eight people. There were additional posts for completeness. Not all the posts
had been advertised because at the moment, taking into account the available
funding, there was full capacity. The vacancy management committee had met
yesterday, to abolish posts over 18 months old, to release further funds. The
eight posts were not critical for year one.
The Chairperson noted that there was a 30% vacancy rate and asked how the
recommendations of the vacancy committee would affect the vacancy rate.
Ms Yako indicated that the vacancy rate was at 27% as at 28 February, and this
included some posts that had been vacant for a long time. A critical analysis
had been done on the new responsibilities in terms of the new laws, and who
should implement them. Funding was made available. The vacancy management
committee was carrying out an ongoing monitoring system.
Ms Dreyer asked if the eight people were still required. If so, they should be
appointed and, if not, these posts should not be kept on the books.
Ms Yako said that the plan was a five year plan, costed over the five years.
The eight people were not critical in year one, but would be needed as the plan
progressed.
Ms Dreyer stated that the AG had stated that certain performance information
required under the PFMA was not submitted as requested, and therefore he was
not able to express an opinion. She asked why there had not been compliance
with the request.
Mr Ralph Ackermann, Acting CFO, DEAT said that this was an oversight. When it
was brought to the attention of DEAT the audit period had run out The necessary
steps had been put in place to prevent recurrence.
Ms Dryer asked if there had been a lack of policy guidelines, and if employees
were not aware that they must provide the information.
Mr Ackermann said that the relevant managers had thought that the information
was presented, but it came to the attention of the CFO at a later stage that
there had been an oversight and this had not been done.
Ms Dreyer asked what had been done to ensure that this would not recur.
Mr Ackermann said that the process was now included in a schedule, to be
provided by the line managers by 16 May, and to be made available with the
financial statements on 21 May.
Ms Yako noted that anything required by the AG's office would always now be
channelled through the CFO to avoid misunderstandings.
Ms Dreyer noted that the Annual Financial Statements were amended, re-dated and
re-submitted on 22 August 2006. She asked what the reason was for the delay.
Mr Ackermann stated that the irregular expenditure was the cause of the
resubmission It was addressed by the Department and the resubmission of
statements would not appear in the next financial year.
Ms Dreyer said the AG was of the opinion that there was a level 3 failure,
where there was lack of officials with appropriate training and capacity to
carry out their functions effectively
Ms Yako disagreed with this. The statements were submitted on time. Time had
been spent in discussing the issue of irregular expenditure with the AG. DEAT
and the AG had agreed on re-submission of the statements. The initial date was
complied with. This did not involve any lack of training. Certainly there had
been an issue of lack of training on the BAS accounting system, but this was
agreed to and sorted out.
Ms Dreyer asked what measures had been put in place to improve the situation.
Ms Yako responded that staff had been trained and this had been resolved.
Mr G Madikiza (UDM) referred to the Annual Report which stated that transfer
payments were made but were shown under goods and services instead of transfers,
and there was not approval for this in terms of the Treasury Regulations. This
therefore amounted to irregular expenditure. The AG had cited the root cause as
a typical Level 3 failure, or lack of proper monitoring. He asked what the
challenge was, and whether this was due to lack of policy, or capacity, or
commitment.
Ms Yako stated that there was a mistake in classifying the transactions. This
did not mean that general oversights and payments were not done properly. It
was true that this was a transfer payment, not goods and services. The
necessary approval from Treasury had now been received. This was a mistake, had
involved no loss of revenue, and this was confirmed by Treasury.
Mr Madikiza asked for assurance that there would not be recurrence of this
mistake and asked what corrective measures were in place.
Ms Yako confirmed that it had been sorted out and adjustments were made to
ensure that there would not be a recurrence.
Mr Madikiza asked who was responsible for this function and what action had
been taken against the official.
Ms Yako stated that she had spoken very seriously to the official although
there was no written warning given. It was a serious matter, but she noted that
DEAT handled in excess of R1 billion transfers.
Mr Madikiza asked if that official had received a performance bonus.
Ms Yako stated that the official had left the Department, and the first
performance bonus would only have been considered in March 2007.
Mr Madikiza said that the AG had stated that the additions and disposals had
not appeared on the fixed asset register. There was also lack of adherence to
policy. He asked if DEAT would agree with the observations of the AG.
Ms Yako said that the observations had covered adherence to policy and there
were capacity constraints. Training had been carried out and DEAT was confident
that there was now adherence.
Mr Madikiza asked for assurance that at the next audit these emphases of matter
should not recur.
Mr Ackermann stated that measures had been put in place from April 2006. The
line managers and the CFO had signed off on the BAS and LOGIC systems. February 2007. The problems should not
recur.
Mr Madikiza noted that the AG had noted non compliance with the National
Environmental Management Act., concerning submission of environmental
implementation plans. Ms Yako said that the plans were supposed to be submitted
by various other departments to DEAT. If those departments did not submit the
plans DEAT had no recourse as it did not exercise oversight over the other departments.
She suggested that the audit of those departments should be assessing the
extent of their compliance, so that Parliament should be able to have oversight
over them. If reports were not submitted by the extended dates, then there
could be no recourse other than mentioning this in Annual Reports.
The Chairperson noted that this problem had appeared as a matter of emphasis in
the report of one other Department that had pleaded ignorance of the
expectation on them. He agreed that there was lack of clarity. If the
Departments had not submitted this should be mentioned by the AG. DEAT's
coordinating role did not extend to having any powers.
Mr Madikiza noted that the AG had mentioned a legal opinion on the extension,
and asked for further clarity on it.
Ms Yako noted that the Minister could grant extension The legal opinion held
that this was only possible for two months. The extension was retrospective
from April to March. The other departments still had to submit the plans.
Mr Gerber referred to the Annual Report which noted that the cost of replacing
the Sardinops vessel was R105.2 million. Later in the report there was
reference to R121 million incurred for replacement. The Marine Living Resources
report was referred to R107.7 million for the same replacement, yet later also
referred to R110 million for the rebuilding. He asked for clarity on the
correct figure.
Mr Ackermann stated that R110 million had been made available by National
Treasury for the replacement.
Mr Gerber noted that page 83 of the Report had noted a figure of 200 hours
spent at sea. He asked whether this was correct.
Mr Mayekiso said that the 200 hours was an error; it should have been 200 days.
Mr Gerber asked if there were also other errors in the report. He noted that
there had been 334 permits inspected, 130 on board inspections, 26 fines, 21
apprehensions of poaching divers and four arrests. The costs were stated at
millions of rand and he queried whether these figures were correct, and if
there were other inaccuracies in the report.
Mr Mayekiso stated that any mistakes were regretted. He would check up on this.
Mr Gerber noted that the Director General's annual statement said that a
service provider had been appointed for integrated financial management and
procurement, to provide better control in management of Marine Living Resources
Fund. This was not been mentioned in the Fund's report. He asked how long this
contract ran and if it involved any ex-officials.
Ms Yako admitted that there were some mistakes but did not agree that these
affected the financial system. In the previous briefing the performance
information of the Fund was included in the DEAT report. This would be
corrected. The financial system was being implemented fully from 1 April 2007.
Some staff members had been trained and others still needed to be trained.
Mr Gerber said that the question was not answered. He asked who the service
provider was and if there were any ex employees involved.
Ms Yako said the company was New Dawn Technologies and to the best of her
knowledge there were no ex officials involved. The cost was R7 million.
The Chairperson asked how long the contract was.
Ms Yako stated that it ran to 31 March 2007.
South African National Parks Board (SANPARKS): Interrogation of Audit Report
2005/06
Ms Dreyer noted that the Committee had visited the Kruger Park to check up on
the physical appearance of the Parks. She noted that DEAT and Department of
Water Affairs and Forestry (DWAF) each gave a grant but that SANPARKS were
expected to generate their own revenue. The income from tourism, retail and
concessions was thus vital. SANPARKS wanted to focus on the middle income to
affluent markets. Internal controls would be increasingly important as more
income was generated. The AG had noted that internal controls were not always
efficiently managed. Particular focus was put on the disaster recovery plan and
information systems recovery. She asked how these had been secured.
Dr David Mabunda, CEO: SANPARKS, said that the 3.9 million hectares of National
Parks consisted of 141 revenue collecting centres and 1 256 cost centres, which
required a high level of visibility and alertness on controls. The systems were
in place but the staff would change from time to time. These were not glamorous
positions and younger brighter people would often move on to the cities.
SANPARKS had a major challenge in building and training an efficient staff
network. It now had a disaster recovery plan and an IT contingency plan, that
had been rolled out. It had identified areas for improvements on the continuous
plan, which included fire extinguishers,
the server room, wide area applicability and continuous testing to the
system. Even in this area staff were being lost as the environment was not
glamorous. They were also head hunted by other departments. SANPARKS was trying
to address this through retention policies and training programmes. He noted
that although it appeared that the same points were being raised each year, the
reality was that the area of coverage was huge, and it was not possible to
centralise the systems as this would hamstring their efficiency.
Ms Dreyer noted that there was an attempt to upskill people, which was
positive. However, the AG had noted that other issues of internal controls over
day to day operations were lacking, as also controls on bank reconciliations,
fuel, and back ups. She asked if these were due also to staff capacity, or if
there were other reasons.
Dr Mabunda said that the initial response applied here too. There were now sign
off schedules that had now been implemented to ensure scheduled control on the
reconciliations. SANPARKS had looked also to all regional financial managers'
roles. There was enforcement of controls so that there was no necessity to wait
for regional manager or head office structures to rectify errors. There were
specific schedules for sign-off,
particularly on bank reconciliations.
The Chairperson said that SANPARKS must find a way to manage the challenges, as
these problems would otherwise continuously appear in reports. It could not be
excused simply by reason of the situation of the Parks.
Ms Dreyer noted that decentralised control could also be a problem. The
problems were often at Parks level, where staff were not prepared to take
responsibility for the implementation and adherence of internal controls. She
asked how SANPARKS would instil better responsibility at this level.
Dr Mabunda stated that this involved discipline. Some staff had been
disciplined and some were relieved of their responsibilities. They were
expected to do work and if they did not perform, action would be taken.
Specific areas of operation were clearly defined so action would be taken.
Ms Dreyer was pleased to hear of this stance. She noted that there was a
declining and ageing infrastructure that had been highlighted by the
Chairperson in the Annual Report. More reliance was being placed on tourism.
Kruger Park in particular was generating 66% of revenue. The Committee, during
its site visit, had been worried about the seeming neglect of the rest huts,
evidenced by thatch falling apart, chipped tiles in bathrooms and kitchens,
poorly maintained grounds, and a feeling of general neglect. She asked what
were the plans to improve.
Dr Mabunda stated that this was part of the infrastructure upgrading plans.
Over the next four years R574 million had been allocated to address the issues.
This included R747 million to look at various areas of infrastructure upgrading
through poverty relief. There was a technical services department that served
well and was managed in a cycle. There was always a fixed life to
infrastructure. Whenever infrastructure was raised in the cycle, the repairs
and revamping would be done. There had been models of cross-subsidy from one
park to another until 2003, when DEAT began to give allocations. Even these
allocations for infrastructure were not able to address the issue properly.
There were 12 small camps, 10 gates and 12 large camps the size of Skukusa.
SANPARKS had managed to address some areas. Golden Gate was one of the oldest
rest camps but was one of the best maintained, as there was a strategic plan.
The Chairperson noted that SANPARKS relied heavily on well rested and happy
workers. He noted that the emphasis must also be on workers' residences.
Mr Madikiza noted that there had been non compliance with Treasury Regulations,
in that a finance lease had been entered into without approval of the Minister
of Finance. He asked whether the person signing the lease was aware of the
Regulation, and if not, he queried whether there were sufficient skills.
Mr Themba Mabilane, CFO: SANPARKS, noted that there had been various agreements
in respect of office equipment. It was felt that the margin was too low to
trouble the Minister of Finance to give approval. Therefore SANPARKS had
debated the issue, and National Treasury then issued a practice note that gave
general approval for entities to enter into contracts of a certain amount.
Condonation had been made of the past errors.
Mr Madikiza asked if the official was aware of the requirement, or had simply
disregarded it.
Mr Mabilane stated that the official had been aware of the limits, and this was
the reason why the letter had been written timeously to NT to obtain the
permission of the Minister. However, by the time the vehicles were required,
there had been no response. If SANPARKS had not entered into the lease, it
would have had to cease certain operations. Treasury had agreed that the
practice and limits needed to be reviewed as SANPARKS was not the only entity
to face this challenge.
Mr Madikiza asked if the finance arrangements referred to the purchase of the
two helicopters. .
Mr Mabilane replied that the helicopters were purchased for cash, so there was
no finance lease needed. The finance leases referred to by the AG were for the
motor vehicles and other office equipment.
The Chairperson asked for further explanation on the practice note.
Ms Retha du Randt, Chief Director of Public Finance: National Treasury, said
that there was a difference between financial and operational leases. NT agreed
that there should a practice note that the Minister should not be required to
approve certain long-term leases. It had taken longer than anticipated to bring
out this practice note and this did cause some problems. This was now
regularised. She was surprised that this was not taken into account by the AG
for the report.
Mr Madikiza noted that there was an arrangement for delivery of the
helicopters, and asked if they had been delivered.
Dr Mabunda said that the first was delivered in six weeks. They had been used
extensively, as they were an essential tool of the trade.
Mr Gerber said that during the site visit the Committee had been shown a safe
holding about 50 tons of ivory, worth about US$ 700 per kilo, or about R250
million in all. In view of the proposed
culling of elephants, he asked whether there was a need to increase the
safeguarding, what plans had been made, and whether the current stock of 50
tons of ivory would be sold, and if so, how this would be done.
Dr Mabunda said that the space would be increased as another building had been
prepared to house additional tusks if necessary. There would not be a wholesale
culling, and any culling would be carried out to ease pressure where there was
serious degradation or negative socio economic impact on communities. The
proceeds of the tusks would provide additional accommodation and security.
Nothing had been lost from the safe building since the 1960s. The department
was taking the lead in any selling, subject to compliance with certain
procedures, which international bodies had confirmed were well managed, both in
relation to the culling and to the trading in ivory. Problems in Asia had
delayed the introduction of the ivory into the market. The process would not be
managed haphazardly. A single sale
outlet would be identified and then the normal supply chain management
processes would be followed to determine market value. As a benchmark, SANPARKS
would not accept less than US$750 per kilo, the international market value.
Mr Gerber said that SANPARKS were looking after 60% of the South African parks
and 40% were taken care of by provinces. It apparently cost double per hectare
to look after provincial parks. He asked if there were any discussions to integrate
conservation to ensure that it was properly managed in a cost effective way.
Ms Yako responded that this was a concurrent function between national
government and provinces. National Department had limited oversight over
provinces. The Protected Areas Act had introduced a performance management
system for all parks, to be examined by the Minister or MEC. That was being
implemented although not yet fully finalised. Guidelines on park management
plans had been drawn, and there was work on the systems. It was difficult for
national government to prescribe but there were collaborative forums, an
intergovernmental forum and a protected management forum
The Chairperson wondered if this should not be considered again by Parliament.
If the performance related approach did not address the costs, then it was not
dealing properly with the issue.
Mr Gerber asked whether the closure of Skukusa Airport to regular flights had
affected the visitors to the park.
Dr Mabunda replied that the Board was approached by the Airport Management
Company. In 2001 SANPARKS was earning in excess of R2 million from landing
fees, entrance fees, conservation levies and a kiosk at the airport. There was
also a multiplier effect on percentage of revenue from car rental companies.
The airport needed upgrading in terms of security and safety, and SANPARKS had
already been looking at this, as the airport was a unique selling point and
advantage for SANPARKS, and did not pose an environmental problem. The initial
response was that SANPARKS would be happy to continue to run the airport. It
was a political issue, however, and pressure was exerted on the Board with the
result that SANPARKS had to submit to an agreement that was uncompetitive and
took away the rights of tourists. It was not a happy decision.
Mr Gerber noted that R1.57 million had been received from Marine Coastal
Management. He asked for details as it did not seem to appear in the MCM
report. Mr Sydney Soundy, Chief Operations Officer: SANPARKS, replied that
certain protected areas fell under
management of SANPARKS, including the coastal areas.
Ms Yako noted that it was not funding per se, but remuneration under a contract
for work done by SANPARKS. It was not spelt out in the MCM report, but was
listed under contracts.
Mr Gerber asked how much had been spent on the land acquisition. He noted that
SANPARKS had spent R60 000 on offices at Westlake, and wondered if there were
not other buildings that could be occupied.
Dr Mabunda replied that SANPARKS were already preparing to move from Westlake
to offices at Cecilia /Tokai, but there were certain issues still to be
finalised in terms of cutting of timber. The offices would be upgraded to
accommodate staff and make savings on expenditure.
Mr Gerber asked how the market valuations would be done.
Dr Mabunda replied that SANPARKS would generally go through a market evaluation
process, which was carried out by experts. In some areas it was possible to
determine value based on the last sale that had taken place. The gathering of
information was ongoing.
Mr Mabilane noted that the value was reflected in the balance sheet only if
acquired after a certain date. Kruger, for instance, had not been valued as
there had been no changes in ownership.
Mr Gerber noted that there was a fire disaster in the Kruger National Park in
September 2001. He asked if SANPARKS was fully compliant with the National
Forest and Veld Fire Act regarding fire breaks and appropriate measures.
Dr Mabunda said that the 2001 September fire disaster was unfortunate. The fire
ecology management systems and policies had been revamped after this and
SANPARKS did now comply with the relevant legislation. There was collaboration
with fifteen agencies in each area to try to avert disasters.
Mr Gerber asked what the general zoning was of SANPARKS' land, and if any of
the land was zoned for agriculture.
Dr Mabunda confirmed that the land was zoned as conservation. Some of the parks
needed to go through the proper proclamation and the zoning would follow. There
was no dispute about the intended use. If there were mining interests, then
SANPARKS would be happy to accommodate rezoning of that land.
Dr G Koornhof (ANC) asked if there were plans to encourage more black visitors
to enjoy the parks.
Dr Mabunda said that there were continuous plans to grow the number of black
visitors, and this needed to be
encouraged. Environmentally correct behaviour was being inculcated in young
children and environmental education programmes were being run in the parks.
The Parks were growing their own timber to encourage staff to work and live in
the parks.
Mr Trent congratulated SANPARKS on its comprehensive notes to the Financial
Statements. He noted that there were special project grants and donations and
government grants He asked if the government grants were conditional grants. He
had also noted that there was an operational grant from Government, and that
SANPARKS was showing an operating surplus of R39 million. He asked whether
there were set policies, and why SANPARKS needed an operational grant if it was
able to generate sufficient income.
Mr Mabilane replied that the operational grant was received from DEAT. The
capital expenditure grant was funded by donors or other Departments, like DWAF.
These were conditional grants linked to the purchase of land and necessary
equipment.
The meeting was adjourned.
