Audit Outcomes of Department and entities: AGSA briefing

Meeting report

Opening remarks
The Chairperson stated that the Committee would focus on two things: transformation of the sector and strengthening all round oversight. The Committee’s approach would be to be co-operative, unco-optable and to do incisive oversight. At grassroots level the Committee would have community based oversight forums. The intention was to build the economies of villages, townships and small dorpies through tourism. Poverty, inequality and unemployment had to be eradicated.

Briefing by the Auditor General of SA (AGSA) on 2018/19 audit outcomes of the National Department of Tourism (NDT) and SA Tourism (SAT)
Ms Keamogetswe Ruiters, Senior Manager, AGSA, touched on the role of the AGSA in the reporting process. Annual audits undertaken by the AGSA examined three areas. The first was fair presentation and absence of significant misstatements in financial statements, the second was reliable and credible performance information for predetermined objectives and thirdly compliance with all laws and regulations governing financial matters. Once an audit was complete the audit opinion could be expressed either as an unqualified opinion with no findings (clean audit); financially unqualified opinion with findings; qualified opinion; adverse opinion and finally a disclaimed opinion.

The Committee was provided with a brief explanation of each of the audit opinion outcomes aforementioned.

The performance of the NDT and SAT when compared to previous financial years was depicted in the briefing either as having improved, remained unchanged or had regressed. For the past five financial years the overall audit opinions of the portfolio had regressed as the NDT had received a qualified audit opinion for the first time in the 2018/19 financial year. The qualification was on capital work in progress, immovable capital assets and fruitless and wasteful expenditure. Material misstatements were also identified in the financial statements submitted by the NDT. Both the NDT and SAT had incurred irregular expenditure as a result of non-compliance with procurement prescripts. Irregular expenditure had increased from R4m in 2017/18 to R121m in 2018/19, SAT being the main contributor. The NDT had a material non-compliance relating to fruitless and wasteful expenditure on infrastructure projects. There was an increase in fruitless and wasteful expenditure from R1.065m in 2017/18 to R120.5m in 2018/19 of which the NDT was the biggest contributor. SAT achieved an unqualified opinion because it did not have material misstatements identified during the audit but had material non-compliance findings and material misstatements on the audit of predetermined objectives. 
AGSA Recommendations:
- The NDT and SAT had to develop action plans and to see to its implementation. Action plans also had to be monitored. In addition there should be consequence management for poor performance.
-  The Minister of Tourism had to take note that a payment of R1.4m was made by SAT to the National Heritage Council considering that there were allegations of a close relationship between the Chairperson of the Board of SAT and the Chief Executive Officer of the National Heritage Council. It was further alleged that an executive manager in the office of the Chief Executive Officer of the National Heritage Council was related to the Chairperson of the Board of SAT. The AGSA urged that an investigation should be conducted by Minister Kubayi-Ngubane to determine whether SAT derived benefits for the money transferred to the National Heritage Council.
- The Committee was urged to do monitoring and to do regular follow up with the Minister and the Director General of the NDT on progress around action plans, progress made by the NDT on monitoring and evaluating EPWP implementing agents as well as on progress made by both the NDT and SAT on consequence management.

Discussion
Mr M Galo (AIC) asked whether the AGSA had engineers on the ground to check on the quality of services provided. He gave an example of an access road that had cost R4m-R5m to build but was not up to standard. Did the AGSA have its own engineers in this regard? Perhaps the Committee needed to make a recommendation that the AGSA needed to have these types of highly specialised qualified persons. It was important for the AGSA to have information around services that were provided.

Mr Nicholas Mokwena, Senior Manager, AGSA, confirmed that the AGSA did have interactions with engineers. It was important to meet with them.

Mr P Moteka (EFF) pointed out that the NDT had been doing good work all along up until 2017 but all of a sudden, things just went downhill. The problem was that consequence management across all departments was lacking. Each year Members complained about the same findings that the AGSA came up with but yet no one was brought to book. There were no consequences for wrong doing. People saw nothing wrong with wasting taxpayer’s funds. It should be a sign that there were dishonest people in departments. In one instance the NDT had paid for a building that was built but the building had no roof. This was theft plain and simple. In Mpumalanga there were funds laid out for a project but the reality was that nothing was going on. There was a need for people to be held accountable. It was unacceptable that the NDT’s fruitless and wasteful expenditure had gone from just over R1m in 2017/18 to R120.5m in 2018/19.

Mr Mokwena said that a thorough investigation into losses was needed.

Ms Ruiters explained that it only became a requirement to report on projects in 2016/17.

Mr M de Freitas (DA) was concerned about the lack of controls that were in place. There was also no accountability.

Mr H Gumbi (DA) said that the AGSA had recommended that both the NDT and SAT develop action plans to resolve matters. It was up to accounting officers to implement action plans in order to hold people accountable.

Mr Mokwena said that the Director General of a department was responsible for developing and implementing an action plan.

Ms M Gomba (ANC) stated that every department should have an internal audit committee which should work hand in hand with the AGSA. Was the AGSA able to work with the internal audit committees of the NDT and SAT? The AGSA had pointed out that there were areas of non-compliance (slide 13) that had repeated itself from the previous financial year. Why had things not been corrected the first time it happened? The AGSA was asked whether it had monitored these areas of non-compliance to prevent them from recurring. She felt that the AGSA should assist the NDT to obtain a clean audit. How much support did the AGSA provide to the NDT? It would have helped if the AGSA had pointed out areas that required correcting. What percentage of the recommendations made by the AGSA had led to things being corrected? The preferred end result was after all to have better audit outcomes.

Ms Ruiters confirmed that the AGSA had worked with the internal auditors of the NDT. On re-occurrences, she said that the NDT had managed to resolve issues. The AGSA did engage with the NDT and SAT regularly during the audit.

Ms T Xego (ANC) asked what the AGSA had recommended when it came to repeat findings from as far back as 2011. What was the AGSA recommending? She was concerned as it seemed as if no progress was being made year on year. She was pleased that the AGSA had extended its mandate to physically visit projects. She asked whether it was correct that the AGSA had not received a report from the 5th Parliament Committee. It was a pity as the present Committee could have drawn lessons from such a report.

Ms Xego asked the AGSA how the new legislation assisted it to identify acts of mismanagement of funds or wrong doing by departments. How did the legislation assist the AGSA?

Mr Mokwena, on the implementation of the Public Audit Act, explained that it was done in phases. On how the Act helped to deal with financial mismanagement, the AGSA would check whether there were financial losses and if there were it would suggest remedial action.

Mr Z Peter (ANC) also said that there seemed to be no improvement on non-compliance with legislation year after year (slide 13). The AGSA was asked whether it had encountered a cut and paste exercise by the NDT or was good work really done. He asked how long would it take for the capacity building programmes of the AGSA (slide 25) to make an impact.

Ms Ruiters said that the AGSA had not come across instances of cutting and pasting.

Mr Mokwena said that there were capacity building efforts. It was important to have controls in place. Discussions with the Executive would take place in this regard.

The Chairperson noted that when re-configuration of departments took place challenges around migration, transfers and seamlessness would be encountered. He suggested that the AGSA do a study on re-configuration in order to see its impact and what financial management outcomes were. It could shed light on lessons learnt. Linked to reconfigurations was risk. What were the inherent risks of re-configurations? Perhaps government could then develop mitigation strategies on re-configurations.

The Chairperson said that that there was a need for an integrated performance monitoring and evaluation system. Once Annual Performance Plans (APPs) of departments were done there was no system to integrate all of them in terms of performance monitoring and evaluation. He asked the AGSA to consider it. There should be a system for all departments, provinces and municipalities. It could be in the form of a single dashboard. It could take on a phased approach. A seamless integrated system was needed. The AGSA could discuss the matter with the Presidency. He added that the Committee intended to introduce a community based tourism oversight system by way of forums. The idea was to get value for money on the ground. It was important for the AGSA to be aware of what the Committee wished to introduce. He felt that it was important for the NDT based on what its plans were to provide the Committee with monthly reports. In this way the Committee would be on top of things and would not get surprises. Whatever the Committee was aware of could be communicated to the AGSA. He suggested that perhaps the Committee could before the AGSA audit get a separate briefing from the NDT’s internal auditors as they were there for the purpose of early detection. By the time that an audit was undertaken by the AGSA then the Committee could satisfy itself that the internal auditors had already identified and raised issues.

Mr Mokwena stated that the AGSA did meet regularly with National Treasury. There was however no proper system on reporting. The AGSA used what was given to it by National Treasury. Further meetings with National Treasury and the Department of Monitoring and Evaluation (DPME) could take place.

Ms L Makhubele-Mashele (ANC) was interested on consequence management efforts. The AGSA, in terms of legislation, could hold persons accountable for actions of mismanagement and fruitless & wasteful expenditure. What mechanisms and systems did the AGSA have in place to hold people accountable? The AGSA had a statutory responsibility to hold management accountable.

Ms Ruiters, on consequence management, explained that the AGSA gave the NDT the chance to implement corrective action. The AGSA would in the next financial year check whether corrective action was taken. The AGSA had met with the Minister of Tourism the previous week and she had assured it that there would be consequence management. Two NDT officials had already been suspended. 

The Chairperson asked what percentage of the NDT’s budget was wasted on fruitless and wasteful expenditure.

Ms Ruiters replied that the budget of the NDT was around R2bn. Fruitless and irregular expenditure was around 6% each.

Ms Xego asked whether the mandate of the AGSA covered the performance of the Committee.

Mr Mokwena, on the role of the Committee, said that if there were material irregularities in the NDT then the AGSA would raise it with the Committee for oversight.

Mr Moteka asked for specifics around the projects in the North West and Mpumalanga.

The Chairperson said that in the North West there were issues around the Manyane Game Lodge.

Ms Ruiters added that in Mpumalanga there were issues around the Barberton Tourism and Biodiversity Corridor.

Mr Mokwena said that further details would be provided to the Committee.

Ms Gomba asked whether SAT had received a qualified or unqualified audit opinion.

Ms Ruiters stated that SAT had received an unqualified audit opinion.

Ms Makhubele-Mashele asked if the AGSA could raise red flags with the Committee before audits were finalised. Members did not wish to only see the AGSA once a year. She asked what mechanisms and measures the AGSA had put in place.

Mr Mokwena responded that it was not a problem for the AGSA to brief the Committee on red flags. 

Ms Makhubele-Mashele asked whether there had been under-expenditure.

Ms Ruiters said that most of the fruitless and irregular expenditures had been from previous years.

Ms Gomba asked what assistance the AGSA was giving to the NDT and SAT to ensure that there were good audit outcomes. 

Mr Mokwena said that the AGSA did meet with the Director General of the NDT and his team to raise issues that could affect audit outcomes.

The Chairperson stated that whatever the AGSA brought to the attention of the NDT and SAT should also be communicated to the Committee. There should also be monthly reports from the internal audit committee of the NDT to the Committee. 

Committee Minutes
Minutes dated 17 September 2019 was adopted unamended.

The meeting was adjourned.