Auditor-General on audit outcomes for Arts and Culture 2009/2010; Castle of Good Hope: briefing on its mandate

Meeting report

Apologies were received from the Rev T Farisani (ANC), Chairperson, who remained unwell. Ms Tshivhase was elected as Acting Chairperson.

Office of the Auditor-General on the audit outcomes for Arts and Culture 2009/10
Ms Alice Muller, Corporate Executive, Auditor-General of South Africa (AGSA), briefed Members on the Audit outcomes for Arts and Culture 2009/10.

Ms Muller said that 88% of the Department of Arts and Culture's funds, R2.3 billion, was allocated to transfers and subsidies: this put the entities of the Department in perspective.

Ms Muller summarised the outcomes. She said that she did so in the same format as adopted by the Auditor-General himself in Cabinet the previous week, in order to achieve consistency.

There were no disclaimers in the Arts and Culture portfolio. This was commendable. There were also no adverse audit opinions. There were five qualifications.

There were sixteen financially unqualified reports but these had findings on predetermined objectives or on compliance with the regulations.  Thus these reports were unqualified but not clean.

The ideal block was the next one: these were financially unqualified with no findings from predetermined objectives and no findings on compliance with the regulations. The AGSA wanted every department and entity to achieve such a result.

The AGSA could not say that a department or entity's finances were well-managed if, despite an unqualified report, there were findings on service delivery targets. A department or entity could be clean only if it demonstrated good administration.

Ms Muller noted that Artscape, Market Theatre, National Film and Video Museum, Natal Museum, Voortrekker Museum, and the William Humphreys Art Gallery were clean. There were thus no matters to report at those entities.

Ms Muller indicated which entities had regressed during the year. These included the Performing Arts Company, which had issues on performance information and non-compliance.

The Market Theatre had improved since the previous year to become totally unqualified. Natal Museum had improved to become clean.

Statistics on the past five year's audit opinions were given.

The Afrikaanse Taal Museum had been qualified for the past five years; it battled to record its revenues. The National Arts Council was qualified. The Performing Arts Centre of the Free State (PACOFS) was qualified; it faced quite serious challenges as to leadership. Robben Island Museum was again qualified; it battled to extricate itself from this situation.

Ms Muller noted the National Arts Council's regression from a previously clean position. PACOFS had also regressed.

The South African State Theatre had improved to an unqualified audit opinion; this entity had managed to resolve its parking issues and its management of revenue was fine.

The War Museum had issues with which it had to deal, although its report was unqualified.

The William Humpheys Art Gallery had improved and was now clean.

Ms Muller emphasised three very important principles: leadership, financial and performance management, governance issues.

The AGSA measured three things with regard to leadership: oversight responsibility, tone at the top, and actions to mitigate risks.

With regard to oversight, the AGSA examined the Minister's involvement in ensuring oversight; the Department's oversight; and the Council or Board's oversight. These involved overseeing the performance of the entity or the Department. Where the AGSA had remarked 'improvement required', this was because of the performance information that still needed attention. It might be that the financial management was under control but the performance information was not clear. Quite a number of the entities still had challenges in this respect. If entities did not achieve performance targets, the AGSA wanted oversight to be tightened.

Tone at the top related directly to the involvement of the chief executive officer (CFO). In this respect there were two challenges: the National Heritage Council and PACOFS. PACOFS had leadership challenges during the year to the extent that the AGSA actually withdrew its auditors at one stage, because the AGSA could not find any documentation. The Premier of the Free State actually had to intervene, and appoint an acting chairperson of the board and in that way helped greatly to enable the AGSA in the end to be in a position to give a qualified audit report, whereas at one stage it was likely that it would have to give a disclaimer.

Actions to mitigate risks involved a risk assessment plan. In this regard it was important to avoid and prevent irregular expenditure.

The AGSA had listed entities in which it felt that there was not enough action to mitigate risk. 
Ms Muller explained the financial performance management. Quality and reliability were necessary in financial statements. The AGSA wanted to avoid the situation where entities submitted their financial figures and then waited for the AGSA to tell them what to do to correct their figures. An unqualified audit opinion would not be given if an entity had to make numerous changes to satisfy the AGSA. The quality of financial statements must receive attention.

Ms Muller emphasised proper record keeping. The Afrikaanse Taal Museum was obviously one of the defaulters, also PACOFS, and the Robben Island Museum.

Adequate systems were required to collate information for performance, for example, how many shows were produced. There needed to be a process to collate information to tell the Auditor-General that these shows were produced at the entity. It was essential to have a system to present performance information.

Ms Muller highlighted governance. There were a correlation between governance and leadership tone to mitigate risk. Risk identification was very important. Examples were the Taal Museum, , PACOFS, Robben Island Museum, and the South African Heritage Resources Agency (SAHRA).

Combined with governance was fraud prevention; the National Heritage Council, Nelson Mandela Museum, Robben Island Museum, and the Library for the Blind were faulted in this regard.

Ms Muller said that entities needed to become very effective at internal audit. However the AGSA did not necessarily include internal audit in the AGSA's audit reports. The AGSA did, however, pay attention to entities' capacity for internal audit and the scope of their internal audit plan.

Ms Muller summarised financial statement qualification areas. For the whole portfolio, the AGSA indicated where the bulk of the qualifications were.

As the qualifications decreased, so the areas of disqualification decreased.

The AGSA had included capital assets where there were challenges, as against the Department or entities concerned for ease of reference: National Arts Council, PACOFS, and Robben Island Museum.

The AGSA listed similarly current assets, liabilities, revenue, expenditure and irregular expenditure. This last was qualified only at the National Arts Council. None of the other entities had a qualification in this category.

There were entities for which the AGSA gave an opinion with emphasis of matter, which was where the AGSA drew attention to something in the financial statements. If the entity had disclosed irregular expenditure in the financial statements, the AGSA might give only an opinion with emphasis of matter; the AGSA might not qualify the entity. It might be asked why the AGSA did not give a qualification. The AGSA gave an opinion on a fair presentation. If the entity disclosed irregular expenditure, it had presented its financial statements fairly. It was not hiding something or lying. For that reason the AGSA could give an unqualified audit opinion, notwithstanding that some matters needed to be emphasised, or highlighted, especially matters such as under spending, irregular expenditure, or unauthorised expenditure.

The National Arts Council had not disclosed certain irregularities. For that reason it was given a qualified audit opinion.

Ms Muller spoke about transversal material. She noted that the National Heritage Council's financial statements were really of a poor quality when submitted to the AGSA. There was not one account that balanced. However, the National Heritage Council received an unqualified audit opinion.

The National Museum was the same, as was the Nelson Mandela Museum.

So long as entities submitted improper financial statements, they could not achieve a clean audit.

The Department of Arts and Culture had only to make some adjustments to disclosure. This was quite commendable. Few departments succeeded in getting the disclosures right, since their systems did not support the disclosure note: thus a lot of manual interventions and adjustments were needed to obtain the required information. The AGSA understood the reasons, in the case of the Department of Arts and Culture, but it should not prevent the Department from putting appropriate measures in place. The AGSA did not expect that there should be no adjustments, since the same person compiled and reviewed the financial statements, but the AGSA just wanted to limit them.

Ms Muller gave the National Heritage Council as an example. Its financial statements were not of the same quality as those of the Department, because of the number of adjustments.

Ms Muller explained the reporting on predetermined objectives. It was important to note that the AGSA could not question the appropriateness or relevance of a target. This was not the AGSA's mandate. This was the realm of the Executive Authority and the Portfolio Committee. What the AGSA could ask was whether what was reported was in line with laws and regulations, if it was useful, and if it was reliable.

Ms Muller said that in the Arts and Culture portfolio there were eight instances of non-compliance. There needed to be an adequate system to produce information. In each case of non-compliance the AGSA specified the section of the applicable act that had been violated.

Reliable information was most important. It had to be measurable, reliable, or time-bound. If information presented in the annual report differed from the audit findings or the audit evidence, it was serious cause for concern.

The third section of the audit report dealt with performance information. There was only one Department of Arts and Culture entity where information not submitted and that was PACOFS. The AGSA did not even audit the information there.

Ms Muller indicated non-compliance with regulations and gave a summary. More detail was provided in the audit report. Information was given on the fiduciary responsibilities of the accounting officer – there were nine entities where the AGSA had cause for concern; whether the internal audit was effective; and the audit committee – the AGSA noted instances where this was of concern. This was an opportunity for interaction with the department or entity.

Information was also given on procurement and contract management. This information might not be so explicit in the audit report. However, by the end of October the AGSA would table a general report containing all the information. It was not classified information.

The AGSA also examined human resources, and in all departments and entities conducted an extensive review of procurement.

The AGSA had noted items of concern in regard to procurement at the Department of Arts and Culture, Freedom Park, and the National Heritage Council.

Awards had been made to suppliers without a valid tax certificate at the Market Theatre and at the National Heritage Council.

The preference point system had not been applied at the National Heritage Council, the Nelson Mandela Museum, and Robben Island.

There had been deviations from competitive bidding without approval or justification at four of the entities.

Contracts were extended or renewed to such an extent that competitive bidding processes were being circumvented at the National Heritage Council, and the Nelson Mandela Museum.

The above was a summary of the root causes for irregular expenditure.
 
The human resource audit that the AGSA conducted at the Department of Arts and Culture was described: for the past five financial years the Department had failed to put in place a human resources management plan. The AGSA had noted a deterioration in vacancy rates from 24.5% to 26%; job descriptions were not on file or in place; the appointment verification process did not include a check of criminal and financial records; “acting” allowances to senior management staff (SMS) and non-SMS staff were not in line with requirements; the usage of sick leave was not monitored as required by the Department of Public Service and Administration (DPSA); the overtime policy of the Department was not always adhered to; and there was no process in place for the periodic appointment of employees. 

Ms Muller emphasised that the above was not a skills audit, merely an audit of the human resources process.

Ms Muller indicated irregular, fruitless and wasteful expenditure. At the beginning of the audit process, R207 000 of irregular expenditure was disclosed. However, by the end of the audit process, R19.5 million of irregular expenditure had been detected. This needed to be prevented and detected before the auditors arrived.

The opposite was true with fruitless and wasteful expenditure. The Department had disclosed R2.8 million; however, the AGSA did not note any further fruitless and wasteful expenditure during the audit.

At the National Arts Council an amount of R4.7 million was not disclosed in their financial statements. This was why the Council received a qualification. All the other entities had disclosed their irregular expenditure.

Discussion
The Acting Chairperson observed that the audit process strengthened the Department as well as the Committee by enhancing the oversight process.

Dr A Lotriet (DA) asked for clarification on the AGSA's withdrawal of the audit team from PACOFS and the province's intervention.

Ms Muller explained that she had herself to intervene in June 2010 since she was responsible for the auditing of entities in the Free State. The team could not obtain documentation; the employees were on a slow strike and did not cooperate; and the board had to be assisted by the province which appointed an acting chairperson for the board. She was not sure if PACOFS had completely normalised.

The Acting Chairperson asked for clarification on an audit qualification.

Ms Muller explained the implications of failure to disclose information, which would result in a qualification. She emphasised the importance of the quality of the financial statements.

Ms Muller further explained that in on the 2011/12 financial year, if not on the 2010/11 financial year, the AGSA intended to express an audit opinion on performance information. It was important that reliable information was available to the public is reliable. There must be standards in place.

Mr Sipiwo Matshoba, Parliamentary Liaison Officer, Ministry of Arts and Culture, asked if the AGSA was responsible for improving the internal audit committees.

Ms Muller replied that the Auditor-General liaised with internal audit committees considerably to ensure good oversight by them.

The Acting Chairperson asked if there were any follow-up questions.

There were none.
 
Castle of Good Hope Control Board. Presentation on its mandate
Ms Adre Aggerbach, Member of the Castle of Good Hope Control Board appointed by the Minister of Defence, and Defence Endowment Property Manager, Department of Defence, and also representing the Chief of Logistics, who was also the Chairperson of the Castle Control Board.  briefed Members on the Castle of Good Hope's mandate, with reference to the Castle Control Board's Annual Report 2009/10.

Ms Aggerbach enlightened Members on the management and ultimate ownership control of the Castle of Good Hope. She gave a brief introduction to the Castle, and then discussed the two most important acts relating to the Castle: the Defence Endowment Act 1922 and the Castle Management Act. She also explained the role of the Minister of Defence as the Executive Authority to the Castle, both as a public entity and as a defence endowment property, before discussing the Castle Management Act Repeal Bill.

Work on the foundations of the Castle began in 1665. The cornerstones were laid on 02 January 1666. Since then it had been the scene of military and cultural life at the Cape. It was built by soldiers, sailors, and slaves
of the Dutch East India Company as headquarters of its maritime replenishment station. 

The Castle was a powerful link in the trade between East and West, and witnessed the arrival in South Africa of new people, languages and religions, customs, forms of government and flags. 

Like a true castle its function had always been more than military. It had lodgings, offices, warehouses, kitchens, and even a chapel. However, its military presence was so formidable that no army or navy ever dared to test it.

The five traditional regiments had been resident in the Castle for many years and took part in the opening of Parliament, also displaying their colours in various parades.

Until this day the presence of uniformed soldiers was linked in the chain of the Castle's long military history.

The Castle remained a popular attraction by day and by night, and a must-see for the international military tourists, and the envy of many cities in South Africa. 

Ms Aggerbach explained the provisions of the Defence Endowment Act 1922. Defence endowment property was therefore transferred to the government of the Union of South Africa for the exclusive benefit of the defence force organisation, or in today's terms, the Department of Defence, and to conserve the benefit of them for this Department. Since 1922 the Castle had been governed by the Minister of Defence.

Ms Aggerbach quoted from the Castle Management Act.

The Castle Control Board was established by the Castle Management Act, and in terms of the Act the Castle was placed under the control of the Board.

The Board was composed of representatives of the Department of Defence, the Cape Town regional chambers of commerce and industry, Iziko Museums of Cape Town, the Department of Public Works the South African Heritage Resources Agency (SAHRA), the Army Support Base: Western Cape, the City of Cape Town, the South African Tourism Board, two appointment made by the Minister of Defence, the Western Cape Provincial Legislature, and the Executive Director.

The Castle Control Board was responsible for the management of the Castle in terms of tourism, financial control, and corporate governance on behalf of the Minister of Defence. The objectives of the Board were to preserve and protect military and tourism potential of the Castle, and promote the public's access to the Castle.

The Castle Control Board had for the previous four years received an unqualified audit report.

It was important to note that the Castle Control Board had reached with the Department of Defence a synergy for the management of the Castle.

The Department of Defence was mandated by the Minister as the governmental department responsible for the management of the Castle.

Ms Aggerbach explained the purpose of the Castle Management Act Repeal Bill 2008. This was intended to repeal the Act, dissolve the Castle Control Board, and transfer the management and administrative control to
the Department of Arts and Culture. After deliberations in the Portfolio Committee on Defence, the Bill was withdrawn by the Minister of Defence on 04 June 2008. On 20 July 2008 a Department of Defence Ministerial instruction stipulated that the transfer of administrative and management control of the Castle was to be discontinued with immediate effect.
 
Ms Aggerbach said that the characteristic military aura of discipline, smartness and efficiency reflected the manner in which the Castle had been managed by Defence for the past few centuries.

Discussion
The Acting Chairperson acknowledged the importance of the Department of Defence and the Department of Public Works, and other departments, in contributing to maintaining this important heritage site.

The Acting Chairperson asked if the Western Cape province was claiming the Castle of Good Hope. She believed that the Castle was a national competency.

Ms Adre Aggerbach replied that this was the first she had heard of the rumour of a claim by the province to the Castle.

The Acting Chairperson asked about the unqualified audit report. How and why?

Ms Aggerbach replied that the Auditor-General had minor findings, but no real problems. It was a clean audit, of which the Castle Control Board was very proud.

The Acting Chairperson asked if there was an agreement between the Department of Arts and Culture and the Department of Defence for the survival of the Castle.

Ms Aggerbach replied that the Department of Arts and Culture, as she had mentioned, had two representatives on the Castle Control Board: firstly, Iziko Museums of Cape Town (Professor Henry ‘Jatti’ Bredekamp), and the regional manager of the South African Heritage Resources Agency (SAHRA). The Castle Control Board received advice from SAHRA regarding the management of heritage assets. There was also a cultural history museum of Iziko situated in the Castle. In the Castle Control Board there was a wonderful working relationship between all these specialists. There was, however, no formal agreement.

Ms Lishivha asked for more information about how to access the Castle of Good Hope.

Ms Aggerbach replied. [The entrance was on the right hand side of Buitenkant Street, as one approached the railway station, with the Grand Parade and the bus station on one’s right hand side.]

Dr Lotriet (DA) asked if the Castle of Good Hope Control Board employed qualified curators. This was important since they had the responsibilities of looking after heritage items and artefacts.

Ms Aggerbach replied that the Castle had a qualified curator, who was a "museumologist". He was the curator of the Castle Military Museum.

Ms N Khunou (ANC) said that some of her questions had been covered, but asked for a copy of Ms Aggerbach's notes.

Ms Aggerbach replied that she could provide a copy of her notes the following day, after she had edited them.

Mr Muhadi Vele, Parliamentary Researcher: Portfolio Committee on Arts and Culture, asked about the potential of tourism, and what the Castle of Good Hope Control Board was doing to improve the experience of visitors, of all races, to the Castle.

Ms Aggerbach replied that the Castle Control Board was carrying out marketing at all schools in the Western Cape and was now engaged in a project with the Ministry of Defence to market the Castle in all schools in South Africa. Already one would see groups of schoolchildren from all schools in the Western Cape visiting the Castle, including from Guguletu. The Castle had a limited capacity with regard to marketing, and a problem with personnel. The Castle had ten members of its staff seconded by the Department of Defence.
There were also eight members of staff employed by the Castle Control Board. These eight members of staff were mainly qualified tour guides. However, the Castle lacked a permanent person in charge of the marketing.

Mr Vele asked about the management of the Castle and what the Department of Arts and Culture's responsibilities were.

Ms Aggerbach replied that one of the concerns of the Portfolio Committee on Defence was that the Department of Arts and Culture did not have the resources to look after the Castle. However, she could not answer on behalf of the Committee.

Ms Khunou referred to her comments and questions in the 12 October 2010 meeting when she had drawn attention to the lack of transformation in heritage institutions – the phenomenon of “pale, male, and aging” staff.

Ms Aggerbach replied that the Castle was trying to appoint a chief executive officer (CEO) and that person “would be the right person”. However, the Castle Control Board could not appoint that person until the Castle was self-sustainable. The Board was responsible for tourism and marketing. The need for sustainability was mentioned in the audit reports every year and in the legislation. It was stated in the Act legislation that the Board must appoint an executive director, yet the Board had been unable to do so.

Ms Aggerbach replied that the ten staff members seconded from the South African National Defence Force (SANDF) had unfortunately been there for many years. “So it is definitely not representative.” However, with new people coming in, the Castle guides, the Castle Control Board was surely making progress.

The Acting Chairperson reported that on a visit to the Netherlands, she had found that Van Riebeeck was almost unknown to the general population of that country. Yet South Africans were given to believe that their history started with Van Riebeeck: this was 100% wrong. How did the museum staff present the history of Van Riebeeck to visitors from the Netherlands.

Ms Aggerbach acknowledged that South African history did not start with Van Riebeeck. The Castle Military Museum displayed the military history in the Cape from the very beginning. Van Riebeeck and the Castle as known was but a small part of the display. Prof Bredekamp was very much involved.

Ms H Msweli (IFP) asked if the Castle Control Board gave any help, such as bursaries, to assist education.

Ms Aggerbach responded that the Castle Control Board offered no bursaries. The Castle did not receive a governmental grant, such as other public entities, and had limited resources. It struggled as to maintenance of the Castle, which needed specialist skills of restoration.

Ms Khunou said that after 16 years of democracy, there was no excuse for the lack of transformation. As said in the previous meeting, it was essential to bring South Africans together. The idea of saying that a particular heritage or cultural site was for one group of people only had to come to an end She said that transformation n the Department of Defence was very slow. Promotion for black personnel was very slow.

Ms Khunou said that [generally] the career path had to be cleared. It was wrong for someone to have to work as a cleaner in a company without being promoted. It was not fair always to maintain that such people lacked skills or the requisite qualifications. Such people could only acquire the requisite skills and qualifications if there was the right environment at the workplace to allow staff members to improve themselves. 

Ms Khunou endorsed Ms Msweli's question. On did not want to be a cleaner or a tea lady or a filing clerk for the rest of one's life.

Ms Khunou observed with regard to heritage sites, that she had observed that one met few visitors from Guguletu at places like Kirstenbosch. Theoretically such sites were open, but admission fees were a barrier, and there was a need to facilitate access to everyone, not just a few. It was important to involve everyone: “It is not a white thing or a black thing any more. We are all South Africans. We need to strive that people come together.”

Ms Khunou acknowledged the need to generate revenue, but she pleaded for those concerned to recognise the situation of people who had little money but wanted to visit heritage sites. Such people were also part of our history – indeed they had helped to build heritage sites such as the Castle.

Ms Aggerbach agreed with Ms Khunou on the need for transformation. She would give feed back to the Castle Control Board. There was to be a meeting the next day with the Chief of the Army with regard to many issues at the Castle, including staff. She would include Ms Khunou's issue in the discussion.

Mr Nickie van Zyl, Researcher, Research Unit, Parliament of the Republic of South Africa, acknowledged that it was not customary for researchers, as members of the Parliamentary staff, to ask questions in Portfolio Committee meetings, but, in order to expedite his work, he wanted to ask if the Castle of Good Hope Control Board had produced an annual report.

Ms Aggerbach responded that she could provide copies of the annual report to Members of the Committee.

Mr Van Zyl asked Ms Aggerbach to allude to matters of emphasis in the audit report.

Ms Aggerbach replied that it was the Castle Control Board that was the public entity and had been audited by the Auditor-General. The Annual Report was on the Castle Control Board, rather than the Castle itself. The majority of the audit findings were with regard to the strategic plan which was not fully in line with what was expected.

Ms Aggerbach said that she had a copy of the draft strategic plan. The Auditor-General had been quite happy with the draft, but had indicated that a few things needed to be changed. Ms Aggerbach was confident that the Auditor-General would be satisfied in the next audit.

Ms Aggerbach added that the Auditor-General expected the Castle Control Board to provide quarterly reports on the progress in achieving measurable objectives and targets.

Ms Aggerbach gave further details. These included the Auditor-General's unhappiness with the usefulness of reported performance information with regard to the strategic plan. However, Ms Aggerbach believed that the Board was in process of achieving what the Auditor-General required. Contrary to Treasury Regulations the Castle Control Board lacked a fraud prevention plan. However, such a plan had now been implemented. Moreover, there had been no application to National Treasury for the Board to retain its surplus.

The Acting Chairperson asked if there were any follow-up questions.

There were none.

The meeting was adjourned.
 
Appendix:
Relevant reports on Castle of Good Hope:
Portfolio Committee on Defence. Meeting held on 13 October 2010. Castle of Good Hope Annual Report: briefing by Castle Control Board. www.pmg.org.za
Portfolio Committee on Defence. Meeting held on 21 May 2008. Repeal of Castle Management Act Repeal Bill : deliberations. www.pmg.org.za
Portfolio Committee on Defence. Meeting held on 14 May 2008. Castle Management Act Repeal Bill: public
hearings. www.pmg.org.za
Portfolio Committee on Defence. Meeting held on 07 May 2008. Castle Management Act Repeal Bill:
Departments of Defence and Arts and Culture briefings. www.pmg.org.za