Audit Outcomes of Department of Tourism; Minister & Department of Tourism on its Annual Report for 2012/13

Meeting report

Briefing by the Auditor General’s Office
Ms Mary-Anne Whitford, Senior Manager, Auditor General’s Office, stated that she had already briefed the Committee the previous week on the audit outcomes of both SA Tourism and the National Department of Tourism and would not wish to repeat the process in the interest of time. She would however touch on a few points. She noted that improving the drivers of key controls would improve audit outcomes. For example on leadership there had been an improvement from 67% in 2011/12 to 94% in 2012/13. Financial management had also improved from 57% in 2011/12 to 86% in 2012/13. Governance had also improved from 94% to 100% for the same periods. Hence there was an overall improvement. The review of financial statements against applicable reporting frameworks needed to be enhanced. Management should perform monthly reconciliations between the asset register(s) and the amount reflected in the financial system and the supporting documentation needed to be reviewed for correctness.

Discussion
Mr S Farrow (DA) asked whether the Auditor-General’s Office got involved in the corruption investigations that the NDT had undertaken.

Ms Whitford responded that the Annual Report reflected that the NDT did the investigations on possible corruption. The Auditor-General’s Office had identified irregular and fruitless expenditure. The Auditor-General’s Office ensured that it was correctly recorded in the financial statements. Once investigations were finalised it would be reflected in the NDT’s financial statements.

Mr Farrow pointed out that by mentioning it in the Annual Report it should be embraced in the Report. As it was the Committee would only be informed next year as to what had happened.

Ms Whitford said that the Auditor-General’s Office went to sample sites and identified potential areas of concern. There was an improvement in controls over the period from 2010/11 to 2012/13. The NDT could provide the Committee with specifics on what had been done. 

Opening Remarks by the Minister of Tourism
Minister Marthinus van Schalkwyk, Minister of Tourism, said that the performance of the NDT sat at 97%. The Auditor-General’s Office had given the NDT an Unqualified Audit Report. The NDT had spent 99.84% of its budget which in his view was considered excellent. The National Tourism Sector Strategy targets were also being met. In 2012, 9m tourists had visited SA; the figure was up from 8m in 2011. The NDT had also strengthened its international efforts of co-operation for instance on the Tourism G20 and being re-elected to the World Trade Organisation. It had also strengthened its regional co-operation. He pointed out that domestic tourism was still the backbone of SA’s tourism sector. The Vaya Mzanzi Campaign had been introduced to bolster domestic travel but a decision was taken to reintroduce the Sho’t Left Campaign which seemed to deliver better results. He was aware that the NDT could do more on domestic tourism.
For the financial year in question, the Expanded Public Works Programme (EPWP) targets had been exceeded. On some of the projects there were investigations into corruption and charges had been laid. He however noted that the tourism sector was a breeding ground for entrepreneurs. The Tourism Enterprise Programme (TEP) was also exceeding its targets. Funding to them for Small, Medium and Micro sized Enterprises (SMMEs) were to the tune of R25m. At the end of 2012/13 the Tourism Bill had passed through the parliamentary process and currently final mandates on the Bill was awaited from the provinces. It was the NDT’s third consecutive Unqualified Audit Report which demonstrated a sound governance foundation.

Briefing by National Department of Tourism (NDT) on its 2012/13 Annual Report
Mr Kingsley Makhubela, Director-General, NDT, highlighted several issues that the Committee had placed importance on. Forensic investigations had been done on six projects. The trigger to start an investigation was to check on project implementation and the resources. Discrepancies in bank statements had been identified. One project implementer had falsified statements that had showed that there was R5m in his bank account when in actual fact there was only R5. After having discussed the matter with the Hawks, the NDT had decided to open up a case. The same company in question had done work before for the Department of Public Works (DPWP). The NDT informed DPWP of what had transpired. The NDT decided to embark on forensic investigations on all its projects. Only once investigations were completed could the NDT report to the Committee on the outcomes. The NDT could not pre-empt matters by jumping to conclusions. The National Commissioner of the South African Police Services had agreed to fast track cases. He pleaded with members not to insist that cases currently before the courts should be discussed. He was afraid that the court processes would be compromised by discussing matters. The NDT wished to send a clear message that crime did not pay.

Mr Makhubela reported that there was a great deal of improvement with respect to the WPWP. Results were being seen. There was greater accountability and more site visits were undertaken. The NDT realised that it had to verify what funds were going to be used for before the second phase funding was to be provided. Funding would not be provided blindly. The NDT had built in better systems so as to minimise losses. He noted that the rest of his colleagues would elaborate on performance as it pertained to their specific portfolios.

Mr Dirk van Schalkwyk, Chief Operations Officer, NDT, noted that for 2012/13 the NDT’s performance sat at 97%. The target was set at 92. 89 of those targets had been achieved. One target had not been achieved and two targets had not been achieved but significant work had been done on it.

Mr Ralph Ackermann, Chief Financial Officer, NDT, stated that the total expenditure was 99.84%. Actual expenditure per programme was Programme 1: Administrtaion-13%, Programme 2: Policy and Knowledge Services- 58%, Programme 3: Domestic Tourism-27% and Programme 4: International Tourism-2%. The Committee was provided with further financial information which members could peruse.

Programme 1: Administration
Mr van Schalkwyk elaborated upon key performance indicators, the targets set and what the actual performance was. On vacancy rates, the target was set at 5%. President Zuma had however set the target at 10% so the NDT had amended it target to 8%. The actual vacancy rate in the NDT was 11.17%. The main challenge was the time it took for security checks to be done on candidates for positions. It could take between 2-3 months. Sine July 2013 there had however been an improvement in turnaround times.

Mr Makhubela added that the security clearance issue had been discussed by Director Generals. Another phenomenon was that government officials applied for jobs, went through the processes and then took their letters of appointments and used it as a bargaining tool to get their existing department to meet or improve on the offer made.  They had no intention of taking the new job. Regulation was needed and a better system should be found.

Programme 2: Policy and Knowledge Services
Mr Victor Tharage, Deputy Director-General: Policy and Knowledge Systems, NDT, noted that there were 46 targets that had been set- 45 had been achieved and 1 had not been achieved but significant work had been done on it. The focus had been on local government and a local government indaba had taken place. Relationships had also been strengthened with universities regarding research. On the number of National Tourism Information Gateways (NTIG) the target had been set at two to be operational. On actual performance one NTIG pilot at OR Tambo International Airport was operational and one NTIG pilot was still under construction and not operational at Beit Bridge Border Post. The difficulty at Beit Bridge was that land border posts were under border control. The NDT had underestimated the level of planning that was needed.

Programme 3: International Tourism
Ms Aneme Malan Deputy Director-General: International Tourism Management, NDT, noted that it was a new branch in the Department. It had set 6 targets and all had been met. There were five issues which she wished to highlight:
An analysis had been done on all the countries in the world
It had established a good relationship with the Department of International Relation and Cooperation
It had taken stock of all 25 bilateral agreements that related to tourism
Participation on many multilateral platforms had also taken place
It had also worked with SA Tourism over the issues of possible offices in Africa

Mr Makhubela pointed out that the NDT had entered into an MOU with the Department of Home Affairs.
The latter had agreed to grant long term visas to frequent visitors. It was necessary to go the extra mile for tourists. He pointed out that Macy’s Department Store in New York had shut its doors so that Chinese tourists could shop at their own leisure. A local example was that the Cullinan Hotel in Cape Town had closed its restaurant to the public in order to cater exclusively to a group of Chinese tourists. The United Kingdom had also relaxed its visa requirements for the Chinese. 

Programme 4: Domestic Tourism
Ms Morongoe Ramphele Deputy Director-General: Domestic Tourism Management, NDT, stated that the Branch was new. It had set 17 targets and all had been achieved. It had strengthened its relationship with provinces. Nine provincial profiles had been set and all had been completed and signed by heads of departments. Two regional support packages had been planned and developed. A target for a National Domestic Tourism Campaign had been set. To date the Campaign had been initiated through provincial road shows, the National Tourism Planning Forum, the South African Heritage Resources Agency Conference and facilitating the development of the national events calendar for tourism month. On the number of tourism products supported through the social responsibility funding (EPWP), the target had been set at 50. Targets had been exceeded in that 70 projects were actively funded during the reporting period.

Mr Dirk van Schalkwyk provided Members with a brief breakdown of figures on employees per occupational bands. For example at top management level there were 4 persons. One black male and female each and one white male and female each. The percentage breakdown of Africans, Coloureds, Indians and Whites in the NDT were 85.29%, 5.54%, 2.77%, and 6.4% respectively.

Discussion
Members expressed their congratulations to the NDT for obtaining an unqualified audit report.

The Chairperson referred to the Committee’s oversight visits to the Free State and KwaZulu-Natal Provinces and said that things were not good in Free State. In that province, the person in charge of the project had not been available for four days. There were some projects in which things were working.
The ultimate aim was the creation of jobs and sustainable livelihoods.

Ms S Farrow (DA) recalled that in 2012 he had raised the issue of shortfalls in skills to get project management working at grassroots level. The oversight visits had enabled the Committee to see what was happening. It would seem that implementing agents had the will of a cheque book regarding control of funds. He could not understand how a mistake could be made on a check of funds available in a service provider’s account. Information submitted showed that R5m was in the account when actually only R5 was in the account. Why was funds transferred before projects were completed or even partly completed. The communities in those areas were the ones suffering. He wanted answers to processes that were followed. Explanations needed to be given on how funds flowed. How was it possible that a person was allowed to get his hands on R14m and then abscond to Zimbabwe? He was glad that the NDT had taken action.

Mr Farrow expressed concern that contracts were awarded to persons outside of the areas where projects were. It defeated the intention of the projects in the first place. Serious actions were needed as controls on the ground were lacking. He asked how there could be a free for all in the civil service. How could departments compete against each other by making counter offers to hold on to staff? Staff could not be allowed to use job opportunities to get increases or promotions in their existing jobs. The problem needed to be sorted out.

Mr Makhubela accepted responsibility for what was taking place. As the Director General of the NDT, he felt he was responsible. He had been against the idea of giving persons funds upfront from the outset. He had meetings with the Director General of National Treasury and had written a letter to the Auditor General of SA. He was informed that this was the way things were done. Funds were given upfront because persons who had secured tenders did not have seed capital. After funds were given, the NDT had little recourse. The penny dropped when forensic investigations were undertaken. The issue was about how things could be changed. For funds to be released two signatures were needed. The NDT could insist that it was necessary for its authorisation to be obtained. The problem was that the NDT had a contractual obligation to provide the funds. The NDT had appointed auditors. The NDT had also appointed quality surveyors to check on the structural viability of projects.
Speaking to the system of approving projects he noted that planning for projects took place beforehand. Planning no longer took place after funds were allocated. Where local government and communities could not handle a project the NDT could take a project over and run with it. The NDT had built in such a mechanism.  He confirmed that there were persons from outside the areas where projects were located doing the work. Every person had the right to tender for work. If the outside person had the capacity then he had a chance to get the work. He could not limit granting work to persons in the area of projects. Capacity of persons needed to be checked. Work could not only be granted to persons in the areas where projects were located. In the following week, the NDT would be going to an area where additional funds needed to be allocated.

Mr van Schalkwyk said that there was a process in place to address the issue of salaries.  On skills development one had to take into consideration the Work Skills Plan. The types of training included protocol training, project management and policy development training.

Mr R Shah (DA) referred to the Social Responsibility Implementation (SRI) projects and was not convinced that all the 16 cases being investigated were sub judicae. Perhaps three were but the rest were nowhere near court action. The Committee needed information on what projects were being investigated and at what stage the investigations were. The Committee did not need the specific names of persons charged. How were project implementers selected and what criteria were used. He also asked how funds could be provided upfront. Planning had not been done correctly. At which stage were the problems discovered. In the interim who would be held responsible. The Committee wished to see heads roll. Everyone in the entire chain needed to be held responsible. He wanted accountability. He was curious about the NDT’s R70m transfer for new projects. It was good that local government and provinces would have a stake in projects. To which non government organisation had R12m been transferred?

Minister van Schalkwyk agreed that there needed to be “upfrontness” about issues. If something was not right it should be dealt with decisively. As government, serious and difficult questions needed to be asked regarding the EPWP. Projects should not be turned into a system where grants could be accessed.
There were problems even if provinces were involved. There were dynamics at play regarding EPWP projects. Problems needed to be weeded out. He noted that there were instances when the NDT had not been aware that the Committee was on oversight visit in a province. If the NDT was aware, provincial officials could be despatched to meet with members.

Mr Dirk van Schalkwyk said that the non profit organisation to whom R25m was transferred was the Tourism Enterprise Programme.

Ms Ramphele explained that the NDT was reviewing the way the SRI was being run. In the review attempts were made to have alignment with the construction industry. Issuing of payment upfront should stop. Payment should take place after delivery. Capacity building of officials needed to take place. The review was expected to be completed by the end of November 2013.

Ms R Lesoma (ANC) liked the approach of the NDT to solve a problem in a holistic manner. It could not be expected that forensic investigations undertaken would be completed in the current financial year. She was concerned that the NDT in upper management only had one female. She referred to Programme 1: Administration and asked what long term plan was in place to make jobs sustainable. On Programme 2: Policy and Knowledge Services, she wanted detail on the memorandum of understanding (MOU) which the NDT had signed with the field guides association. Lastly, she tackled the funding model for the EPWP and asked whether the return on investment and value for money had been looked at.

Mr Makhubela replied that the NDT had two male and two female Deputy Director Generals. At top management level the figures were in favour of males. At Chief Director Level there were more females.

Mr Tharage speaking to the MOU with the field guides association he noted that terms of engagement were covered in it. 

The Chairperson informed the Committee that the Minister would be leaving the meeting shortly as he had a flight to catch.   

Ms M Njobe (COPE) asked what corrections had the NDT made to the Annual Report 2012/13. Members had seen EPWP projects first hand and perhaps Director-Generals from various departments should look at the implementation of the EPWP. It was not only tourism which found it difficult to monitor EPWP projects. Persons in rural areas had not gained much from the EPWP. On vacancies, she said that the focus was always on experience. Perhaps there were good persons out there who had the qualifications but lacked experience.

Ms Njobe felt that the Committee should be privy to the reports which there were on the NDT’s programmes. She was concerned about domestic tourism. The figures were decreasing but the expenses were increasing. She looked at the gender and race breakdown of the NDT’s workforce and noticed that there were very little whites. Did whites not feel that they were discriminated against? Was transformation taking place in the tourism industry, particularly regarding SMMEs and rural tourism?

Mr Dirk van Schalkwyk said that financial disclosure notes had identified the misstatements.

Mr Ackermann added that commitments were understated. It had been corrected. Another mistake was that assets were overstated in financial statements.

The Chairperson said that the Committee could interrogate specific areas within the Annual Report and schedule meetings in this regard.

Ms Lesoma asked whether economic transformation on human capital was taking place.

Mr F Bhengu (ANC) referred to the Minister’s comment about the NDT not being aware that the Committee was on oversight in Free State and Kwazulu-Natal. He noted that the Department had a liaison officer which communicated the information to the NDT. The NDT officials had been present in Kwazulu-Natal but not in the Free State. He got the impression that the NDT felt that the Committee had not informed them about the oversight visits.

Mr Bhengu probed the cases under investigation and asked at what stage were the cases and in what areas had incidents taken place. Did the cases appear before the courts yet? What were the case numbers? In which provinces were the most EPWP challenges? He noted that funds had been returned to National Treasury by the NDT even though vacant posts had not been filled.
He asked what were the challenges regarding Broad Based Black Economic Empowerment (BBBEE). What interventions were made?

Mr Tharage replied that the NDT had been invited to chair the BBBEE Council of Tourism at the last Tourism Summit. A detailed presentation had been made. Sectoral scorecard issues were covered. He however noted that the bulk of tourism entities were in the exempted category which did not have to comply with BBBEE. He felt that BBBEE could be better. There was a mixed bag. There was a document available on BBBEE.

Mr Makhubela agreed that the issues pertaining to the EPWP needed to be sorted out. He believed in strong systems. The NDT was firm about taking action. On the cases under investigation, he pleaded with Members to accept that cases were ongoing. He pointed out that his teams were threatened many times. The question was how to protect the integrity of investigations. He wanted the Committee to have trust in the NDT. It was a challenge to manage the issue. He appealed to member to wait until investigations were complete. He concerned about compromising cases.
He noted that the NDT had not been invited to the Free State.

Mr Bhengu said that the issue of the NDT officials being present on oversight visits of the Committee could be discussed at another time and place.

Mr Makhubela agreed that the issue could be discussed at a later time. The NDT had not been given the oversight visit programme of the Committee. 

The Chairperson asked whether projects in the provinces were administered by the province on a project per project basis.

 The Chairperson referred to page 153 of the Annual Report and referred to two instances of damages that were claimed for negligence by officials. He asked that if there was negligence, who was responsible? Why was it placed under contingent liabilities in the Annual Report?
He also referred to page 143 and said that irregular expenditure was different to unauthorised expenditure.

Mr Ackermann responded that contingent liabilities were cases that sat with the NDT’s Legal Directorate. There was a possibility that the NDT had to pay damages on behalf of the officials, hence it was placed under contingent liabilities. There was a procedure to be followed for irregular expenditure. The process was about how to condone it.

The Chairperson asked whether the Public Finance Management Act (PFMA) covered it. 

Mr Ackermann responded that the NDT followed National Treasury instruction.

Mr Shah asked what actions were taken against such officials. Were they simply disciplined?

Mr Makhubela said that disciplinary action depended on the matter. If for instance the person paid the money back no further drastic steps would be taken.

Ms Njobe referred to slide 12 of the presentation and asked why the NDT had returned funds to National Treasury. Why had the funds not been spent? She asked whether it related to the NDT somehow not meeting targets on vacancies.

Mr Ackermann responded that unspent funds had to be returned to National Treasury. The funds could be rolled over to the following financial year.

Mr Makhubela added that National Treasury regulations made allowances for a 2% over/under expenditure. The Department was well within the leeway

Ms J Maluleke asked what the problem of under spending on vacancies was.

Mr Makhubela said that the filling of posts in government was a systemic problem. The biggest contributing factor was the time it took to do National Security Agency security checks.

Ms Njobe asked what the impact of providing training programmes to municipalities was. Did SA Tourism open up offices in Africa?

Mr Makhubela said that it was difficult to measure the impact of training programmes as it was only started recently. Some training on Chief Financial Officers had taken place. Provinces were also brought on board. Their strategic plans were streamlined.  SA Tourism had not opened offices in Africa.

The Chairperson said that the Committee Section was preparing the Committee’s Budget Review Recommendations Report. A suggestion was on the table for a meeting to be held on Thursday 17 October 2013 at 1pm for the Committee to consider the Draft BRRR. Members should feel free to make recommendations to the BRRR.

Mr Jerry Boltina, Committee Secretary, said that the Committee had to report to Parliament on its BRRR on Friday,18 October 2013.

Mr Farrow responded that it was very short notice for a meeting. He already had other commitments on that day.

Ms Njobe agreed that it was short notice. She suggested that the Committee meet on the morning of 17 October 2013.

Mr Shah suggested 10am as a time to meet.

The Committee agreed to meet at 10am on Thursday, 17th October 2013.

Mr Farrow was still concerned that contracts on EPWP were awarded to outsiders and not to locals of the area where projects were located. He said that a recommendation on it should be included in the BRRR.
He also said that a recommendation should also be made in the BRRR about the issue of upfront payments. The Committee should recommend that National Treasury make a change.
The issue was about proper project management.

Mr Shah said that he would not be surprised if project managers were in collusion with implementing agents Involving communities in projects were tricky and he felt that the person doing the selection should not be someone with clout in the area. He felt that here should be some sort of local government announcement.

The meeting was adjourned.