South African Tourism on its Annual Report 2010/11

Committee: Tourism

Chairperson: Mr D Gumede (ANC)

Date of Meeting: 10 Oct 2011

Summary

Overall, South African Tourism felt that it had a number of significant successes, and was financially sound. It did however identify key problems with the initial implementation of its automated financial system Oracle. In relation to this South African Tourism also had problems with managing the oversight of its financial accounting which had initially led to the Auditor-General to express concern that South African Tourism's financial reporting was flawed and did not fully comply with all requirements of the Public Finance Management Act. Furthermore, there was still much work to be done regarding improvement of domestic tourism and grading of establishments.

The Members of the Committee raised serious concerns regarding the Auditor-General’s statement that South African Tourism had not fully complied with the requirements of the relevant laws for public financial management. Although South African Tourism had explained that the statements in this regard had been amended once certain corrections were made, the Committee noted that this needed to be provided in writing to the Committee.

Members also raised concerns around opportunities for small, medium and micro enterprises to establish themselves as bed and breakfast establishments and to be eligible for grading as it was not entirely clear exactly what the process was. Members also noted that domestic tourism needed to be encouraged.

The Chairperson raised the issue of the migration from Department  of Environmental Affairs and Tourism (DEAT) to the Department of Tourism. He asked how the Department migrated in terms of the assets and whether it had been properly accounted for.

The Acting Director General stated that for the SAT it was not an issue. SAT as an entity always operated as an entity, therefore it managed the assets as an entity. When the new Department was established as a separate portfolio, the main changes happened between DEAT and the Tourism Department. The entity had come over by the proclamation signed by the President, and was now reporting directly to the Minister. There was no problem with the assets.


Minutes

South African Tourism: briefing
Mr Zweli Mntambo, Non-Executive Director of South African Tourism (SAT) and Chairman of the Audit Committee, explained that he had been asked by the Chairperson of SAT, Mr Jabu Mabuza, who was in London this week, to join the meeting. He introduced the other two members of the SAT delegation. He noted that 2010 was a ‘bumper’ year for SAT and for South Africa (SA). There had been 15.1% growth in tourist arrivals in 2010. This was double the amount of tourist arrivals that South Africa would normally get. What was also pleasing was that the previous year, SA had increased arrivals from long haul markets as well. The tourists who had come to SA during the World Cup spent approximately R3.6 billion. He pointed out that for most of the critical statistics, SAT had exceeded quite a number of targets, in terms of foreign tourist arrivals, air arrivals and land arrivals. Average spend per arrival had also increased, which was also a key performance indicator. He pointed out that the last financial year was the tenth consecutive year  in which SAT achieved a clean audit. It had not faltered in ten years, and had no intention of faltering going forward.

Mr Mntambo also confirmed that SAT had now appointed the Chief Executive Officer (CEO) for the Convention Bill, which should start on 1 November. SAT was also in the process of looking for a CEO.  The Board had conducted interviews and presented a report to the Minister. After consultation the Minister would take the matter to Cabinet to be satisfied with the candidates that was being proposed.

Overall, SAT had done well in 2010. The new year was showing that it was not slumping back, but maintain the levels pre-World Cup. There was improvement in some areas. It was concerned however about domestic tourism. There had been a slight slump in domestic tourism, and, in conjunction with the National Department of Tourism (NDT), was to strengthen the Sho’t Left Campaign to a point where it would have a holistic strategy for domestic tourism so that it could continue to increase the number of people who visited the sites in the country. SAT had learnt some lessons from Brazil about how to increase domestic tourism, and, working together with the national Department of Tourism (NDT), in the next year it would try to roll out a domestic tourism strategy that should increase the number of people who took holidays.

Mr Mntambo stated that SAT was doing well in African countries such as Angola and the Southern African Development Community (SADC) countries. Strategically it was a new market that it would be spending more time on. Chinese and Indian visitors have been coming to the country in good numbers.

Mr Timothy Scholtz, Chief Operating Officer(COO), SAT, presented the Annual Report 201/11 (see document). He did not go into detail into the SAT’s financial statements, but noted that it had invested heavily in its information technology (IT) systems. It had introduced a new financial system called Oracle. Current liabilities were very much in line with prior years.

Mr Scholtz then proceeded to show a promotional video produced by the SAT. It showcased the global campaign run by the SAT, introduced in 2010. It was hoped that it would grow the different markets.

Mr Scholtz took the Committee through the Annual Report, particularly with reference to page nine. Some Members of the Committee complained that they did not have copies of the report.

Mr Scholtz also presented SAT’s Biannual Performance Review for the period ended 31 August 2011 (see document).

Discussion
The Chairperson stated requested that SAT take the Committee through its compliance with laws and regulations, referring specifically to page 137 of the Auditor-General’s Report. He emphasised that the SAT needed to account.

Mr Mntambo referred to page 136 and 137 of the Auditor-General’s report, Section 10 where it referred to compliance with laws and regulations. The statement made in that section was that the accounting authority submitted financial statements for auditing that were not prepared in all material aspects in accordance with Generally Recognised Accounting Practice as required by Section 55(1)(b) of the Public Finance Management Act (PFMA). Mr Mntambo stated, as the Chair of the Auditing Committee, that when that statement was published by the Auditor-General, SAT was not happy with the statement as it stood. Mr Mntambo led a team which included the Chief Financial Officer (CFO) to meet with the Auditor-General in Pretoria. SAT felt that the statement conveyed the impression that it had broken the law and had not complied with a section of the PFMA. Subsequent to discussions in that meeting, the Auditor-General’s Office agreed that in fact that statement was not correct. The Auditor-General had subsequently re-worded that section.

The Chairperson asked where the rewording was.

Mr Mntambo did not have the rewording. He stated that in essence it removed the failure to comply with Section 55(1)(b) of the PFMA. All it stated was that SAT was not in compliance with all of the accounting standards in all material respects. The way the accounting was done was such that because SAT had some problems with the Oracle system, the auditors could not match all of the information from Oracle with the information that was presented by the CFO. There were problems with the implementation of the new Oracle system. Auditors would pick up information from Oracle, and it would not give them the full picture of what the finances were. As a result, Oracle was giving incorrect information, which the auditors picked up and queried with the CFO. After these queries were raised the figures were corrected. The Auditor-General had taken SAT to task for failure of its system to generate accurate numbers at all times throughout the year. The restated wording says that the SAT’s accounts were not prepared in all materials respects with regard to generally accepted accounting standards. It did not say that SAT had violated Section 55(1)(b) of the PFMA. It also stated that the problems identified were subsequently corrected by the SAT and the Auditor-General was satisfied with the correction. In effect, it had complied fully with the law. All the Auditor-General was concerned about was that in the process of getting there, there were some problems and mistakes. The final result was that SAT was ‘home and dry’ and therefore they were able to issue it with a clean audit.

The Chairperson stated that it would have been better if these issues were part of the Chairperson’s Report as well.

Mr Mntambo agreed. However, he assured the Committee that he could attest personally to the corrections that had been made.

Ms M Njobe (COPE) sought to clarify whether this was happening for the first time, or had there been a problem of this nature before in SAT's financial statements.

Mr Mntambo restated that it had been a computer system problem. Oracle was being implemented for the first time by SAT to report on the accounts. There were implementation problems. It was the first time that that had occurred. The problems had been corrected and the Auditor-General was satisfied that it should not be a problem going forward. During this financial year it had managed to catch up with whatever mistakes Oracle had produced. SAT was satisfied that there would not be a further problem.

Ms J Terblanche (DA) stated that the Committee had to deal with the information before it and then ask questions to the officials. The information in front of the Committee was that the Auditor-General said something on 30 July. There was nothing else in writing by the Auditor-General other than the explanation now given. The Committee had to accept the report and it had to be tabled in Parliament. Ms Terblanche did not think that the Committee could just simply accept that the Auditor-General just changed the statement. Surely there was something in writing from the Auditor-General to say that it was changed. This was the report that the Committee had recently been given and she wanted to know when the meeting was held. The statement was made on 30 July, and if it was subsequently changed, then surely it could have been included in the report.

The Chairperson requested that a letter with regard to this matter be circulated to all the members of the Committee. He proposed a time-frame of a week for this letter to be submitted.

The Chairperson felt that it was necessary to go through sections of the report on page 10, 11, 12 and 13 of the Auditor-General’s report. For instance, in accordance with the PFMA and in terms of general notice 111 of 2010 issued in the Government Gazette 15 December, internal control was relevant to the audit, but not for the purpose of expressing an opinion on the effectiveness of internal controls. Significant deficiencies were noted that resulted in the findings of compliance with laws and regulations. The Chairperson felt that this deserved explanation. He asked what had happened to the person that was supposed to manage the material oversight that should not have occurred in the first place.

Mr Mntambo stated that in respected of paragraph 11, what the Auditor-General was saying was that he considered the SAT’s internal controls, but not for the purpose of expressing an opinion in the report. He was taking a cursory look at SAT’s internal controls, but was not reporting on the effectiveness as such. The deficiencies related to the oversight responsibilities as the key root cause in the internal control deficiency. The Auditor-General required prepared financial statements. He subsequently discovered mistakes in terms of the way that the reporting was done. The CFO needed to present a complete and accurate financial statement. Therefore he identified that there was a problem of leadership, as the Board and relevant structures should have discovered the mistakes before its books were examined. It was a leadership failure to have not picked up on mistakes before submission.

The Chairperson had a different understanding. With reference to number 12, the reconciliations for significant control accounts were not followed up and reviewed. The Chairperson had underlined that the Audit Committee met and the requirement of the PFMA was that the Audit Committee met at least four times a year. Therefore if something like this happened throughout the year, it meant that there were gaps. The first port of call was the CFO. He asked where the CFO was.

Mr Mntambo stated that unfortunately the CFO was not present. The Chairperson asked why. He emphasised that it was the responsibility of the CFO to make sure that things happened according to the PFMA and according to Treasury regulations. The CFO and the CEO should have been clear on these issues. Management held routine meetings precisely to pick up on mistakes. Mr Mntambo stated that he was very happy to do so. He admitted that there were there were system problems. All of the statements that appeared to be negative were related to that issue. Going forward he was confident that the system would perform as it should. The people working with the system were familiar with it, and nothing of this sort should recur. The Board had endorsed the view of the Audit Committee in respect of the measures put in place to make sure that this did not recur.

The Chairperson pointed out that it was a requirement of audits that there should be an alternative system if Oracle did not work. Mr Scholtz said that the SAT had a previous version of Oracle. Oracle automatically produced the reconciliations. It was getting used to the fact that the old Oracle system was very stable. The next version was implemented because of dealing with its country offices which dealt with different currencies. It was a better version to handle such things. He took the point that if the automated system was not working, it needed to revert back to the manual system. However, as it worked through the issues, it felt comfortable that it was getting the better of it.

The Chairperson stated that it still remained unacceptable. SAT needed to go back and get things into order. It was no use to continue saying it was a lapse. If it occurred throughout the year it was no longer a lapse; it was negligence. It would have been better if the CFO was present to explain it. It needed to be identified whether further training was needed or whether there were other legal means of performing the required duties.

Mr Dirk van Schalkwyk, Acting Director General and Chief Operations Officer, stated that he had a document that was related both to the NDT and SAT. This document would be presented to the Portfolio Committees, all Government departments and entities. The document contained proof that the Auditor-General stated that all corrections had been done by SAT, although a yellow colour was ascribed to SAT to show that it was an area that it needed to work on. This would be taken forward. Internal audit systems needed to be upgraded. He confirmed that there was a meeting planned  in which the Auditor-General would present. Ideally the Auditor-General should have been present at the meeting, so that they could confirm what was being said.

Ms Njobe asked whether there was not a way of seeing this before it actually went to print in a document. Once it had gone into print that was a record.

The Chairperson stated that it should be appreciated that the Board was taking responsibility. However, next year, better performance was expected.

The Chairperson raised the issue of the migration from Department  of Environmental Affairs and Tourism (DEAT) to the Department of Tourism. He asked how the Department migrated in terms of the assets and whether it had been properly accounted for.

Mr van Schalkwyk stated that for the SAT it was not an issue. SAT as an entity always operated as an entity, therefore it managed the assets as an entity. When the new Department was established as a separate portfolio, the
main changes happened between DEAT and the Tourism Department. The entity had come over by the proclamation signed by the President, and was now reporting directly to the Minister. There was no problem with the assets.

Mr L Khorai (ANC) addressed the performance information report in terms the total number of accommodation establishments. He noted that when the Committee had conducted an oversight of establishments, the questions always arose that somebody had promised help them establish a Bed and Breakfast (B&B). However when the World Cup took place, these establishments were not supported. He wanted to know who had made these promises.

Mr Khorai was also concerned that when the Committee had stayed at a hotel it was discovered that it was not graded. Given the emphasis that the Department placed on establishments being graded, he could not understand why that particular hotel was used even though it was not graded.

Ms C Zikalala (IFP) asked what SAT’s strategy was for encouraging domestic tourism. Mr Mntambo had stated that the Sho’t Left Campaign would be strengthened.

Ms Njobe was concerned about how establishments could be encouraged to be graded. Particularly small, medium and micro enterprises (SMMEs) needed to be assisted in this regard.

Mr Mntambo explained that the new grading process had started about 18 months ago, and there were a few problems initially. Road shows were held to make people aware of the grading process. It needed to be more rigorous. He also noted that the process of assessing had flaws, and that assessors were not as rigorous as they should be. This would also need to be addressed. He also emphasized that grading was a voluntary process and that the criteria for grading was not impossible to achieve. Mr Scholtz added that it also involved an education process so that establishments could understand the importance of being graded.

With reference to the financial statement for the period ended 31 March 2011 as contained in the Annual Report, Ms Njobe also questioned why there had been no foreign currency losses by March 2011. Mr Scholtz explained that because it had international offices there was a need to balance risk. Funds to foreign offices were given in local currency. Due to the strength of the rand there had been more of a gain in foreign currency.

Ms Zikalala was concerned that when she had spoken to a NDT official regarding how to establish a B&B she was cut short and told that they needed to go to the bank. She wanted to know exactly how people needed to go about establishing a B&B and who they could ask for assistance.

Mr Schalkwyk noted that SAT was in partnership with the Tourism Enterprises Programme which could channel assistance to those establishments.

The meeting was adjourned.