Performing Arts Centre of the Free State (PACOFS) on its Audit outcome for 2009/10
Arts and Culture
26 October 2010
Chairperson: Ms J Tshivhase (ANC)
The Performing Arts Centre of the Free State in its briefing on its 2009/10 Annual Report, said that the Auditor-General had given the Centre a qualified audit opinion. The Centre identified the issues on which the qualified opinion was based: there had been no review of residual values and useful lives of specialised assets; the Centre had been unable to produce official documentation for accounts payable to the extent of R6 174 114; a suspense account for receipts amounting to R605 076 had not been cleared at the end of the financial year; the Centre had provided insufficient evidence to confirm completeness of revenue received from ticket sales on its own productions and on commission on ticket sales by Computicket; there was fruitless and wasteful expenditure; no audit committee had been established; a risk assessment plan and an audit plan had not been approved by the Accounting Authority; no risk management committee had been established and no fraud risk plan had been developed and implemented; the Accounting Authority had not included multi-year projections of revenue in the strategic plan; there were problems in internal control – leadership, problems in financial and performance management, and problems in governance; and problems with the financial position of PACOFS trading as Macufe [Mangaung African Cultural Festival]. The Centre indicated steps taken to ameliorate these findings.
The Centre reported that the former chairperson and chief executive officer had conducted council business unilaterally, thereby marginalising the Centre's council and rendering it unable to exercise its fiduciary duties and maintain oversight over administration. Unilateral alterations of employees’ condition of service had caused industrial action. When the council intervened and removed the chairperson, on 31 August 2010, it was able to restore the conditions of service of employees; restore discipline and work ethic; begin to consult with employee representatives; implement an artistic programme; and re-establish relationships with Transnet Foundation and other stakeholders.
The Centre maintained that the matters raised by the Auditor-General were essentially a lack of internal controls rather than of any financial mismanagement. In the next week, a chief financial officer would be appointed. With the able assistance of the audit committee appointed since 01 April 2010, the Centre would emphasise document management and security; review of residual values and useful lives of specialised assets; valuation and existence of trade payables; revenue collection and cash handling processes; zero tolerance on fruitless and wasteful expenditure; strict compliance with regulatory and reporting requirements; and general conditions of service and performance management. The Centre was conferring with the unions and was confident that it was overcoming its challenges. Better stakeholder relationships had been established with the provincial Department, with the Free State Member of the Executive Council attending some of the Centre's council meetings. The Centre noted measurable endeavours and commitment by staff to reclaim the Centre and position it where it belonged – among the best in the country.
The Acting Chairperson thanked the Centre for submitting its documentation well in advance of the meeting, to give Members the opportunity to study it and prepare their question. Members required a progress report, and thenceforth quarterly reports, asked what the Centre was doing as part of its programmes to promote social cohesion and nation building, observed that our problems and the depth of our moral decay could be attributed largely to the conditions in which our people found themselves, that an institution such as the Centre could provide an example by extending its activities to schools and providing models of behaviour by way of drama, and that it was necessary to demonstrate the Centre's impact on society, asked what the Centre would do to recover money lost in fraud, and asked about involvement with municipalities and communities. PACOFS was asked how many members of council there were, observed that it had suspended its chief executive officer and asked who was acting and who was doing the work, asked if the Centre saw its work as a production house which appeared to conflict with the White Paper on Arts and Culture, asked about the Centre’s surplus, what its approach to “block buster” shows was, and if the Centre was engaged in dialogue with the universities. The Centre was asked for details of what had transpired regarding wasteful and fruitless expenditure, and how long the chief executive officer had been suspended. The Chairperson concluded by saying that she would expect a quarterly report from the Centre.
As Rev T Farisani , Chairperson, was still unwell, Ms J Tshivhase was elected Acting Chairperson. [Mr H Maluleka (ANC) proposed; Dr A Lotriet (DA) seconded].
Performing Arts Centre of the
Ms Janet Kay, Acting Chairperson, Performing Arts Centre of the Free State (PACOFS) briefed Members on PACOFS’ Annual Report 2009/10. She firstly listed the main problems and how PACOFS proposed to deal with them. The Auditor-General (AG) had given PACOFS a qualified audit opinion for the financial year 2009/10. Ms Kay identified the issues on which the AG had based his qualified opinion.
Movable assets: property, motor vehicles and equipment
There had been no review of residual values and useful lives of specialised assets. Therefore, by way of amelioration, PACOFS had consulted the national Department of Arts and Culture (DAC) and obtained approval of a submission to appoint an external service provider. The supply chain management (SCM) process of appointing TAT I-Chain Technologies, as recommended by DAC, for physical verification and a fair market valuation of PACOFS's assets was underway. Ms Kay was confident that this company had proved itself in providing such services in the sector, and that this qualification would be circumvented in future.
Trade and other payables
PACOFS had been unable to show the AG official documentation for accounts payable to the extent of R6 174 114. PACOFS explained that this amount was owned on the electricity account to the Free State Department of Public Works. No official invoice had been received from that Department as one meter was used for PACOFS as well as another governmental department – Education – in the same building. PACOFS had held a meeting with officials to resolve the meter readings, and had requested an official invoice in order to pay the outstanding amount.
Mr Godfrey Mahlatsi, a member of the Audit Committee, PACOFS, explained the financial details.
Trade and other receivables
A suspense account for receipts amounting to R605 076 was not cleared at the end of the financial year. PACOFS' finance section had begun the identification of all transactions on the control accounts, and, once identified, the finance section would allocate them to the relevant ledger accounts.
Revenue: rendering of services
PACOFS had provided the AG with insufficient evidence to confirm completeness of revenue received from ticket sales on its own productions and on commission on Computicket ticket sales. Computicket had agreed to provide PACOFS with Computicket's audited financial statements and annual report. These would be availed to the external auditors for their third party confirmation.
Fruitless and wasteful expenditure
The Chairperson of PACOFS would write to the Director-General of National Treasury, to enquire as to condonation of this fruitless and wasteful expenditure.
Non-compliance with regulatory and reporting requirements
The AG had found that no audit committee had been established. However, PACOFS had appointed an audit committee effective from 01 April 2010 for a period of one year.
The AG had found that a risk assessment plan and an audit plan had not been approved by the Accounting Authority. PACOFS had undertaken to finalise and obtain approval from the Accounting Authority for the risk assessment plan and audit plan.
The AG had found that no risk management committee had been established and no fraud risk plan had been developed and implemented. PACOFS had undertaken to establish a risk management committee and develop and implement a fraud risk plan during the current financial year.
The AG had found that the Accounting Authority had not included multi-year projections of revenue in the strategic plan. PACOFS had included projected income and expenditure for multi-years in its 2010/11 – 2012/13 strategic plan.
The AG had identified three problems in internal control:
- Leadership: there had been a breakdown in communication between the Accounting Authority and the Chief Executive Officer. The PACOFS's council chairperson was removed from office on 31 August 2010 in terms of the Cultural Institutions Act 1998, Section 5(9) (a) due to absence from five consecutive council meetings. Ms Kay was appointed Acting Chairperson.
- The AG had found problems in financial and performance management. Ms Kay noted that PACOFS was rectifying the lack of quarterly reporting. The Accounting Authority would establish and implement procedures for quarterly reporting to the Minister to facilitate effective performance monitoring, evaluation, and corrective action.
- Thirdly, the AG had found problems in governance. PACOFS had appointed an audit committee effected from 01 April 2010.
PACOFS trading as Macufe
The AG had found problems with the financial position of PACOFS trading as Macufe [Mangaung African Cultural Festival] as at 31 March 2010.
The Free State Department of Sports, Arts, Culture, and Recreation (SACR), PACOFS and Computicket had entered into an agreement regarding ticket sales for Macufe. This arrangement was difficult to monitor; it was impossible to scrutinise the audit by Computicket thus creating a problem of reconciliation resulting in money being left out in PACOFS' account. Ms Kay noted that this account had now been closed and all due monies transferred to the Department of SACR. PACOFS would review its own internal systems.
Ms Kay said that, moreover, the former chairperson of the board had been reluctant to call council meetings and had consequently alienated the entire council in the decision-making processes of PACOFS. This practice had created a conduit through which the chief executive officer communicated only with the former chairperson and both disposed of council business unilaterally. Council was marginalised and could not exercise its fiduciary duties and maintain oversight over administration.
The unilateral culture of running PACOFS culminated when PACOFS experienced industrial action, just before the 2010 FIFA World Cup match with Japan in Bloemfontein, on account of unilateral alterations of employee conditions of service.
When PACOFS' council intervened and removed the chairperson, it was able to restore the conditions of service of employees; restore discipline and work ethic; begin to consult with representatives of employees; implement an artistic programme; and re-establish relationships with Transnet Foundation and other stakeholders. The PACOFS council was also able to appoint council committees such as the Artistic Committee, Finance and Corporate Governance, and Human Resource Committee.
Ms Kay said that PACOFS agreed with the AG that this was not a good report: there was a lack of internal controls but did not agree that there was financial mismanagement. She said that the matters raised by the AG were essentially a lack of internal controls rather than of any financial mismanagement.
In the next week a chief financial officer would be appointed. With the able assistance of the audit committee, PACOFS would emphasise document management and security; review of residual values and useful lives of specialised assets; valuation and existence of trade payables; revenue collection and cash handling processes; zero tolerance on fruitless and wasteful expenditure; strict compliance with regulatory and reporting requirements; and general conditions of service and performance management.
PACOFS was conferring with the unions. PACOFS council was confident that it was overcoming its challenges. Evidence of this was the work presented by Messrs Aubrey Sekhabi and Jerry Pooe, assigned to PACOFS by the Minister of Arts and Culture, the Member of the Executive Council (MEC), and the Head of Department (HOPD) of the Free State Department of Sport, Arts, Culture and Recreation.
Better stakeholder relationships had been established with the provincial Department, with the MEC attending some of PACOFS' council meetings. Memoranda of Understanding (MOUs) with municipalities would be fast tracked for better promotion of PACOFS services to the communities. PACOFS was meeting with other stakeholders to ensure that the Sand Complex became vibrant and alive and once more as a theatre of note. Ms Kay noted measurable endeavours and commitment by staff to reclaim PACOFS and position it where it belonged – among the best in the country.
The Chairperson thanked PACOFS for submitting its documentation well in advance of the meeting, to give Members the opportunity to study it and prepare their questions.
The Chairperson inferred that PACOFS' challenges were primarily the problems of money and the qualified audit opinion. She asked PACOFS to confirm.
Mr Mahlatsi said that Ms Kay and he had been impressed by level of commitment of the council itself so they had given their every effort to put PACOFS back on track. Interviews had been held for the position of chief financial officer and they were confident that the issues around this position were now resolved. It was clear in the Annual Report that there had been no audit committee previously but now every effort was being made to put reliable systems in place. PACOFS' financial statements were audited, and that the AG's opinion was a qualified one, based on the qualifications that had been presented earlier on.
Mr Mahlatsi said that, since during the year under review, the PACOFS council had not sat, to the extent that the chairperson of the council had been requested to resign, it was obviously a challenge, but an improvement could now be noted. The fact that an audit committee had not existed during the year under review was also a challenge. However, an audit committee was now in place and was active. As to governance, as reported by Ms Kay, at least now there was direction. PACOFS was not in deficit.
Mr H Maluleka (ANC) said that Members should support PACOFS, and it seemed that PACOFS was now on course in trying to respond to the issues raised by the AG. However, Members would require some time frame from PACOFS, for example, with risk management and the audit plan. He suggested allowing three months for PACOFS at the end of which it should present a progress report audit to the Committee, and thenceforth give quarterly reports on a regular basis. He did not want to wait for the AG's next audit report for an interaction with PACOFS.
Mr Maluleka asked, with regard to Arts and Culture's mission of establishing social cohesion and nation building, what PACOFS was doing as part of its programmes to promote social cohesion and nation building. There was a tendency to accord this responsibility to religious leaders, but the problems that we had and the depth of our moral decay could be attributed largely to the conditions in which our people found themselves. As long as a child lived in a single room with adults, it was difficult to tell that child that, for example, the sexual act was only for adults not for children. It was the environment that caused children to want to behave inappropriately as adults. On the other hand, an institution like PACOFS could provide an example by extending its activities to schools and providing models of behaviour by way of drama.
Ms Kay said that she and other members of the council had approved in the previous week a programme, in which a play, Nothing but the Truth which school students in grades 11 and 12 preferred to Julius Caesar as a set work would be taken to schools throughout the province from 13 December 2010 and onwards through the following year.
Mr Maluleka said that the question we have to ask ourselves was that kind of society we wanted to see in the future. Moreover, it was fine for Members to examine how PACOFS spent its budget, but it was necessary to ask how PACOFS made an impact on our society. This was one of our serious challenges. He wanted PACOFS to live up to its mandate, and the Committee would support it.
Ms Kay emphasised that she believed that PACOFS had an important role in the development of young artists.
Dr A Lotriet (DA) agreed with Mr Maluleka, especially with regard to PACOFS' mandate and its former status as a flagship theatre complex. She asked if PACOFS had any relationship with the drama department.
Ms Kay replied that PACOFS did not, but would review that. Ms Kay herself had a working relationship with the drama department.
Dr Lotriet asked how many members of council there were.
Ms Kay replied that since the removal of the chairperson there were eight members of the board, four of them living in
Dr Lotriet observed that PACOFS had suspended its chief executive officer. Was anyone acting CEO? Who was doing the work?
Ms Kay replied that to find somebody to step in at the last minute after the suspension would create problems. Since PACOFS was located in
Dr Lotriet referred to the White Paper on Arts and Culture according to which PACOFS was not itself a production house. She asked if PACOFS saw its work as a production house as a problem in so far as it appeared to conflict with the White Paper.
Ms Kay replied that PACOFS did realise that it was important to bring in productions, rather than produce them itself. However, there were times when it was necessary to collaborate, and PACOFS thought that the White Paper should be considered in terms of development. It was important for PACOFS to consider the development of artists. In the meantime, PACOFS was cooperating with the Free State Department of Sports, Arts, Culture and Recreation, which took responsibility for the development aspects in collaboration with PACOFS, while PACOFS would offer a platform for the young artists to perform. It was a problem if a playhouse was merely a playhouse without a developmental aspect.
Ms Kay said that previously she had been head of a school in
Ms Kay said that PACOFS cooperated with the Department of Arts and Culture, which supplied artists to work with local artists. PACOFS was aware that it was big-name artists who attracted audiences. However, upcoming artists in the province needed a platform. Thus PACOFS considered job creation in the performing arts as part of its development programme.
Dr Lotriet asked about PACOFS' surplus.
Ms Kay replied that PACOFS did have a surplus from the previous financial year, 2009/10, which PACOFS had received permission to retain. So it had sufficient funds.
Dr Lotriet asked what PACOFS' approach to “block buster” shows was.
Ms Kay replied that PACOFS was considering “block busters”, and gave examples from PACOFS artistic programme. There would be a big show, on 16 December 2010, with a developmental aspect.
Ms Kay said that she had just signed, in one day, 12 contracts with artists.
Dr Lotriet asked if PACOFS was engaged in dialogue with the universities.
Ms Kay replied that there was not cooperation with the drama department. There was much work at PACOFS. She would make a note of it.
Mr Ntshiqela (COPE) asked if PACOFS would give details of what had transpired regarding wasteful and fruitless expenditure.
Ms Kay replied that in terms of the R19 000 incurred in fruitless and wasteful expenditure, Ms Kay would write within the next two weeks to the Director-General of National Treasury, to inquire as to the outcome of the condonation. Ms Kay would inform the Committee in due course.
Mr Ntshiqela asked how long the chief executive officer had been suspended.
Ms Kay replied that the suspended chief executive officer was being paid, since he had not yet been proven guilty of any thing. PACOFS had hoped that the investigation had been completed. However, at the last PACOFS meeting, members were not satisfied with the report on the investigation. PACOFS had suspended the chief executive officer because of alleged misconduct on certain issues. The investigator, however, had been found not to have covered all these areas. The investigator had been asked to complete the task.
Mr Ntshiqela observed that PACOFS did not see any financial mismanagement.
Ms Kay confirmed that PACOFS did not consider that it was guilty of any financial mismanagement.
Fruitless and wasteful expenditure, on the other hand, was an issue left over from the previous financial year, 2008/09. PACOFS had had to ask its management if it could achieve any savings with a view to making payments to its Provident Fund. Requests for funding for attending conferences and for other travel were now closely scrutinised to save money for core functions.
A Member asked what PACOFS would do to recover money lost in fraud.
Ms Kay replied that she did not see that any fraud had been committed, or that there was anything in the Auditor-General's report about fraud.
Ms T Lishivha (ANC) asked about involvement with municipalities and communities.
Ms Kay said that PACOFS was involved in obtaining MOUs with municipalities and was fast-tracking this process. If PACOFS took a set book to the smaller towns, the involvement of the municipalities was essential in order to obtain use of the municipal hall, and in the dissemination of information on, for example, when plays would be performed.
Ms Kay said that the Free State Symphony Orchestra the Bloemfontein Children's Choir, the Free
State Youth Orchestra, and Radio Orania featured in PACOFS work with communities.
Ms Kay said that PACOFS needed positive coverage from Radio Orania and Volksblad and needed their support again.
Ms Kay said that the MEC had attended PACOFS council meetings; he had even accompanied her on visits to the Minister of Arts and Culture in support of PACOFS.
Ms Kay said that PACOFS was too small to have its own internal auditor; it wanted to resolve its audit matters as soon as possible. It had engaged a company that did PACOFS' internal audit on PACOFS' behalf. At the meeting of council next week, Ms Kay would ask council to mandate her to appoint internal auditors to examine preparing the risk assessment and audit plan, so that these internal auditors could then present them to the audit committee. At the very latest the risk assessment plan should be ready by the end of January 2011. Ms Kay would report to the Committee on all the undertakings PACOFS had made.
However, Ms Kay said that she was a realist rather than an optimist.
Ms Kay said that PACOFS received much publicity through Radio Orania. She noted the work of the Free State Youth Orchestra.
Mr Mahlatsi noted that PACOFS was, financially, relatively healthy. It was not in deficit.
The Chairperson observed that sports, arts, culture and recreation were typically combined in one department in the provincial governmental structures. She asked about the relationship with Public Works.
Mr Mahlatsi replied that PACOFS was occupying governmental property. When PACOFS had exclusive use of the premises, there had been no problem, but because there was only one electricity meter and account for the building, when the education department was allocated some space, it became a problem. PACOFS had talked to Public Works about it. PACOFS would also address a similar situation with the water supply.
Mr Maluleka appealed for an emphasis on the importance of nurturing our children. Currently we were not doing enough. It was to this end that real investment must take place; it was a cross-cutting issue.
Mr Maluleka said that the Committee wanted PACOFS to succeed and not to engage with them only when the Auditor-General had adverse findings.
Mr Maluleka also looked forward to seeing one of PACOFS’ future productions.
Mr Maluleka asked PACOFS to quantify its outputs.
The Chairperson said that she would expect a quarterly report from PACOFS.
Mr Mahlatsi said that reporting was one challenge that PACOFS must still work on, and he undertook that in future, reports would be submitted on time.
The Chairperson agreed with Mr Maluleka and stated that our children were our future.
The meeting was adjourned.
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