Response to Department & SA Tourism audit outcomes; with Minister & Deputy Minister

Meeting report

Mr Jerry Boltina, Committee Secretary, welcomed Members to the virtual meeting and noted that the Chairperson was absent due to illness. This necessitated that the Committee elect an Acting Chairperson for the meeting. He proposed that the same Acting Chairperson be used for future meetings until the Chairperson was well enough to attend the meetings. With no other nominations, Ms L Makhubela-Mashele (ANC) was elected as Acting Chairperson.

The Acting Chairperson expressed the Committee’s well wishes to its Chairperson and said that they hoped she would have a speedy recovery. She recognised the apologies tendered by Mr M De Freitas (DA) and Mr P Moteka (EFF). She flighted the meeting agenda, which was duly adopted by Members.

Purpose of the meeting

The purpose of the virtual meeting was for the Committee to be briefed by the Department of Tourism and its entity, South African Tourism, on its responses to the issues raised by the Auditor-General of South Africa (AGSA) on its audit outcomes for the 2020/21 financial year. This would be followed by a discussion of the Committee’s programme for the first term of 2022, and consideration of the draft minutes of its previous meetings.

The Acting Chairperson said that when the Committee was dealing with the Budgetary Review and Recommendations Report (BRRR) of the Department of Tourism, the Minister of Tourism was requested to give an account of the remedies and mitigation strategies around the issues raised by the AGSA. The Committee had previously noted that there were serious matters raised and that the Minister of Tourism had undertaken to look into these matters and revert to the Committee with solutions that would act as mitigation against a recurrence of the same issues. This meeting was the opportunity afforded to the Minister of Tourism to address the serious concerns resulting from the Department of Tourism and South African Tourism getting a qualified audit opinion from the AGSA.

Minister of Tourism's introductory remarks

Ms Lindiwe Sisulu, Minister of Tourism, said that the Department of Tourism was entering a very hectic year, with the goal of trying to make up for the losses suffered by the tourism industry. AGSA had issued a harsh report against the Department of Tourism and its entity, South African Tourism, and there was an understanding of the seriousness of the findings. The Department of Tourism would ensure that there was a very thorough investigation into those matters that had been referred by AGSA.

She thanked the Committee for the oversight work it conducts over the tourism industry and said the support from Members was welcomed. She was encouraged by the Committee’s passionate concerns and hoped to see the tourism industry playing its role in increasing its contribution to the economic growth of South Africa, including increasing the gross domestic product (GDP) and becoming a driving force for job creation. She commented that Kenya's Minister of Tourism had advised the Department of Tourism to look at the GDP specifically, and the contribution of the tourism industry while the country was under lockdown. In Kenya, it had been found that tourism had contributed a greater percentage to the country’s GDP than it had under normal circumstances. She confirmed that the Department of Tourism would take the same approach, and celebrate the role of the tourism industry.

She shared the enthusiasm of the Committee to elevate tourism to the level that it should be in South Africa, including the concerns regarding good governance and practices as it pertained to anti-corruption measures. On behalf of the Department, she vowed to deal with all the possible deficiencies and weaknesses identified by AGSA. The tourism portfolio needed to ensure the effective delivery of services for the benefit of the people of South Africa, and this service delivery had to happen within an administrative context that was professional and free of corruption.

She noted that the Committee had previously raised concerns about the Department's violation of procurement prescripts, and had called on her to institute investigations into the matter. She confirmed that she had taken the necessary steps to conduct these investigations and that the Department was finalising the procurement processes to appoint an independent investigation team to conduct these investigations in a way that was independent of the Department of Tourism. However, the Committee would receive an update on the internal investigations that were conducted by the Department, in addition to the independent investigations that were being undertaken. She confirmed that South African Tourism had developed a corrective audit action plan which was being implemented to address the audit issues raised by AGSA and the Committee.

She expressed her, and the Department of Tourism’s, commitment to making sure that no stone was left unturned when investigating and seeking answers to allegations of fraud, corruption, and the deliberate misuse of the state’s resources. The ball had been set rolling in this regard to ensure the repayment of state funds from individuals who had wrongfully benefited. In addition, consequence management would be applied to those officials who had deliberately committed misconduct, including officials who may have left the Department. Steps were also being taken to ensure that the recurrence of the audit issues raised by AGSA were prevented, including the maximum use of internal audit committees, and engaging AGSA to conduct in-year audits to ensure that potential audit issues were detected timeously and addressed at an early stage.

She told the Committee that she had received a letter from the Public Service Commission (PSC) dated 20 November 2021, to indicate that complaints had been lodged with the Anti-Corruption Hotline regarding allegations of procurement irregularities at the national office of the Department on the issue of tenders being irregularly awarded. The PSC had decided to investigate the complaints in terms of its constitutional mandate, which required the entity to exercise its powers and functions in the interest of maintaining an effective and efficient administration and a high standard of professional ethics in the public service sector. The Department was being investigated by the PSC, and the Committee would be provided with a progress report in that regard.

Update on responses to issues raised by AGSA: Department of Tourism  

Mr Victor Tharage, Director-General (DG), Department of Tourism, reported that the audit action plan was developed by the Department and signed off by the DG and the Minister on 15 and 24 November 2021. The Department had implemented 70 of the 117 measures outlined in the plan (60%), with 13 measures not being due yet, and 34 measures having been partially achieved. The full details of the progress were outlined to the Committee.

(See the attached presentation for details).

South African Tourism: Update on audit improvement progress report

Adv Mojanku Gumbi, Interim Chairperson: Board of Directors, South African Tourism, said that following the receipt of the 2020/21 audit outcome and the findings of a forensic investigation initiated by the Board, a legal opinion had been obtained to advise on whether there had been any acts of misconduct on the part of any current and former officials of South African Tourism, taking into account the Public Finance Management Act (PFMA), the Treasury regulations and internal policies. The legal advice sought also included the options available to the Board to address the irregularities identified by AGSA’s report, including options to recover any undue fees that were paid to the suppliers mentioned therein.

Upon receiving the legal advice, the Board had begun a consequence management process against two executives whose reporting lines were to the Board of Directors. The two executives had since received written warnings which would be in their employment records for six months. Further conditions to the written warnings were that there must be a significant improvement to the next audit, that financial statements were prepared in accordance with generally accepted accounting practices and contain no material errors, and that the relevant employees receive the necessary training on financial management and proper controls, supply chain management (SCM) procedures, and fraud prevention.

Consequence management for other members of staff who did not report to the Board of Directors had been initiated by their respective line managers and was currently underway. This process was expected to be finalised by the end of the current financial year. The Board had also started with a legal review of contracts that had been awarded irregularly and was asking the court to review and set aside the irregular appointments. Documents in this regard were served on 30 December 2021.

The audit and risk committee of the Board of Directors, working with internal audit, was keeping track of the audit outcome action plan to ensure that areas of concern that were raised by AGSA were adequately addressed.

Progress report

South African Tourism provided the Committee with a progress report on the organisation’s performance on audit updates, financial performance, and its audit action plan.

For the 2020/21 financial year, AGSA’s findings that impacted the audit report included material misstatements not corrected, audits of pre-determined objectives, procurement and contract management, and inadequate information and logs for DigiTech. For each area, South African Tourism indicated which mitigation measures had been implemented and the progress made in that regard. Mitigating actions were outlined for these targets, including the percentage of implementation of valid internal and external audit recommendations, maximum vacancies as a percentage of headcount, automation of business processes, the updating of the B2B base portal, and the marketing investment framework.

South African Tourism’s total expenditure of R622.1 million included an amount R16.8 million for expenditure paid by a third party. The entity did not have sufficient internal controls to maintain records for expenditure paid by a third party, and as a consequence, AGSA had been unable to determine whether any adjustments were required to the financial statement line item relating to marketing expenditure paid by a third party. There was a limitation on receivables from non-exchange transactions linked to marketing expenditure paid by a third party, so AGSA was unable to determine whether any adjustments to the financial statements were required.

On the issue of South African Tourism’s irregular expenditure of R20.1 million in the 2020/21 financial year, it was reported that the mitigation measure was to implement AGSA's recommendations in the SCM functions of the entity. Irregular expenditure had been investigated and confirmed, with assessment and investigation recommendations implemented. A legal opinion had been requested and recommendations actioned, including consequence management.

Feedback on 2018/19 AGSA audit outcomes and the forensic investigations into the EPWP

Mr Tharage said the briefing related to the 2018/19 regulatory audit conducted by AGSA, which had been delayed because of the complexities of the projects that were supposed to be audited, resulting in technical services having to be employed. He focused on the outcome of the audit, feedback on the outcome of the forensic review conducted by SNG Grant Thornton, and the progress made to implement the recommendations of AGSA and the forensic investigations concerning the Expanded Public Works Programme (EPWP) projects. SNG Grant Thornton had identified deficiencies that cut across all 14 EPWP projects. Recommendations included the recovery of money paid to two implementing agents who went against the material terms of the agreements for implementing the various projects for the Department. Disciplinary proceedings were underway against five officials, including three directors and two deputy directors, as per the recommendations of the forensic report. Civil litigation and criminal cases were also underway to implement consequence management against the officials involved.

Discussion

The Acting Chairperson said she appreciated the report back to the Committee on the processes that had been undertaken to remedy and correct the administrative errors that had resulted in the negative findings by AGSA against the Department and South African Tourism. The Committee welcomed the corrective measures adopted by the Department to deal effectively with AGSA's negative findings concerning its procurement processes and the allocation of COVID-19 relief funds. She was of the view that the state’s limited resources that were directed to the tourism industry must be utilised to ensure that the industry grew and flourished and benefited people actively involved in and dependent on the tourism space. She appreciated that the Department had followed through with its commitment to reporting back to the Committee with the concrete answers that were presented to get to the root causes of the maladministration, malfeasance, and red flags that AGSA had picked up.

Mr K Sithole (IFP) said the information presented showed that the concerns raised by the Committee last year had been heard, and the measures put in place were starting to bear fruit. He expressed concern that there had not been any timeframe given for the implementation of the measures outlined in the briefings. It was crucial that a timeframe be presented to the Committee for Members to understand and to monitor the Department's progress. His other concern was regarding the disciplinary proceedings that were underway against five officials, including three directors and two Deputy Directors, as per the recommendations of the forensic report. He said that if one checked the forensic report, it seemed that there were cases that had been provisionally withdrawn, and he asked for clarity on the reasons for the withdrawal and why some cases had been reinstituted in 2021. Did the Department have a strong case against these wrongdoers?

He asked for clarity on the duties of the internal auditors, as it seemed that they were not doing their work thoroughly in picking up the issues before they reached AGSA. Where there any mechanisms in place to monitor that the Committee’s recommendations and the AGSA’s findings were implemented from now onwards? The Committee should be provided with that information if the Department had such mechanisms, and if they did not have such mechanisms, the entity needed to furnish the reasons for not having them in place.

Ms M Gomba (ANC) asked for more clarity on the role of the risk management committee within the Department and asked how risk-related issues were handled to ensure that they did not compromise the decisions and management of the entity. A fully-functional risk management committee should be able to pick up on the issues as early in the whole process as possible. It was also important that the Committee note that AGSA’s report had found some material irregularities and that there were record-keeping challenges because of a lack of a proper record-keeping system. This issue was not addressed in the briefing by the Department. How would it address this issue of internal controls? It was important for it to be easy for AGSA to audit the Department.

The other issue she raised pertained to the fact that the Department relied on third-party information because it did not have its own system to verify its records. Had it come up with a way to deal with third-party information to ensure AGSA received the correct information? However, the Department should also have its own internal controls with systems that could provide proof and evidence to AGSA, rather than relying on third-party information. It was also important to know that the Committee had seen the report of the 2018/19 financial year, and the irregularities found by AGSA. She asked for clarity on who referred the matter to the State Advocate. There had to be internal processes that must be dealt with by the Committee first before going to the State Advocate. Was there any consensus between the Committee and the Department to do so? She asked whether there was any document stipulating that the matter had been dismissed, instead of further investigations being conducted. It was important that it be provided to the Committee for Members to see why the matter had been dismissed, and why it was referred to as "an old matter."

Ms H Winkler (DA) asked for clarity on the nature of the consequence management against employees who had been found to have committed some inappropriate actions within the Department. She referred to the oversight role that the Department played when funds were transferred to South African Tourism for disbursement to various beneficiaries. There was a problem with third-party payments that had been flagged by AGSA with regard to the double payments for the Tourism Guide Relief Fund, ghost employees, and staff members from local government. How long would these investigations take to verify the information, and when would the Committee be informed of the exact extent of the wrongdoing?  How would the Department ensure that there was a central database of all the tour guides in the country so that this sort of double-dipping into state resources did not recur? She also asked for a progress update on how far the process was in recovering the funds that had been dispersed to the incorrect individuals. She echoed the questions of other Members and asked for clarity on the measures put in place to strengthen the Department's internal controls to avoid future adverse findings from AGSA and to prevent these issues from recurring in the future.

Mr H Gumbi (DA) agreed with the issues pertaining to inadequate internal controls. Sometimes people got around those controls, and then the entities had to strengthen them once again. This had to be properly addressed once all other matters had been finalised. On the matter of time frames, he agreed that the Committee needed to be provided with firm and monitored time frames for implementing the outstanding issues raised by AGSA and the forensic report. The Committee needed responses to all outstanding matters, and dedicated dates had to be provided in this regard.

Ms P Mpushe (ANC) welcomed the prompt responses to ensure that the Department progressed to obtaining clean audit outcomes, and appreciated that measures were being put in place and that consequence management was being effected.

The Acting Chairperson said that the Department had received an unqualified audit opinion with emphasis on certain matters, while South African Tourism had received a qualified audit opinion. She asked how independent the internal auditor of South African Tourism was, and whether the independent audit was supposed to be coming from an external source. How independent was the system of internal auditing at South African Tourism? Regarding the complaint with the PSC on anti-corruption, she requested that quarterly reports be made available to the Committee on the progress of the investigations. This would allow the Committee to execute its oversight responsibility effectively.

Department of Tourism and South African Tourism responses

Minister Sisulu said the Department of Tourism would continue to address these issues and ensure that proper consequence management was implemented. There would be a constant attempt to improve the internal workings of the Department and to improve oversight. When something inappropriate happened, there would be measures to ensure that regulations were tightened and closely monitored and that any adverse matters were dealt with. She expressed her commitment to pursue cases against officials involved in corrupt and fraudulent procurement activities -- the matters that were being dealt with included issues raised by both AGSA and the Committee. The Department would also regularly report back to show that these matters had been dealt with, and the measures had been implemented.

On the matter of the funds that were given to tourist guides, she said there had been an internal review, and it had found that the law required the Department to exercise continuous oversight over the resources and funds that were allocated to it, so it had a continued responsibility to investigate all the resources that flowed through it and its entities. Mechanisms had been planned to ensure that there was complete control over these resources, as was required by law, and that the Department had the final responsibility in this regard. This required the amendment of some regulations, specifically regarding the payments of tourist guides, as this had previously been interpreted as being outside the sphere of the work of the Department.

Regarding the nature of the consequence management that had been implemented, she said this involved an internal investigation to make sure that consequences were implemented on those who had been found guilty of wrongdoing within the Department. The consequence management effected depended on the outcome of the particular investigations.

Regarding the process of recovering funds, she committed to ensuring that a way was found in which the Department recovered the dispersed resources to people who had long since passed away. This also required amendment of the Department's legislation and regulations. The Department would keep a record of the promises and commitments made to the Committee to ensure that no matter was left unattended and that all risks of recurrences were mitigated.

Regarding the complaints and investigations with the PSC, she said that the Department had received a letter indicating that the investigation had been taken over by another arm of the state. However, the Department would ensure that the PSC was aware that the Committee required quarterly updates on this matter, which would be the duty of the PSC to provide.

Mr Amos Mahlalela, Deputy Minister of Tourism, responded to the questions on the timeframes for implementing the issues raised by AGSA. He said that the presentations included a column showing the responsible officials and the timeframes for each of the issues raised. The Department had achieved 60% of the 117 audit outcomes that AGSA had raised, and the remainder were either in progress or not yet due. The timeframes outlined in the presentations indicated the periods by which these outcomes were to be achieved and could be used by the Committee to monitor the work of the Department and to hold the entity accountable for progress made on these issues.

Adv Gumbi added that the indicated timeframes in the presentations showed that consequence management would be implemented by the end of March 2022, and the legal process was out of the hands of the entities. She said that the question by Ms Gomba was a policy issue and that it was a voluntary levy that was collected by third parties who were participating attractions or entities, and it was then transmitted to South African Tourism.

She said the internal audit function was independent within the organisation, and the internal auditors reported directly to the Board of Directors of South African Tourism, and not to management officials. The internal auditors had helped a lot in the process that led South African Tourism to appoint a forensic auditor, with independent reporting.

Mr Tharage responded to the issue on the withdrawal of charges and said that after the two cases mentioned in the presentation, the Department had realised that there was a need to withdraw the charges and to obtain an opinion on the outcome of the disciplinary hearing. Only after that had the Department been in a position to reinstate the charges. After any disciplinary proceedings, there was a record of the decision that was issued by the presiding officer of the hearing, and that was the document that was used as the basis to challenge the matters and take them on review.

Regarding the issue of the role of the State Advocate, he responded that the PFMA required the Accounting Officers to make sure that matters of irregular, fruitless and wasteful expenditure be investigated, and that action was taken, including the recovery of money. When cases were instituted, these cases were reported to the police, and disciplinary processes were undertaken. If the Accounting Officers did not fulfil their roles, then AGSA would issue a letter of debt in the personal capacity of the Accounting Officer. The Committee came in when such matters had been dealt with, and these matters were reported in the Department's annual report for accountability and transparency. At the moment, most of these matters were in their respective processes, and some of them were not yet finalised.

The risk management committee was independently chaired by an external person, and meetings were held between this entity and the Department to identify matters or issues found by the risk management committee to strengthen the management of the Department. These matters also went to the internal audit committee to determine the Department's compliance on these issues. The risk management committee also served to ensure that there was a synchronisation between all the areas where the risks were being identified in the Department.

Regarding the reliance on third-party systems, he said that on the issue of the COVID-19 relief funds, contact had been made with the South African Revenue Service (SARS) to find out whether the beneficiaries could be identified as taxpayers, but SARS did not share this information and stated that the persons doing business with the Department of Tourism must give this information themselves. There was nothing that the Department could do about this issue. The biggest challenge, when the Department became reliant on these third parties for information, was when the person doing business with the state was not an employee of the Department of Tourism. There was no way for the Department to know whether these people were working for other public entities, and it was only when AGSA pointed it out that the Department would become aware of it. There should be a specimen of a letter or statement of facts that people could sign when doing business with the Department to state that they were not employed by any organ of state, with their names and ID numbers. When someone contravened this, there should be serious consequences that could be implemented.

Record-keeping issues were related more to the information coming from the implementing agents of the Department. In this regard, the Department had identified segments of agents to address these issues with, and the standardisation of the information along with its verification should take place internally. The Department had put a lot of mechanisms in place to ensure that there was no loss of control over the funds and resources flowing through it, and in this regard, there would still be instances of unforeseeable circumstances that would be addressed by the Department. The losses would be controlled as much as possible in the business of the Department.

Deputy Minister Mahlalela said the Department of Tourism appreciated the input of Members on the matters that had been discussed. The Department would continuously work with the Committee to resolve the issues raised by AGSA as speedily as possible, and in a manner that was acceptable to the Committee to achieve the best possible results for the industry. The irregularities would be addressed to enhance the administration of the Department, including ensuring that all the prescripts of the law and the PFMA were followed to the letter.

On the issue of consequence management, he said there was a legislative and regulatory framework to address issues of misconduct, fraud, corruption, and unethical conduct and behaviour in the public sector. The form that consequence management took depended on the process engaged to address those matters. The internal auditors picked up internal irregularities before AGSA picked them up, and this allowed the Department to implement mitigating measures. He committed the Department to be more responsive to these types of issues.

He also committed to looking into the matter of the payments to the tourist guides. The Department was in the process of making the process more credible, and the Committee would receive an update on the policy direction and position concerning this matter. There was a challenge of safety of tourists in the country, and this was where tourist guides played a big role, so the Department was investigating how better to use tourist guides to improve tourists’ safety.

Ms Gomba asked for a document regarding the old case that had been referred to, as well as answers to the questions on who had referred the matter to the State Advocate. She asked for this answer to be responded to in writing by the Department.

The Acting Chairperson said that the Committee Secretariat would ask in writing for these responses from the Department.

The Committee welcomed the corrective measures adopted by the Department to deal effectively with AGSA's negative findings concerning its procurement processes and the allocation of COVID-19 relief funds. Members had reaffirmed their commitment to work collectively with the Department, and they understood their role of oversight while stressing the importance of the Department to understand their role as service providers in the country.

She cautioned the Department that the Committee would deal robustly and constructively with administrative and procurement processes that had not been, or were not being undertaken, in the proper way as required by the law, and that consequences must be implemented for such errors and wrongdoing. She added that the Committee welcomed Minister Sisulu’s commitment to pursue cases against officials involved in corrupt and fraudulent procurement activities. The Committee also called on the Department to provide it with progress reports on resolving the outstanding issues, as well as the disciplinary and criminal cases related to AGSA’s findings and consequence management.

Consideration of Committee’s first term programme

The Committee noted that at the end of 2021, it had adopted the first draft of its programme for the first term of 2022, and it remained approved. All that remained now was for letters to be sent out to the relevant entities and stakeholders informing them of the dates and subject matters on which to engage with the Committee during the first term of 2022.

The Committee’s Programme was agreed upon up until April 2022 and had been circulated to all the Members.

Adoption of Committee’s outstanding minutes

The Committee considered the draft minutes of its previous meeting held on 7 December 2021, during which it had dealt with two issues -- the consideration of the draft Committee programme for the first term of 2022, and the consideration of minutes of the previous meeting.

The minutes were tabled for consideration and were adopted.

The meeting was adjourned.