Namaqua Diamond Fund Trust on developments and progress in its operations and financials

Meeting report

Ms Margaret Williams, Chief Executive Officer of the Namaqua Diamond Fund Trust (NDFT), outlined some of the contributions which the Trust had made to the community in the spheres of education, health care, social welfare and disaster relief over the past 16 years, in pursuit of its mission to improve the quality of life of the inhabitants in its beneficiary areas. However, a change in legislation had resulted in a cessation of royalty payments to the Trust from mining activity in the area, and this effectively negated its ability to serve as a catalyst for need fulfilment among the previously disadvantaged communities of Namaqualand. Against this background, the NDFT had interacted with the Portfolio Committee in an attempt to find a solution. For its part, the Committee had instructed the Trust to deal with three issues: the registration of Mr H J Visser as a trustee; the initiation of an investigation into the Trust’s finances; and the introduction of measures to reduce certain high expenditure levels.

Ms Williams said Mr Visser had been officially registered as a trustee in February 2011, and had assumed duties on 1 March. However, he had passed away during May, and the Master’s Office had been informed accordingly.

The Trust’s legal advisors, Edward Nathan Sonnenbergs (ENS), had submitted three alternative avenues for investigating the Trust’s finances, and the lowest-cost proposal had been accepted by the Board in April. The analysis had commenced, and the first report was expected at the end of August.

Ms Williams said the NDFT had not wasted any time in implementing cost-saving measures, and was keeping a very close eye on all aspects related to financial expenditure. However, it was awaiting a written report from its professional advisors about recommended changes and optional plans for implementation, after which it would definitely institute further cost-saving measures. Among the proposed changes were cutbacks in trustees’ expenses, with the transport allowance being reduced from R7,20 per km (before tax) to R5,00 as from 1 August, 2011, and meeting attendance fees from R3 334 to R1 662 per day, as from 1 January 2012. Operational overheads would be pruned through strict monitoring of telephone calls, the elimination of unnecessary printing and photo-copying, weekly control of budget and closure of the feedback loop, and special consideration of a telecommunications system which would facilitate drastic cost savings in the long term. The current administration budget of R10,5 million compared well with the 2010 figure of R14,6 million.

Budget revisions included the elimination of a social development allocation of R110 000, and savings on the Management Fund of R73 000. Under-utilised vehicles had been sold off, resulting in long-term savings in finance, running and maintenance costs. The Trust had also started with a reconsideration of all standing service agreements with a range of vendors, with a view to facilitating cutbacks and/or the termination of service level agreements with selected vendors.

Ms Williams said that NDFT representatives had concluded public meetings with 11 constituent communities across Namaqualand between November last year and February, at which they briefed beneficiaries on the Trust’s situation in view of the suspension of royalty payments, its interaction with the portfolio Committee, and the impact this would have on the meeting of expectations. There had been a unanimous call on the Trust to persist in its endeavours to procure royalties, so that poverty-stricken families might be assisted and supported, as in the past.

Discussion
The Chairperson said that while the aspect of cost saving had been covered in detail, greater clarification was needed on progress into the investigation of the Trust’s finances.

Ms Williams said the Trust had considered three options put forward by their legal (ENS) and financial advisors (LDP), and had then informed them of what procedures they were going to follow. She had outlined the plan the Board had agreed upon regarding the aspects of the Trust’s finances which should be investigated. Their report and recommendations were expected at the end of August.

Mr S F Basson, Deputy Chairperson of the NDFT, said the option chosen had been the lowest cost route, in terms of which the Trust would do all the preparatory work ahead of the forensic investigation, thereby avoiding having to pay people to locate files and “put them on the table.” Replying to a suggestion by the Chairperson that this might imply that the forensic audit was being carried out by people handling the Trust’s day-to-day affairs, he said only preparatory work was involved, and once this was completed, the matter would be handed over to the independent investigators.

Mr M Sonto (ANC) said this procedure seemed to allow the Trust to “clean up” its finances ahead of the forensic investigation, and asked why this was necessary.

Mr Basson denied this was the case, and insisted that the procedure had been adopted as a means of avoiding the expense of the forensic team travelling to Springbok to do preparatory work which could be done by those already employed by the Trust.

Mr Sonto said the information had to be located in the Trust’s offices, and questioned how the Trust would know what type of information the forensic investigators would be looking for.

Mr Basson confirmed that the information was in the NDFT’s offices, and said that as this was their first experience of a forensic investigation, they were doing all they could to ensure the credibility of the process and follow the guidance of the Committee.

Mr Sonto persisted that by preparing in advance without knowing what information the forensic team would be looking for, there was an implication that the Trust might be trying to “doctor” documents. It would have been better to have avoided this, as involving the internal auditors had only lengthened the process.

He asked what action had been taken following the demise of Mr Visser, the newly appointed trustee.

Mr Mervin Cloete, Chairperson of the NDFT, responded that a letter had been sent to the Northern Cape Premier, advising her of the situation, but no response had yet been received.

Mr Sonto asked whether there was any basis to a rumour that the Trust had embarked on a financial transaction involving a mining company, and if there was, how this related to its vision and mission.

Mr Cloete said that in about 2008, the Trust – which was legally barred from being involved in business operations -- had established NDFT Properties, with its own directors, to conduct transactions with the mines, in conjunction with Trans Hex. No funds from the Trust were involved at all.

Mr Basson explained that the closure of De Beers mines in the area, and the consequent loss of jobs, had presented an opportunity to acquire the mines in collaboration with Trans Hex, to create work opportunities and to generate income. This approach had been approved by the provincial administration, and the process was continuing.

Mr Cloete said the objective was to acquire a 5% stake in the venture at a cost of R15 million, but no funds had yet been paid out.

Ms F Bikani (ANC) asked how much money the Trust actually possessed.

Mr Basson said the NDTF’s assets were valued at R58 million, and it had R70 million in cash and investments – a total of R128 million. Without the income from royalties, however, the Trust would be able to survive for only another three years. It was for this reason that it had looked at aggressive alternative methods of increasing its income.

Ms Bikani questioned why R110 000 for social development had been eliminated from the budget, as this did not seem to be in line with the Trust’s vision. She also asked why R70 000 had been trimmed from the Management Fund.

Ms Williams said an analysis of the social development budget had revealed it was being spent on local festivals and cultural activities. The Management Fund was being used to cover funeral costs and family support, so it was decided to incorporate it in the general welfare budget.

Mr C Gololo (ANC) commended the NDTF on its role in the fields of education, health and agriculture, but requested that a full financial report be provided.

Mr E Marais (DA) asked whether the Trust was using financial and legal firms based in Cape Town and, if so, why it did not consider firms in Kimberley, in order to reduce costs.

Mr Cloete said that both LDP and ENS were based in Cape Town, and the Trust was looking for alternate representation in the Northern Cape.

Mr Marais expressed concern that despite the Trust’s claim that it was not wasting time in implementing cost cutting measures, it was delaying the reduction in trustees’ daily attendance fees, from R3 334 to R1 662, until January next year. He wanted to know how many trustees there were, and how many meetings they attended each month.

Ms Williams said the 15 trustees attended board meetings, which lasted two days, every alternate month. They also attended two sub-Committee meetings every alternate month.

Mr Basson added that the Trust’s total budget for remuneration, travel and accommodation expenses was R3 million.

Mr Marais commented that this meant 15 trustees were being paid R6 668 each a month, and felt that the figure of R3 million was ridiculously high. The Trust needed to professionalise and handle their board meetings in a single day.

Mr Basson said the NDTF had had to consider many factors in its cost-cutting programme, such as the disposal of redundant vehicles, the cancellation of contracts with service providers, and reducing maintenance and fuel costs. He undertook to bring up the issue of reducing the trustees’ fees before January 2012 at the next Board meeting.

Mr Marais said the Committee had been told that two of the forensic investigation options would cost R1,5 million and R1 million, but had not been told the cost of the option accepted by the Trust. He also wanted to know who the forensic auditors would be.

Mr Cloete said the amount involved was R250 000, and KPMG had been approved by the Board to carry out the forensic audit.

Mr E Lucas (IFP) said he was concerned at the fact that the Committee was trying to deal with the royalties issue while a financial investigation was still under way. Furthermore, the question of royalties needed to be considered under the finance portfolio.

The Chairperson responded that the Trust needed to keep the Committee informed of the progress of the investigation, as the Committee’s intervention on the Trust’s behalf depended on their “cleaning up their house.” The Committee would not seek help for them if it was not happy with the way they were operating.

Mr Sonto referred to the termination of vendor contracts, and asked on what basis this was being undertaken.

Mr Basson said they had terminated agreements with three major vendors – financial investment advisers, asset managers and technical service providers – but had retained their many small local service providers.

Mr Sonto said that if the Trust had purchased vehicles for specific uses, why were these now under-utilised and being sold off.

Mr Basson said travel and transport requirements had been cut back, and now only two vehciles were needed. One of these was a four-wheel drive unit, as it was used on report-back visits to communities on what were mainly gravel roads.

The Chairperson said the Trust must share the findings of the KPMG audit with the Committee, as this would guide it in taking the matter further. Depending on the report, the Committee would organise a meeting with the Director-General of the Department, the NDTF and Trans Hex (the only mining company from which the Trust had received royalties). The Committee would not interfere with the Trust’s transactions with Trans Hex, but still needed to address the 5% royalties it was receiving from Trans Hex, and this would be discussed at the meeting. He posed the question whether National Treasury should be approached to “ring-fence” those funds back to the Trust, because they were for the good of the community.

Another issue concerned the Trust Deed, which expressly prohibited the Trust from acquiring property with the objective of earning any income. There were several laws which needed to be checked to ensure that its investments were prudent.

The main issue, however, was to await the outcome of the forensic report, and then to arrange a meeting to ensure a steady income which would provide the Trust with sustainability.

The Chairperson concluded by assuring the Trust delegation that the Committee understood the challenges facing them, and would support their endeavours.

The meeting was adjourned.