The South African Micro-finance Apex Fund briefed Members on its Annual Report for 2009/10, with emphasis on the Auditor-General’s report, performance, financial performance, equity in human resources and challenges.
The Fund reported that the Auditor-General had given it a qualified audit opinion. Question marks had arisen because of the implementation of a new Information Technology system in which the changeover had not been properly managed and all journals could not be accounted for. In respect of the non-consolidation of controlled Financial Intermediaries mentioned by the Auditor-General, the Fund reported that historically the Financial Intermediaries all had different financial year endings. The Fund was in the process of re-writing contracts so as to consolidate them. Disciplinary action had been taken against the individuals involved in irregular expenditure.
The Fund had revisited its performance information management and quarterly reviews had been instituted adding that it was a challenge getting information from the Financial Intermediaries. Savings club membership had increased but that the amount saved had decreased. The previous management had set ambitious targets and the Fund brought the Committee’s attention to the unreliability of the figures for brand awareness, for cost per rand and for the credit policy review in the Annual Report.
The Fund reported that the Minister was in the process of reviewing the space which the Fund and Khula were occupying.
The Fund said that it had ended the year with a net surplus of R12 million. It had experienced very high audit costs because of the processing systems but anticipated that this would reduce substantially in the future
It was engaged in a capacity building project, Project Bokomoto, which would cover areas needing intensive and extensive training allowing staff to become familiar with the new information technology and financial systems as well as a new asset management system and a new vendor database management system. This allowed for the recording of everything coming into the system, the tracking thereof and its completion, which in turn would allow for the calculation of credible turnaround times. The risk management was now an internal function of the Chief Executive Officer’s office and not outsourced as before. The challenges facing the Fund were to make the staff accountable and to hold them to account.
Provinces like the Northern Cape were acknowledged to be challenges The sustainability of Financial Intermediaries was a big issue and 14 interns had been taken on to provide assistance to them. Support for the Fund was going to be needed over a 5 to ten year rather than a two to three years period. The Fund was requesting the National Treasury to allow it to become a deposit taking institution.
Members questioned the credibility of the information. It appeared that the Fund had a soft approach to irregular expenditure. They queried the material impairments figure as the Fund did not have many debtors. They asked what level of knowledge and skills the staff possessed, and as to the viability of the Fund How were the percentage figures given and measured? How many Financial Intermediaries were sustainable? What was the outcome of the evaluation held in March 2010? Did the Fund conduct any campaigns to make retrenched people aware of the training layoff scheme? Could the 27 micro- finance institutions be named? Had the 13 vacant posts been filled and were these posts the intern posts mentioned in the presentation? How much money had been given to the Fund since its inception and what staff establishment did it need? Why was attendance at meetings only 25%? How did the Fund formulate setting a 50% write-off target? What had been done about the management letter? If no control measures were being provided by the Fund, then why was the Fund continuing to operate? What monies had been spent on capacitating the staff? What was the extent of the success of the Fund’s supported enterprises and how many jobs had been created?
Members felt that the audit fees were exorbitant yet did not produce results and were therefore not value for money, that there had been a glossing over of the remedial actions that needed to be taken, that there was a need for the Fund to focus on the very poor, that the Eastern Cape was the third biggest province and one of the poorest yet registered no disbursements on the Fund’s graph - similarly for the Northern Cape and North West. Did the Fund have staff working in these provinces? What was the basis for the Fund’s existence? It appeared that the Fund had failed in its mandate.
The discussion led to a brief closed session. Upon resumption the Committee decided to ask the Fund, subject to parliamentary procedure, to review and refine its presentation and re-present it to the Committee at a future date to be confirmed. The Committee felt that there was a lack of credibility to some of the figures which led to all round doubt about the report. As the report was for public consumption it should therefore be clear, accessible, supported by reliable evidence, should have no incongruent information, should give the Fund’s view if the report was at variance with the Auditor-General’s findings, should give more information on the Fund’s rural activities, and should be accompanied by a copy of the Fund’s turnaround strategy.
South African Micro-finance Apex Fund (samaf, the Fund) Briefing
Mr Kumaran Naidoo, Acting Chief Executive Officer (CEO): samaf, briefed the Committee on samaf’s Annual Report for 2009/10. He started by giving a brief overview of its mandate before moving on to comment on the Attorney-General’s (AG) report, samaf’s performance, samaf’s financial performance, samaf’s Human Resources equity and the challenges facing samaf.
Mr Naidoo said that he was appointed acting CEO three and a half months ago. The AG had given a qualified opinion in its audit. Question marks had arisen because of the implementation of a new Information Technology (IT) system where the changeover had not been properly managed and all journals could not be accounted for. This was a question of implementation not of fraud or mismanagement. He said that samaf dealt with the poor and with start ups and that the AG had to understand the mandate of samaf.
On the issue of the non- consolidation of controlled Financial Intermediaries (FI) , Mr Naidoo said that historically the FIs all had different financial year endings and samaf was in the process of re-writing contracts so that they could be consolidated.
Regarding the items on irregular expenditure, Mr Naidoo said that disciplinary action had been taken against the individuals involved. The director had been given a final warning and a decrease in salary, action would also be taken against staff currently hospitalised as soon as they were well enough. They were recovering money where overpayments had been made.
Mr Naidoo anticipated an unqualified audit by the end of the financial year. Samaf had addressed all the irregularities mentioned by the AG’s report. Samaf had revisited its performance information management and quarterly reviews had been instituted with the first one scheduled for the following week. Executive committee members would attend at least two meetings per annum.
Mr Naidoo said that it was a challenge getting information from the FIs. With regard to mobilising savings, he said that savings club numbers had increased but that the amount saved had decreased. He said the previous management had set ambitious targets and that the figures for brand awareness, cost per rand and the credit policy review in the Annual Report were not reliable.
Mr Naidoo said the Minister was reviewing the space that samaf and Khula were occupying. Mr Naidoo said the FI risk management figures were accurate. He commented on the employee satisfaction score. He felt that the score gave a favourable picture and said that changes were occurring in the agency.
Mr Naidoo said the low meeting attendance figure of 25% was because of a re-organisation of Department officials. There would in future be more Advisory Board officials and less Department officials.
Mr Naidoo said that, financially samaf ended with a net surplus of R12 million. The audit costs were very high because of processing systems; he anticipated this would reduce substantially in the future. Five people had been seconded to the Economic Development Department (EDD) and Human Resource costs and IT costs would be less. Staff turnover was 1.3%. The Budget had been reviewed and approved by the EDD last week. Cash and cash equivalents were held at the South African Reserve Bank.
A capacity building project, Project Bokomoto, would cover areas needing intensive and extensive training allowing staff to become familiar with the new IT technology and the new financial systems. There was a new asset management system and a vendor database management system. This allowed for the recording of everything coming into the system, the tracking thereof and its completion, which in turn would allow for the calculation of credible turnaround times. The risk management was now an internal function of the CEO‘s office and not outsourced as before.
Mr Naidoo said the challenges facing the agency were to make the staff accountable and to hold them to account. The sustainability of FIs was a big issue and the 14 interns were there to provide assistance to them. Support for samaf was going to be needed over a 5 to ten year period rather than a two to three years period. The Fund was talking to the Treasury to become a deposit taking institution. He acknowledged that provinces like the
Mr Naidoo said that his admittedly short interaction with the Fund had convinced him of the need for institutions such as samaf.
Mr S Marais (DA) said that the credibility of the information was a challenge and created doubt in the mind. He said it appeared that samaf had a soft approach to irregular expenditure. He queried the material impairments figure as samaf did not have a lot of debtors. He asked what level of knowledge and skills the staff of samaf had. Could the CEO give clarity on the viability of samaf?
Mr Z Ntuli (ANC) asked how the percentage figures given were measured. How many FIs were sustainable? What was the outcome of the evaluation held in March 2010? Did samaf do any campaigns to make retrenched people aware of the training layoff scheme? Could the 27 micro- finance institutions be named? Have the 13 vacant posts been filled and were these posts the intern posts mentioned in the presentation? How much money has been given to samaf since its inception and what staff establishment did it need?
Mr S Huang (ANC) asked why attendance at meetings was only 25%. How did it formulate setting a 50% write-off target?
Ms P Bhengu (ANC) asked how it was envisioned samaf would operate in the future.
The Chairperson said that something did not feel right about the credibility of the information. She said the Attorney General’s qualified audit was a serious warning and that disciplinary issues needed strong action. She said the audit fees were exorbitant yet still did not produce results and was therefore not value for money. She wanted to know what had been done about the management letter. The AG had listed non- compliance and a lack of efficiency amongst other issues. If no control measures were being provided by samaf then why was samaf continuing to operate. The AG had questioned the reliability of the information given, what monies had been spent on capacitating the staff. What was meant by “the credit policy had been fully implemented”? There had been tender irregularities yet the tender committee was still operational. It was said that the risk management committee had been established in 2008, what risk were they managing. She felt that there had been a glossing over of the remedial actions that needed to be taken.
Mr Naidoo replied that he had mentioned that the institution had not had a mechanism for a survey and had done itself disfavour by not having a survey; however all other information in the report was credible. He said they were in the process of putting systems in place. He said that samaf took the AG’s comments very seriously. Regarding the management letter, he said that a matrix had been established where staff were responsible for their actions on a monthly basis. He anticipated improvement and by the next audit or the one following that to have an unqualified report. The irregular expenditure had occurred when a staff member had gone outside of the tender process to procure. The employee involved had been dealt with severely. He said the material impairments were a provision, not a write–off (The AG had thought it financially prudent to provide for impairments). Initially many young staff had been employed but this had improved substantially. He agreed that numbers should have been given to substantiate the percentage figures given. He was of the view that, to attain sustainable FIs, samaf should spend more on capacity building the FIs than on lending as this was something that should have been done earlier.
The employment of an accounting officer had been put on hold due to samaf’s transfer to the Economic Development Department. He said beneficiaries had run outreach awareness programs.
The 13 posts had been deliberately kept vacant because samaf was to move to a new department with a new strategy. The 14 intern posts were something separate and provided employment for the youth as well as support for the FIs.
The poor meeting attendance figures were because the replacement of officials from the Department took a while to process.
Mr Naidoo said that legal action had been taken against institutions to recover monies owed; however, samaf did not want the intermediaries to close down and lose all possibility of recovering the money.
Mr Naidoo said the system of gathering information from FIs was challenging.
Quarterly management forums had been instituted with a half yearly performance audit review. Mr Naidoo re-emphasised that action had been taken against employers contravening their employment code and said he would report all actions taken against offenders to the committee.
Mr Naidoo was convinced that the audit fees were too high. He said he had highlighted, in his presentation, the areas where the Committee could not rely on the figures and that the rest of the information was reliable.
Mr Naidoo said that samaf had reviewed its credit policy very recently and that therefore its implementation was incomplete and for a short period only.
Mr Naidoo said that the risk management had been done by a contracted outside service provider and he had terminated this and placed that function in his office.
Mr L Ngonyama (COPE) said that the
Mr K Manamela (ANC) asked what the extent of the success of samaf supported enterprises was and how many jobs had been created. There was a need for samaf to focus on the very poor.
Mr Huang said that a beneficiaries list had been asked for in a previous meeting with samaf, yet had not been forthcoming to date.
The committee held a short closed meeting.
Upon resumption, Ms Nosipho Ngewu, Human Resources Executive, explained that the previous qualifications had been technical qualifications because of the way the contracts had been written, so these impairments were not write-offs. She said the initial staffing of the agency was with people who had good social skills but not strong financial or developmental skills. Samaf was in the process of implementing Project Bokomoto to improve staff competencies. Employees breaking their employment conditions had been dealt with, for example the necessary disciplinary action had been taken against an employee who had overpaid an invoice and samaf was busy recouping the money. She acknowledged that disbursements to the poorer provinces were a challenge.
Mr Buhle Dlulane, Chief Operating Officer, said that the 2010 impairment of R14.7 million included an accumulated write off since 2006 of R6.179 million. The impairment was not a write off but a provision going forward. He said that while some of the institutions were based in the
The Chairperson said the samaf report was for public consumption and therefore should be clear and accessible. She suggested that the report be reviewed and refined and a new meeting would be scheduled for its presentation. She asked that a copy of the samaf turnaround strategy be provided.
The Committee felt that the report had to be interpretable, supported by reliable evidence, should have no incongruent information, should give samaf‘s view if samaf’s information conflicted with the AG’s findings, and should give more information on samaf’s rural activities.
The meeting was adjourned.
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