Department of Rural Development & Land Reform & Ingonyama Trust Board 2009/10 qualified audits: briefing by Auditor-General

Meeting report

Office of the Auditor-General on Department’s performance
In his presentation, Mr Abdulhay Patel, AGSA, said that the Department had received a qualified audit. The qualification was in the area of tangible capital assets. As the Department had, since 2005, received a qualification for this, National Treasury had sought to work together with both the Department as well as the Department of Public Works in setting up targets to be met by these and other relevant stakeholders. The targets set for the 2010 financial year had, however, not been achieved. In order to redress this, there needed to be an implementation of the milestones set by the National Treasury. The Departments concerned would also need to vest all State land appropriately.

Material losses through criminal conduct had, for the first time, been included in the Department’s Audit report. The Department had incurred losses of R53.3 million as a result of fraudulent activities identified through forensic investigations. This was found to result from non-compliance with legislation set out in the Public Finance Management Act (PFMA). The Department would need to improve its internal controls in order to prevent and detect irregularities. It would also need to ensure that all current investigations being undertaken were finalised expeditiously. It would need an updated fraud risk register and fraud prevention plan, as required in terms of both the PFMA and National Treasury regulations. There were a number of claims against the Department for not honouring sales agreements. This could, as a result of accruing interest, result in increased fruitless and wasteful expenditure.

In terms of its non-financial performance, the Department did not posses adequate controls in order to effectively address the reporting and compilation of pre-determined objectives. Also its Programme Five had not achieved 85% of its objectives while Programme Seven had seen none of its objectives achieved. Its best-performing programme was Programme Two in which 40% of its targets were not achieved. Some of its programmes, most notably Programmes Four and Five, had not set out clear and measurable objectives.

The Ingonyama Trust Board had also received a qualified audit opinion for the current year. One of these qualifications was to do with immoveable assets and was specifically related to the valuation of land. The second qualification related to royalty revenue. In relation to its objectives, some of its programmes had not contained specific and measurable outcomes. Its total revenue was R49 million with expenditure of R39 million.

Discussion
Mr S Ntapane (UDM) asked when the Auditor-General’s Office had made the recommendation around the improvement of internal controls to the Department.

Mr Van Schalkwyk answered that these recommendations were made with each audit report.

The Chairperson asked why no valuations of the land were undertaken.

Mr Jan Van Schalkwyk (Corporate Executive: Auditor-General’s Office) answered that although it was understandable that there were cost considerations, these did not outweigh the legal necessity for these valuations. The best way forward would be to explore a middle ground between these two factors.

Ms A Steyn (DA) commented that the entire Department was in chaos as fraud flourished within it. The Department should therefore be investigated in order to eradicate this problem.

Ingonyama Trust Board presentation
Mr Sipho Ngwenya, Acting Chairperson, Ingonyama Trust Board, said that, as at 2001, the number of people residing on Trust land was estimated in the region of 4.6 million. In terms of its core business, the Board saw real estate as its major activity. It managed the land for the material benefit and social well-being of the individual members of the tribes. Its vision was to improve the quality of life of the people living on Trust land by ensuring that land usage was to their benefit and in accordance with the laws of the land.  The Board was assisted in its day-to-day work by a full-time secretariat.

His report noted the following:
▪ On its performance analysis and the transfer of former KZ R293 townships, the Board continued to engage with the relevant municipalities to facilitate the takeover of the land which was vested in it. Two out of the six townships had yet to be transferred.
▪ On the transfer of land used for state domestic purposes, in terms of current legislation, property used as such prior to April 1994 was vested in various organs of State. The Board was however working together with the Department of Public Works to address this matter.
▪ On the allocation of land for housing development, the Board had approved 23 applications for development agreements. This covered a total of 22 500 housing units.
▪ On the granting of leases, the Board had, as at 31 March 2010, granted 566 leases which in turn generated R16 621 202 per annum in income.
▪ On mineral rights and royalties, the Board continued to monitor the development of the mining potential on Trust land for the benefit of the communities. This was done by means of mining surface rights leases on Trust land. It had, during the year under review, received R16 675 189 by way of royalty income.
▪ Its financial performance could be improved through increased capacity and the employment of more staff members.
▪ Transfer payments from the Department constituted approximately 23% of its total revenue, with the remaining funds being self-generated.
▪ The Board had found that disbursing funds purely for the sake of meeting targets did not prove beneficial to the communities. It was however concerned about the slow uptake of funds by the Traditional Councils and was, to this end, investigating alternative methods for the release of funds. The Traditional Councils were also encouraged to create structures such as Community Development Trusts to act as conduits for monies receivable from the Board for mining royalties, leases and other streams of income.

Mr Ngwenya responded to the Auditor-General’s qualified audit opinion of the Board, saying that its decision not to value land was not intended to defy any accounting standard but was made purely on cost-versus-benefit considerations. The costs for valuing 2.7 million hectares of land could run into several million Rand and would have a serious impact on the cash resources available for the communities. On the qualification about the incompleteness of royalty revenue, the request for the Board to institute overall controls on mineral extractions was a challenge on its own as it would entail employing personnel. Internal controls were however in place to ensure correct receipting and recording of funds received. Independent royalty audit certificates were obtained from major mining operators and mining leases would be amended to require them to submit these regularly.

Some of the challenges and constraints the Board faced included rates, financial as well as human resources, illegal occupations and royalties (as a result of the Mineral and Petroleum Resources Development Act).

Discussion
Ms D Carter (COPE) asked how the communities benefited from the Trust. Were any communities relocated in some of its major developments? Who were the investors in these developments and what were the lease terms? Had certain Board members been present in Dubai when a land deal was concluded there?

Mr Ngwenya answered that the benefits to the communities were not only measured in financial terms.  The Board, for example, encouraged the setting up of community trusts. It also provided training in order to ensure the effective management of these trusts. Following discussions with the various stakeholders it was decided that this land would not be sold as it was held in trust. An agreement was also reached that nothing would be signed in this regard unless certain conditions were met. No communities were therefore relocated. Sixty percent of the investors were local investors while the community and the NEF owned 20% each. The lease was for a forty-year period. Two of its members had gone on the trip to Dubai as invitations had been sent out. The Board had satisfied itself that nothing untoward had occurred as a result of this trip.

Mr Ntapane asked why there was a decrease in royalties.

Ms Meisie Nkau (Business Executive: Auditor-General’s Office) answered that this was an error in the presentation. As the amount could not be verified, a qualification was given in this regard.

Mr Ahmien Meyer (Chief Financial Officer: Ingonyama Trust Board) added that all royalty income had been received and deposited. All royalty income certificates had not been received though this issue was being addressed.

Mr Zulu asked what was being done to promote agricultural activity around fallow land. Were communities aware of the provision made for firebreaks? What did its noted Zulu History project entail?

Mr Ngwenya answered that it was the responsibility of municipalities to decide what was to be done with land lying fallow. The Board was, however, aware of this issue.

Mr Meyer added that these figures were not budgeted figures but rather actual expenditure figures.

Mr Ngwenya continued that this was a once-off project that took the form of a book aimed at providing a more accurate and less distorted account of the history of the Zulu people than what was currently available. It was undertaken as an ancillary project in order to provide information around the history of land being managed by the Board.

The Chairperson asked why no valuations of the land were undertaken.

Mr Ngwenya answered that there was no specific legislation about the valuation of land. It had tried to meet the standards set, though these were continually changing.

Mr Meyer answered that the purpose and benefits of valuing land had to be looked at, especially in relation to its costs.

The Chairperson requested that both the Board and the Office of the Auditor-General should provide written submissions on this issue.

The meeting was adjourned.