Department of Tourism Strategic Plan objectives, Auditor-General's briefing on External Audit Processes, Finance and Fiscal Commission briefing, South African Local Government Association briefing

Meeting report

Chairperson’s opening remarks
The Chairperson welcomed all Members, and noted that National Treasury was unable to be present at this meeting. The Committee must ensure that tourism met its objectives of creating jobs and sustainable livelihoods and broadening participation. The country must look at ways to optimise the legacy of the World Cup of 2010. Key challenges for South Africa included the upliftment of rural areas, the promotion of heritage and cultural tourism, and increased use of public-private partnerships. The threats facing the industry needed to be addressed. Despite the global recession South Africa still needed to advertise itself as a tourist destination and this would require specialised skills and knowledge, which should ideally be seated within government to avoid the costly use of consultants. He stressed that the lack of delivery was often not due to a lack of budget but rather a lack of adequate human resource management. Delivery was often also seriously hampered by non-alignment of the aims and objectives of the different spheres of government. All these issues must receive attention from the Committee

National Department of Tourism (NDT) Strategic Plan objectives: Departmental briefing
Mr Dirk van Schalkwyk, Chief Operations Officer, Department of Tourism, said he was sure that after the World Cup, tourism had moved up on the list of government priorities. He said that the detailed Strategic Plan had previously been dealt with and that his presentation therefore would dwell on the processes in delivering on the strategic objectives.

He wished to indicate how the Department’s objectives fitted into government’s priorities. He listed the government’s ten priorities that were set out in the Medium Term Strategic Framework (MTSF) and emphasised that three priorities were particularly relevant to the National Department of Tourism (NDT or the Department). These were to speed up economic growth and transform the economy to create decent work and sustainable livelihoods, to develop a comprehensive rural development strategy, linked to land and agrarian reform and food security, and to pursue regional development, African advancement and enhanced international cooperation.

Three of the MTSF government outcomes were relevant to the Department. These outcomes were decent employment through inclusive economic growth, creating vibrant, equitable, sustainable rural communities contributing towards food security for all, and creating a better South Africa and contributing to a better and safer Africa in a better world. These outcomes each contained a set of outputs that further detailed the specific deliverables for respective departments, which then cascaded down to numerous sub-outputs. He briefly explained these (see attached document), using the outcome for creating decent employment as an example. The National Tourism Sector Strategy (NTSS) would be the vehicle to drive labour-intensive industries, while the Revised Industrial Policy Action Plan (IPAP 2) would drive support for import and export competing sectors.

The Department was also implementing a Social Responsibility Implementation (SRI) programme and had received an additional R2 million as part of an incentive programme. 60% of these funds needed to be spent on job creation. Already the Department had partnered with business to train chefs, as this was a skill that in the past had been imported.

IPAP 2 demanded certain deliverables from the Department. These were already being addressed through specific initiatives like increased domestic and international tourism marketing, tourism investment promotion, tourism product diversification and tourism enterprise development.

Mr van Schalkwyk said that the outcomes-based approach, together with the delivery agreements for all tiers of government, would ensure delivery. This approach would also help to create the enabling environment necessary to grow the sector. He reminded members that tourism was a concurrent function and that provincial and local government also needed to play their role in growing tourism.

He summarised the broad themes, which were translated into the strategic objectives of the Department, and illustrated the links to the MTSF priorities (see attached document).

Mr van Schalkwyk said it was important to note that a new baseline for budgetary allocations had to be set when the former Department of Environmental Affairs and Tourism split into two new departments in 2009. The medium term allocations for 2010-2013 had been divided, with 74% of financial and human resources being directed to Environmental Affairs, and 26% for the Department of Tourism. This left the NDT with a total allocation of R1,151 billion for 2010/11, rising to R1,291 billion in 2012/13.

Mr van Schalkwyk indicated that a Draft Tourism Bill was being circulated and this would be sent to the Committee in the third quarter of 2011. The National Tourism Sector Strategy would be finalised in the first quarter of 2011. The Annual Report would be compiled jointly by the two new departments and should be published by August or September 2010. The Department would like to meet with the Committee in early 2011 to review the Strategic Plan.

Discussion
Ms M Njobe (COPE) noted the allocation of R465 million for international tourism marketing, but wanted to know what was being spent on domestic tourism, which was also a key objective, yet which did not appear to be supported by a budget.

Mr van Schalkwyk replied that this had much to with the problem of misalignment across spheres of government. The NDT was responsible for marketing of tourism products, wherever they emanated. The mandate to market a region lay with the provinces and other regional agencies, who were thus responsible for growing the domestic market. Another problem was that tourism, at provincial level, was handled by the same departments dealing with, for instance, economic development, although the two functions fell into different sectors, which unfortunately resulted in a loss of focus and budgetary constraints. He recommended that allocations to provinces should include a specific statement of exactly how much should be spent on tourism.

Ms Njobe asked if the Department could provide statistics of the number of jobs it created through its programmes, including those under the Expanded Public Works Programme (EPWP) schemes.

Mr van Schalkwyk stated that it was a difficult question. He said that many jobs were created, but would last only for the duration of the particular project. The great challenge therefore was to create sustainable jobs, and the Department of Public Works was constantly looking at ways to improve. The new NDT was developing a policy to manage its role in the EPWP and was specifically looking at how to improve the EPWP in order to create more sustainable jobs. This could be explained to the Committee in more detail on another occasion.

Ms X Makasi (ANC) felt that not enough was being done to market the Small, Medium and Micro Enterprises (SMMEs) in the sector, and asked what the Department planned to do.

Mr van Schalkwyk stressed that the Department marketed South African products and that any small operator could become part of the national database if it complied with certain criteria. During the recent Soccer World Cup, provinces could not provide figures for beds available, but eventually the South African Local Government Association (SALGA) was able to do so. He emphasised that there was no deliberate intent to neglect SMMEs, but this often resulted from a lack of centralised systems or budget.

Ms T Tshivhase (ANC) felt that rural areas had many tourism opportunities, but that the cost of advertising was a problem. She needed to know more about the link between provinces, municipalities and the national department.

Ms Njobe asked where the provinces received their budget for tourism.

The Chairperson suggested that both questions be discussed after the SALGA presentation. He felt that it was a question of alignment and that SALGA’s presentation would address the matter.

External Audit Processes and types of audits: Auditor-General South Africa (AGSA) briefing
Mr Graham Randall, Business Executive, Auditor-General South Africa, provided a brief overview of External Audit Process and types of audits undertaken by the Auditor-General South Africa (AGSA).

He referred to two types of audits: mandatory audits and discretionary audits. Mandatory audits included the Financial Audit, which consisted of several processes. These included the audit of the financial statements, an audit of performance against pre-determined objectives, and ensuring that this performance was fairly reflected to ensure good oversight of service delivery. In addition there would be an audit of compliance with laws and regulations and an audit of internal controls.

Discretionary audits included three special categories. Firstly, a Performance Audit would make sure that resources were used economically, effectively and efficiently. Secondly, an Investigation Audit was a factual finding relating to financial misconduct, maladministration and impropriety. Thirdly, a Special Audit would be carried out if a review was required relating to, for instance, donor funding or legislative compliance, and this Audit would follow a procedure agreed upon in advance.

Mr Randall said that the structure for auditing standards was based on principles from the International Standards on Auditing and the International Standards for Supreme Audit Institutions.

He then proceeded to explain the different types of audit opinions that could be expressed after an audit. An unqualified or unmodified opinion would be given if the auditor came to the conclusion that the financial statements, in all material respects, gave a fair presentation of the financial position, financial performance and cash flows of the auditee. This was the ideal outcome. A qualified opinion would be given if the auditor concluded that, apart from specifically listed material misstatements, the bulk of the financial statements still remained a fair reflection. An adverse opinion would note that the auditor disagreed with the representation made by management in the financial statements, to the extent of confirming that these were not a fair reflection of the financial position, financial performance and cash flows. Finally, and most seriously, a disclaimer of opinion would be given where there was a lack of sufficient appropriate audit evidence to the extent that the auditor was not able to form an opinion on the financial statements as a whole.

Mr Randall also outlined the respective roles and responsibilities of both management and the auditor. He also gave brief details of the timelines followed.

Mr Randall then highlighted potential risks that the Department of Tourism needed to manage. These included harmonisation of the National Tourism initiative, vacancies for key personnel, record keeping, governance structures, including the internal audit and audit committee, supply chain management, delegations of authority, fixed assets, IT transversal systems and performance information in the strategic plans.

Mr Eugene Zungu, Corporate Executive, AGSA, then gave a brief overview of the fundamentals of effective internal control. He explained that the main reasons why organisations needed internal controls was to provide a reasonable assurance that they would achieve their operating, financial and non-financial reporting and compliance objectives, and to implement effectively designed policies, procedures and practices to ensure that the entity’s objectives would be met. Management was involved in the approval of these policies and procedures, and there should be continuous monitoring of their implementation.

Mr Zungu emphasised that effective control needed strong leadership and good governance. It also required effective financial and performance management, including good systems, regular monitoring and proper documentation. AGSA had implemented initiatives to promote oversight.

Discussion
Ms J Maluleke (ANC) asked about the nature of the relationship between the Internal Audit Teams and AGSA. She felt that a good relationship would limit the audit queries and could isolate and correct problems before they escalated out of control.

Mr Zungu said that AGSA always endeavoured to work closely with the internal auditors. The aim was to make the internal audits more reliable, but he noted that in reality AGSA could not always rely too heavily on the internal audit reports.

Ms Maluleke enquired about AGSA’s approach to departments who tended to spend money at the last minute, which she felt often would amount to fruitless expenditure.

Mr Randall said that AGSA was aware of this practice, but that it was difficult to manage. AGSA certainly hoped that departments were not under spending or that they were not spending monies that could have been better utilised by other departments.

Mr Zungu added that the practice of last minute spending, also known as fiscal dumping, could be limited if proper oversight was maintained. Management, by studying monthly reports, should be able to predict such practices. The best advice he could give was for oversight bodies to be pro-active and to ask the right questions at the right time.
 
Ms Maluleke also felt that there was a tendency for some departments to spend on aspects that did not revolve around service delivery. She referred to the recent splurge by some entities on World Cup tickets and other travelling costs, and asked how AGSA would handle this.

Ms Njobe asked what AGSA meant by the statement that it would not express an opinion on the effectiveness of internal control.

Ms Njobe needed clarity on what policies the AGSA actually evaluated during an audit.

Mr Zungu explained that AGSA did not express an opinion on the full internal controls of an entity, although it would express an opinion on those controls which had a direct financial impact. AGSA’s final report would highlight non-financial matters to management, but without expressing an opinion on them.

Ms Njobe referred to monthly financial statements, and wished to get a sense of how departments were complying with them, or whether some were neglecting to produce monthly reports. She also asked whether the AGSA scrutinised the monthly reports or if it would simply file them until the annual audit.

Mr Zungu admitted that the situation was not ideal; there was currently a lack of culture of producing accurate and regular monthly reports.

Ms Njobe expressed concern that some departments repeatedly received a qualified audit report. She questioned how this could happen if the correct staff appointments were made.

Mr Zungu felt that it was a very difficult question to answer but suggested that the Committee needed to keep studying the annual reports and take up the recurring issues with the management of those departments.

Mr Randall added that the Committee’s first line of approach should be through the Internal Audit Committee of the department. By working closely and regularly with the audit committee, it was possible to focus clearly on areas of non-compliance or poor performance.

Mr Zungu suggested that AGSA should be asked to give a presentation to this Committee if there was a need to investigate more closely the issues causing qualified reports of some entities, in order to receive objective comments.

Financial and Fiscal Commission (FFC) role and tourism recommendations
Dr Bethuel Setai, Chief Executive Officer, Financial and Fiscal Commission, noted that this was the first time the Financial and Fiscal Commission (FFC) was appearing before this Committee, and it might be useful to give an overview of the FFC’s work and briefly submit some recommendations.

Mr Mkhululi Ncube, Programme Manager, FFC, said the FFC was an independent, objective, unbiased and impartial Constitutional advisory body. It made recommendations on the equitable division of nationally raised revenue between the three spheres of government, and on any other financial and fiscal matters. It provided advice and recommendations to Parliament, Provincial legislatures, organised local government and other organs of State.

The FFC had three main functions. It made annual submissions on the division of revenue. It also made submissions on the Division of Revenue Bill. Lastly, it generated in-year reports, on request by stakeholders and/or of its own initiative. The FFC could influence policy through various actions. It would make evidence-based proposals to various committees. It was also an observer member of the Budget Council and Budget Forum. It also received invitations to attend meetings of various governmental structures, at both national and local level.

The recommendations made by the FFC were not binding, as there was no need for enforcement, but rather for deliberations through the budget and Parliamentary process of cooperative governance. Around 80% of its recommendations were accepted. However, he noted that it was not possible to gauge how successful the implementation of the recommendations had been. Government was legislatively obliged to explain how it had approached the FFC recommendations in arriving at the division of revenue for any particular year.

Mr Ncube briefly set out the work cycle that FFC followed.

Mr Ncube noted that the FFC had no specific recommendations on the tourism sector, although recommendations on the economic and other sectors, including education, cooperative governance and the like, may indirectly have a bearing on the tourism sector. FFC still welcomed this meeting as it would help to identify pertinent and strategic issues in the tourism sector, to identify research issues which FFC could then undertake with a view to making appropriate advice and recommendations, and to identify other stakeholders involved in working on growth and prosperity of the tourism sector. FFC would also welcome opportunities to attend tourism workshops that might isolate relevant issues.

Dr Setai continued that there were three ways in which the FFC interacted with government. Firstly, departments might approach the FFC when they needed a function to be shifted from one sphere of government to another, and FFC would then provide recommendations. Secondly, departments may invite the FFC to attend one of the departmental forums or committees, where the FFC could pick up on relevant matters. FFC must also, in certain instances, be consulted before the passing of certain new pieces of legislation, so it exercised a quality-control function.

Discussion
The Chairperson asked how the government ensured that the budget was equitably distributed to provinces, as he felt that there was a certain degree of unfairness.

Dr Setai said that a formula was used and that the formula was anchored by the size of the provinces’ population. He acknowledged that the formula was flawed because it did not consider the size of the land, the developmental agenda and the natural resources that needed management.

The Chairperson also bemoaned the fact that the FFC reports were often too generic, referring to too many departments in one report. These reports were often also tabled to a mixed audience, so that a department did not have the freedom to engage on specifics.

Dr Setai acknowledged the comment and stated that the FFC was going to change the way in which it interacted with departments, to be more portfolio specific.

Ms Njobe asked for more information on the success rate of its recommendations, and how the FFC kept track of them.

Dr Setai stated that the FFC had no real system in place to track this, which it acknowledged had been a weakness, and had thus now established a new department that would analyse provincial budgets, including how these responded to recommendations from the FFC. Although there were probably other ways to do this, the FFC was limited in its capacity.

Ms Njobe asked who initiated the work or involvement of the FFC.

Dr Setai said that, as well as receiving a request from a government department the FFC could of its own accord decide to investigate a matter that was in the public domain, such as alignment of strategic plans of the various spheres of government. Another example would be where there was confusion existed or lack of uniformity with regard to concurrent functions amongst provinces and national departments.

Mr van Schalkwyk asked how recommendations were received, processed and responded to by the various departments. He also asked how the Committee was expected to respond to such recommendations.

Dr Setai replied that after the budget, the Budget Council would announce the recommendations to MECs of the provinces, and indicate how many of the recommendations made by FFC were accepted. The Budget Council would also announce how much was made available to implement recommendations that could be taken up immediately, as well as give a time-frame for implementation of the medium to long term recommendations that were duly accepted. The Chairperson of the Portfolio Committee could then invite the FFC to provide more details of the recommendations accepted and budgeted for by the Budget Council, and on that basis set the targets and strategic plans in motion.

Dr Douglas Cohen, Specialist for Economic Development, South African Local Government Association, wished to place on record that the Association (SALGA) had a different position on many of the matters raised by the FFC. He stated that there were several agencies that lobbied in government circles and that many had vastly differing positions on certain aspects of governance.

The Chairperson acknowledged Dr Cohen’s comments and stressed that South Africa, being a young democracy, still needed to interact widely.   

South African Local Government Association (SALGA) briefing
Dr Douglas Cohen, Specialist for Economic Development, SALGA, informed the Committee that while national and provincial tourism organisations were chiefly responsible for the design and implementation of tourism strategies, as well as national and international marketing campaigns, it was the lesser-known local government authorities that often shouldered the responsibility of promoting and supporting the local tourism products.

Local Government also had significant impact not only on the business environment but also on the natural and cultural resources in and around tourism destinations. This would, for example, include responsibility for municipal roads, lighting, water and sewerage, public transport systems, signs, and, at times, airports and ports. It would also provide visitor information and funding for regional and local tourism organisations. In addition, local government would operate attractions such as museums, art galleries, sports stadia, convention centres, parks, gardens, events, tours, and other amenities.

Dr Cohen said that the importance of tourist road signage was often under-estimated, and local governments’ capacity to manage and fund this aspect was extremely limited. It was also difficult for a tourist to understand many of the historical sites of the township without a guide, because of lack of interpretive boards. There was often a breakdown in communication between local, provincial and national government with regard to the permissions and standards in tourism signage.

He stressed that local Government, both in the metros and local municipalities, was a key stakeholder in delivering a quality tourism product and service. While the institutional frameworks and policies appeared to be in place, the benefits of tourism were not reaching the optimal economic and geographically spread impact.

There ensuing discussion will follow shortly.

 The meeting was adjourned.