Department of International Relations and Cooperation briefing on quarterly report (October – December 2010) as presented to National Treasury & response to AG's Report

Meeting report

Briefing by the Department on the Quarterly Report (October – December 2010) as presented to the National Treasury
Dr Ayanda Ntsaluba, Director-General, DIRCO, presented the Committee with the Department’s quarterly financial report as it was presented to the National Treasury.

The Department had received an adjusted appropriation from the National Treasury of R4, 715 billion. The Department had spent R2, 605 billion. The Department had thus spent 55.3% of its adjusted appropriation. Its actual spending represented 83.7% of its projected expenditure.
Under Programme 1 of its budget dedicated to administration, the Department had spent R 644,904 million of its allocated R1, 279 billion. This was due to the low spending on capital projects. The adjusted capital budget was R261 million of which R52.5 million had been spent to date and projected expenditure of R90 million in the final quarter. R120 million was projected not to be spent because of delays in planning approvals in countries abroad, designing as well as procurement of these services.

The Department had under-spent on Programme 2 which related to International Relations. The Department had spent R1.732 billion of the allocated R2.007 billion. The reason for the under-spending was that the programme included expenditure incurred at missions abroad. As at 31 March 2010, 49 mission’s accounts totalling R33.7 million were still to be processed on the accounting system.

DIRCO had under-spent on Programme 3 relating to State Protocol and Diplomacy. It had spent R147, 673 million of the allocated R233, 923 million due to the fact that State visits undertaken where expenditure had been incurred at missions abroad and was still to be processed as at 31 December 2010.

The Department had under-spent on Programme 4: International Transfers. It had spent R 80, 571 million of the allocated R828, 225 million. This was due to the fact that payments had been processed after the 31 December 2010 deadline. Some of the payments which would be made out included payments to the African Renaissance Fund (ARF) (R401 million), the United Nations (R122 million), the IBSA Fund (R8 million), NEPAD (R35 million), the Commonwealth (R10 million), and Humanitarian Aid (R11 million). In the case of international transfers, DIRCO awaited the assessed contributions from those international organisations before transferring the monies abroad.

Briefing by the Department on the Auditor General’s Report
Mr Asogan Moodley, Chief Financial Officer, DIRCO, presented the Committee with the Department’s response to the Auditor General’s report on the Department.

The Auditor General had highlighted some problem areas with regard to the Department’s financial management which the Department needed to explain. These areas included revenue collection on behalf of the Department of Home Affairs (DHA), the suspension of capital projects and the need to update the Assets Register. The Department needed to adhere to recording of information to Basic Accounting Systems and provide explanation of the African Renaissance Fund (ARF).

With regard to collection of revenue on behalf of the DHA, DIRCO collected revenue on behalf of the Department of Home Affairs (DHA). DIRCO also incurred expenditure for DHA officials stationed abroad.  Prior to the 2008/09 financial year, the offset principle was applied and net revenue paid to DHA. During 2008/09 financial year, it was agreed that for fair accounting presentation receivables and payables would be separated and those would be shown separately in the books of DIRCO. DIRCO was in process of paying revenue amounting to R404 million to DHA during March 2011, according to the confirmations.

According to DIRCO acquisition strategy, properties were acquired depending on available funding. The capital budget was also utilised for continuing with construction for projects already in progress; and undertaking major renovations to state owned properties. Presently the projects undergoing design and construction were in Abuja, Dar-es-Salaam, Lilongwe, Mbabane and Kigali. Major renovations were taking place in Washington, London, Copenhagen, Paris, The Hague, Tokyo, Brasilia and Juba. To date, no project that was in the construction phase had been suspended. The acquisition strategy had been spread over a longer period, as per the DIRCO’s asset management plan, in alignment to the funding made available to DIRCO.

DIRCO had acquired the HARDCAT asset management system in 2004/05 financial year and had updated the asset register with all the assets including those at missions abroad in the 2004/05, 2005/06 financial years. Since then, the asset register had been updated on a continual basis. In view of the findings of the AG in 2009/10 financial year, DIRCO introduced quarterly physical verification of assets in 2010/11. The asset register was updated and reviewed on a monthly basis. DIRCO was working towards the daily updating of the asset register. Daily engagement took place between missions and Head Office concerning asset register. The asset register was reconciled with the accounting system on a monthly basis. Written confirmation signed by the Head of Mission was provided at year end to confirm that physical verification had been done.

Cabinet had approved the establishment of the South African Development Partnership Agency (SADPA) to replace the ARF. It was planned that SADPA would come into existence in the 2011/12 financial year and the necessary capacity would be developed for this purpose. Once SADPA was operational, the ARF would cease to exist. It was therefore impractical to develop any new system for the ARF; this would be done for the SADPA.

Discussion
Ms L Jacobus (ANC) said that she was happy to be back in the Committee. She asked what the security implications would be if the Washington Mission’s office was in the same compound as the Ambassador’s residence. Would there be any financial costs for joining the economic organisation Brazil, Russia, India and China (BRIC) soon to be referred to as BRICSA with the addition of South Africa?

Dr Ntsaluba replied that the Department had separated the Ambassador’s residence from the mission’s offices in Washington. This was done partly due to security concerns. There were no direct membership fees for joining BRIC but there would be a number of conferences under the organisation which would call on the Department to spend money to send its representatives to those meetings. There was a BRIC summit set to take place on the 13 and 14 April 2011, which would require DIRCO’s participation. The Department would incur costs for hosting the India, Brazil and South Africa (IBSA) summit in October but the costs were budgeted for and in future if the Department had to host BRICSA those costs would also be budgeted for.

Ms C September (ANC) asked whether the Department had been able to ensure that its stated objectives had been met on spending. Did the Department have contingency plans for capital expenditure should its planned spending need to be increased due to unforeseen issues arising? She asked how the Department did not foresee the delays in the building of the new Washington consulate. What was the timeframe for the completion of the Department’s expenditure on its allocated money? Why was there was an arrangement between the Department of Home Affairs (DHA) and DIRCO on some of the expenditure dispensed by the Department? Was DIRCO involved directly in capital expenditure or did that fall under the remit of the Department of Public Works (DPW)? What was the role of the internal audit committee concerning the Department’s asset registry?

Dr Ntsaluba replied that the Department had to trim down its ambitions with respect to its stated objectives due to budget constraints. The Department had hoped to open missions in mainland China and a mission in Chennai, India but for the constraints placed on it by the budget. Having trimmed down its ambitions, the Department could report though that it had achieved a significant amount within its restated goals. The DHA had an arrangement with DIRCO because it did not have the mandate to spend money in certain regions outside of the country whereas DIRCO did. There were powers granted to DHA by the Immigration Act which meant that only people employed by that Department could carry out certain functions in consulates. Therefore DIRCO and DHA had to work together in some cases in order to advance the South African cause. The Department of Trade and Industry and DHA had wanted to expand their reach in the world via posting people in various missions but due to resource constraints they could not achieve that goal.

Mr Moodley said that DIRCO could process and carry out foreign transactions whereas DHA could not and therefore there was a necessity for the partnership between the two Departments. DIRCO’s budget did not subsidise DHA costs, there was a repayment scheme in place when DIRCO had to pay for DHA transactions. DIRCO hoped to spend 98% of its budget before the end of the financial year.

Ms Bernice Africa, Chief Director for Property and Facilities Management: DIRCO added that there was a detailed process of planning prior to capital expenditure being spent on a mission. The Department of Public Works was involved in technical advice to the Department in instances when the Department was preparing for capital expenditure on a mission. The Department carried out due diligence on a legal basis and technical basis in order to asses legality and costing of a renovation/reconstruction. The Washington Mission had needed public presentation and that had taken longer than foreseen by the Department.

Mr Nyameko Goso, Chief Director for the Internal Audit Unit, DIRCO, informed Members that the internal audit unit conducted audits of assets under the Department and issued reports where there were discrepancies.

Ms W Newhoudt-Druchen (ANC) asked why the DHA had an arrangement with DIRCO on expenditure. She asked what the timeframe was for the completion of the asset register. She asked what the full name of SADPA was.

Dr Ntsaluba replied that the DHA had an arrangement with DIRCO because it did not have the mandate to spend money in certain regions outside of the country whereas DIRCO did. There were powers granted to DHA by the Immigration Act which meant that only people employed by that Department could carry out certain functions in consulates. Therefore DIRCO and DHA had to work together in some cases. SADPA stood for the South African Development Partnership Agency.

Mr Moodley said that DIRCO could process and carry out foreign transactions whereas DHA could not and therefore there was a necessity for the partnership between the two Departments. DIRCO’s budget did not subsidise DHA costs, there was a repayment scheme in place when DIRCO had to pay for DHA transactions.

Ms Jacobus asked whether the asset register was not electronically linked up.

Mr Simphiwe Mhlekwa, Chief Director: Supply Chain, DIRCO, replied that the timeframe for completing the asset registry was one month. The register would be electronically linked up and frequently updated by the new web browser system which was coming into being at the Department. The system would be based at the head office in Pretoria.

Mr K Mubu (DA) asked whether costs on capital expenditure were not increased based on the time period it took to complete construction. He asked who the recipients of the R11 million dedicated to humanitarian aid were and what criteria the Department used to allocate the funds. Were there any outstanding programmes funded under the ARF?

Ms Africa replied that due to a number of factors including currency fluctuations, there sometimes arose the need to reassess costs on capital expenditure projects.

Dr Ntsaluba replied that the Department contributed to the United Nations on an annual basis for humanitarian matters, the World Food Programme and disaster relief such as the recent floods in Brazil. The ARF’s projects would be aligned with the objectives of SADPA so that when the latter programme succeeded the former it would inherit some of its projects.  

Mr B Skosana (IFP) commented that he was intrigued by the issue of public participation in the Washington Mission. He asked whether DIRCO ever went into ventures with the other departments it housed in its various consulates and what the impact of those ventures were on the Department’s expenditure. He commented that the Department’s Public Diplomacy Unit should look to incorporate regional parliamentary structures such as the Southern African Development Community, the Pan African Parliament and others so as to better inform the public on the work of the Department and foreign policy. He sought clarity on the contractual features of the buildings owned by the Department and whether the Department had the right to reconstruct or renovate such properties.

Dr Ntsaluba replied that the Department was working to encourage a spirit of cooperation between the different representatives of Departments in the various South African missions across the globe. He agreed with Mr Skosana’s suggestion on the Public Diplomacy Unit. There were two types of property that fell under DIRCO’s purview, property’s which it owned and property’s which it rented. The Department experienced problems at times with property’s which it rented. This presented the Department with a conundrum where it had to decide whether to renovate/upgrade properties which it did not own or let the properties deteriorate and present problems for the Department in the long term. The function of renting properties had been centralised in Pretoria and the process tended to be executed better.

Mr E Sulliman (ANC) asked whether National Treasury would approve the rollover of the R120 million which was yet to be spent by the Department. He asked how the Department planned to break even with its expenditure before the end of the financial year.

Dr Ntsaluba responded that National Treasury would most likely approve the rollover for capital expenditure; the Treasury was less accommodating with rollover expenditure when it entailed operational costs.

Mr Moodley added that the Department intended to spend 98% of its allocation before the end of the financial year.
Ms Jacobus commented that the same requirements enforced in Washington on the South African Mission should be enforced in South Africa on the United States’ missions as it appeared to be arbitrary and unfair.

Mr Mubu asked about the mission in Juba, South Sudan and what progress had been made in constructing the embassy.

Dr Ntsaluba responded that the Department had an agreement with South Sudan which had allocated a building to DIRCO to set up a mission. The Department needed to put up fencing and security around the property but there was a building there which DIRCO could use.

The Chairperson asked whether the Department’s cashbooks were aligned. Did the money spent on behalf of the Department of Home Affairs get paid back? He asked whether the Department had thought out the winding up of the ARF. 

Dr Ntsaluba responded that the cashbooks of the Department were in the process of being aligned but was awaiting input from National Treasury. There was a memorandum of understanding between DIRCO and the DHA and the monies owed to DIRCO by the DHA were being paid back steadily. The Department requested time to get back to the Chairperson on the ARF issue. Mr Moodley added that the cashbook issue was in the process of being addressed through National Treasury.  

The meeting was adjourned.