National Arts Council on their Annual report 2010/11
Arts and Culture
08 November 2011
Chairperson: Ms L Moss (Acting)
The National Arts Council (NACSA) presented its Annual Report 2010/11 to the Committee. NACSA was formed in 1997, and was set up to promote, through arts, the free and creative expression of
In answer to specific requests from the Committee, NACSA explained the issues of DownTown Studios, which had led to a qualification of the audit report in 2010/11 as well as in previous financial years. The Department of Arts and Culture (DAC) had prevailed upon NACSA to acquire DownTown Studios, the home of many pioneering recordings, both because it was a heritage site and to establish a State-funded recording studio to help those artists who were not currently able to record, because of the high costs of private recording. However, it was never intended that NACSA should own DownTown in perpetuity, but merely hold it in a caretaker capacity pending the establishment of a Special Purpose Entity. For this reason, it had not sought permission from the Minister of Finance to own it, and it was not reflected as an asset in its books of account. The Special Purpose Entity was not set up as expected, and for this reason the Auditor-General qualified the audit report, both for the irregular expenditure in the purchase of the entity and for the incorrect financial statement entities. Management had conceded that it was mistaken and had undertaken to rectify the situation.
NACSA highlighted that it faced budget shortfalls, which meant that most organisations received far less than they had requested. A breakdown was given of the funding, by discipline and province, and it was explained that funding was not based on a provincial split, although it happened that most of the funding was given to the three metropolitan provinces of
Most of the questions raised by Members were centred around DownTown Studios. Members also asked several questions around the qualifications in the audit report, questioning whether there were time frames attached to the plans, how the situation arose, and what was being done to ensure that it did not recur, stressing also the necessity to address the supply chain problems in particular. The plans of action to reach provinces were also outlined, in answer to queries as to why most of the funding was centred on the three largest provinces. Members noted and were appreciative of the various roadshows that were being undertaken to reach more artists, and to assist those whose applications were rejected or not completed properly to apply again. Members asked about the structure and functioning of the Council, the fee for meetings, the numbers of meetings that each attended, and who sat on the various subcommittees. They also sought further explanations on the reasons that the former Chief Financial Officer and Chief Executive Officer had left, and when new appointments would be made. The Council reported that no strategic plans would be drawn until the new incumbents had taken up their posts.
Ms L Moss (ANC) was appointed to act as Chairperson for this meeting.
National Arts Council of
The Acting Chairperson welcomed the delegation from the National Arts Council of South Africa (NACSA) and asked that it address the continuing issue of DownTown Studios in its presentation.
Ms Angie Makwetla, Chairperson, National Arts Council, gave an overview of the pressing issues facing NACSA. These included the issue of DownTown studios. She said that in 2009 the National Arts Council bought the studios on behalf of the Provincial Arts Council (PAC), but was asked to hold on to the asset until proper governance structures had been put in place. Several meetings had been held and the National Arts Council were of the view that the structures had been put in place. This was receiving attention, as the NAC could not keep coming back with the same issue unresolved.
Ms Makwetla also spoke about the fruitless and wasteful expenditure that was highlighted in the audit report of the Auditor-General (AG). NACSA was taking the matter seriously, and there had been preliminary forensic investigations. The findings were set out on pages 75 to 79 of the Annual Report. She added that NACSA would be holding a meeting on 25 November to discuss the preliminarily report, and a full forensic investigation would be undertaken. NACSA would take full disciplinary and corrective action where necessary and would not condone any wrong doing. She also noted that it had a responsibility to make sure that this did not happen again in future.
Ms Makwetla informed the Committee that a new Council was nominated by the Minister of Arts and Culture on 29 March 2011. On assuming office, the members of the Council had found that there were some management and staff issues that needed attention. It had taken some time to solve these issues. Human resources was recognised as the lifeblood of an organisation, and in order to tackle the matters, the new Council had set up a special HR committee, held numerous meetings and conducted interviews. A report was then produced with recommendations. The report identified challenges, and programmes were put in place to address those issues.
The process of appointing a Chief Financial Officer and Chief Executive Officer was started, and she noted that there were presently acting appointees in these positions. The interviews had been held and recommendations would be presented to the Council on 23 November to effect the final appointments.
Mr Goodwin Mnisi, Acting Chief Executive Officer, NACSA, said that the purpose of his presentation was to provide an overall overview of the performance of the NACSA during the 2010/11 financial year. NASCA also would seek input from the Portfolio Committee on the strategic interventions that may be required to fulfil NACSA’s legislative mandate and achieve its vision and mission.
Mr Mnisi said it was critical to outline the history of NACSA. It was established by the National Arts Council Act (the Act) in 1997, and this was amended by the Cultural Law Amendment Act in 2001. This had resulted in the Minister appointing the Acting Chairperson, instead of NACSA members doing so, and the term of office was increased from three to four years.
NACSA’s vision was in line with the Constitution, to promote, through arts, the free and creative expression of
In regard to NACSA’s developmental role, Mr Mnisi stressed that when NACSA gave funding, it must ensure development as well. NASCA must also redress past imbalances, and must ensure excellence in the artistic environment. The objects set out by its Act were equally relevant today as they were in 1997.
The Act set out that NACSA must utilise 75% of its funding towards grants and there was a cap on 25% for administrative costs. Any funding must be channelled towards arts organisations, and not necessarily for putting on programmes and projects. The Act prohibited NACSA from establishing, acquiring or operating any arts organisations or institutions connected with the arts. This was linked to the issues of
Mr Mnisi proceeded to list the NASCA’s highlights (see slide 8 for full details). He also listed the challenges (see slide 9 for details).
Mr Mnisi then said he would briefly outline the budget implications, from the perspective of an annual allocation, as set out on slide 10, but the Acting Chief Financial Officer would address the financial matters more fully. He said that the budget received was not sufficient, that only a small portion of applicants received funding, and even then did not receive more than about half the funding requested for each project.
Mr Mnisi stressed that the statistics given set out the applications funded in each category. Company funding, or committed funding was sometimes referred to as a “surplus” but this was actually a misnomer. Extra funding could be obtained from the Department of Arts and Culture (DAC or the Department). Project funding covered organisational funding (such as performing arts companies), individual funding, or institutional bursary funding (such as bursaries to Wits and Pretoria University) or individual bursary funding (for instance, to individuals who produced crafts).
The amounts funded in each category were set out (see slide 12 for full details). He noted that the company funding, where NASCA funded a company for a period of three years, received the highest allocation of the budget, followed by the orchestra funding, as NACSA currently funded 3 orchestras. The number of applicants in each discipline who received funding was also tabled (see slide 13 for full details) and Mr Mnisi summarised that funding in the visual arts was the highest, with 85 people funded, followed by music and opera, and theatre and musical theatre. Even though the rand value of funding for crafts was high, it was exceeded by theatre and musical theatre and multi discipline funding, largely because this included the three orchestras mentioned.
He reiterated that three provinces, KwaZulu Natal (KZN),
The Acting Chairperson interjected to ask who exactly was on the panel.
Mr Mnisi noted that the panel consisted of independent people who were not employees of NACSA and who were deemed experts in the arts. The Council appointed these experts at the beginning of the financial year to assist in evaluating application forms and in making the recommendations to Council, who would then act on those recommendations. The panel was, however, chaired by members of Council.
Mr Simon Letsoala, Acting Chief Financial Officer, presented the financial reports. He gave an overview of the financial position for 2010/11. He explained that he based his presentation on the audited Annual Financial Statements highlights, financial highlights summary, the summary of the Audit history and the basis of the adverse audit opinion, and would also outline the corrective actions to be taken. He reiterated that the NAC Act prescribed that 75% of the funding allocated by government must be distributed to grants in support of the arts, whilst the remaining 25% was utilised for operational costs. He presented a comparison of the grant income from 2008, and explained that the variance decreases were attributable to the decrease in annual funding allocations. The expenditure analysis showed a variance of 1%. The analysis of the operating expenditure set out all expenditure and he highlighted that salaries took up the bulk of this expenditure, at 45%. There was a 6% increase in the number of projects and bursaries funded. The “surplus analysis” showed that there was a reduction of 79% in the previous surplus, which he said was a result of Mmino and DownTown Studios, whose income had been included in the NACSA’s income statements. There was a reduced cash flow, mostly due to two particular projects in 2010, and he said that more details were available on slide 28. Slide 27 highlighted the asset base, showing NACSA’s liabilities and net assets.
He said that in 2009 and 2010 NACSA had received a qualified audit report and matters of emphasis in relation to DownTown Studios. This audit report was also qualified, in relation to DownTown Studios. This was explained in more detail on slide 30. He noted that in 2008, the then-Minister of Arts and
He then explained that the Board for the SPE was appointed in May 2010 by former Minister of Arts and Culture Ms Lulu Xingwana. NASCA was now in the process of finalising the accounting and legal requirements to effect the transfer of both the property and business to the newly formed SPE. A Memorandum seeking condonation of the purchase from the Minister, and also seeking the authorisation for the transfer of the business and property to the SPE, was drafted and sent in October 2011 by NASCA to the DAC. It was necessary to condone the purchase and to get authority for the revenue for non-exchange transactions. NACSA had not recognised a grant from the Department of Arts and Culture for the year ended 31 March 2009,in accordance with the Generally Recognised Accounting Practice (GRAP) standard 23.
The management of NACSA noted the qualification and agreed to take appropriate remedial measures to resolve the issue, through the development and implementation of an audit action plan, which was currently being prepared and should be put into effect by 31 January 2012.
It was further noted that one non-current asset held for sale was disclosed, but the assets were not measured in accordance with the accounting policy and GRAP 17, relating to property plan and equipment. Once again, management had noted this, and would adopt the measurement policy as prescribed in GRAP 17.
The audit report noted that the purchase of a business, disclosed in note 30 in the Annual Report, was not correctly accounted for in accordance with the requirements of the International Financial Reporting Standards (IFRS) No 3, and GRAP No 6. The management of NACSA would now perform the process and procedures used in accounting for business combinations, as required by these standards.
Mr Letsoala explained that DownTown Studio was still being held in trust for the SPE. However the Auditor-General (AG) was of the view that this should have been recorded as an asset, although the Council was of the view that this was not necessary, because it was being held in trust. However, the Council agreed with the AG that it would seek to change management policy around the recordal, and had accepted that DownTown Studios should have been noted as an asset, and that it must take the necessary steps to correct this. Once again, the action plans should be in place by end January 2012.
Ms M Morutoa (ANC) asked that more clarity be given on DownTown Studios, whether it was a subsidiary of any other company, and who funded it, specifically whether it received funding from DAC.
Ms Morutoa asked whether the previous Chief Executive Officer had known about the problems of DownTown Studios. She asked if NACSA had consulted with the DAC on this point, and what had been decided. She noted that the Acting Chairperson had mentioned that it would be difficult for NACSA to get itself out of the situation that led to the qualifications on this aspect.
Dr A Lotriet (DA) stated that the issue of DownTown studios must be resolved, so that the audit reports would be unqualified. This was a continuing cause for concern. She noted that, according to the Act, NACSA could not acquire property or businesses, and if this was in fact done, the Minister was essentially being asked to condone something unlawful. She urged that greater care must be exercised in future to ensure that this did not happen again. She asked why the legal division was not able to identify this as a problem.
Mr P Ntshiqela (COPE) agreed that DownTown Studios had become a problem and source of qualifications in the audit reports. He asked what exactly had turned it into a stumbling block.
The Acting Chairperson wanted to know about the location, and the possible revamping of these Studios.
Mr Sibusiso Xaba, Director General, Department of Arts and Culture, explained that there had been several difficulties with DownTown Studios. The initiative to purchase DownTown Studios had come from the Department. The Department asked NAC to purchase on its behalf, because DownTown Studios was embedded in music-making, as a strategic heritage asset of
This led to the next problem, which was that if any entity of government or state institution intended to acquire an asset it must seek the approval of the Minister of Finance, and this was not done. The third problem was how NACSA should then account for the elements of the DownTown Studio, namely,
This issue was being resolved by asking the Minister of Finance to condone the non-compliance with the PFMA. Once this was given, it would allow NAC to legally hold the asset in the meantime, and then also allow NAC to do a formal transfer of that asset to the SPE, once formed.
NACSA would also try to find ways to make sure that the asset benefited the music industry, and was working to try to ensure that there were no conflicts between government and individuals that sat on the board, and that it was used for the general good of the industry. Once it was satisfied all this had been done, it would then transfer to the SPE. There were discussions on how best to utilise this entity and find a way for DownTown Studios to be self-financing. It currently had studios that were not being used, because the equipment was obsolete. Although this was supposed to be a development project, and not a commercial one, DownTown Studios needed to be put in a situation where it could generate its own income, and that was being done.
Mr Zamindlela Bhengu, Council Member, NACSA, onfirmed that the reason DownTown studios was established was to create access to recording by those who could otherwise not afford to create music. It was situated in
Ms Chola Makgamathe, Chief Executive Officer, DownTown Studios, outlined the history of DownTown Studios, stating that Gallo Records was originally, but was no longer, the only indigenous record label. NACSA had decided, in view of its historical and heritage value, to purchase the asset of Gallo. She stated that South African music was 30 years behind the
She added that at the time of the initial transaction, two separate legal processes took place. The first was the agreement between controllers of Gallo and NACSA, dealing with the terms of transferring assets and the like. The second was between NASCA and the DAC, which dealt with what would happen in regard to the SPE and the holding of the asset. Here, the SPE was not formed, due to administrative problems, and NASCA continued to hold on to the asset. In the meantime, that asset’s value had appreciated from R4 million to R10 million. She said that DownTown Studios was used as a rehearsal space for prominent musicians, as well as having space which music groups could lease, as well as having the recording studio. She confirmed that at present DownTown Studios was a Section 21 entity. The DownTown music hub was self run for all practical purposes, and it was merely “owned” by the NAC, but not controlled by it. She added that a section 21 entity met a social need, and she confirmed that it was to stay as this kind of entity. The DAC wanted to transform this music centre and make sure that the multi billion dollar industry was being tapped into by South Africans, for South Africans. It was therefore attempting to set up a structure that would ensure that
Mr Ntshiqela wanted an explanation as to what “surplus” meant to NACSA.
Ms Morutoa asked about the selection of experts to the panel.
Ms F Mushwana (ANC) echoed this question, citing the funding figures on page 9 of the Annual Report, and said that the rural areas needed to be given larger amounts of funding, as the lives of people living there were more closely entwined with the culture.
Ms F Mushwana (ANC) thanked NACSA for its presentation. She questioned whether the plans for funding were in line with what had actually been done during this year, commenting that it was already late in this financial year to implement matters.
Ms Mushwana wanted to know if specific time frames were attached to the audit action plan and the funding reconsiderations.
Dr Lotriet was disappointed in this Annual Report, saying that in the past the Annual Reports had included schedules of who had received what funding, to give a better indication of the outcomes.
Ms Makwetla said that although she had given the example of
Ms P Duncan (DA) agreed with Dr Lotriet that the report was not quite in line with the strategic plan, that it did not give a clear picture of targets achieved by the NASCA, and asked if the new Council would look into these issues.
Mr Mavundla asked NASCA to highlight the strategic plans put in place to avoid more fruitless and wasteful expenditure in the future. He also asked how NACSA would ensure that the supply chain management problems would not recur in the future.
Ms Makwetla said that currently there was no strategic plan; the Council did not think that this should be formulated until the new Chief Executive Officer and new Chief Financial Officer had taken up their positions.
Dr Lotriet noted that supply chain management issues must be rectified, and she enquired what steps would be taken.
Mr Bhengu stated that the grants management systems would be finalised before the year end, and that sometime around the following April, NACSA would be able to utilise the grant management system.
Dr Lotriet raised concerns about the number of enquires she received from people in the art world who depended on NACSA, and queried if one funding session would be enough.
Ms Diphofa replied that there were two funding sessions.
Ms Duncan noted that page 19 of the Annual Report set out the remuneration of the Councillors, but there did not appear to be any uniformity in which had attended meetings during the year, despite the fact that the Council should meet four times. The remuneration per sitting should have been set out. There were concerns as to the amounts that were received for attending meetings.
Mr Mohau Mphomela, Deputy Chairperson, NACSA, said that four meetings were held by the Council, on a quarterly basis. The Chairperson also had the choice to call two special meetings out of four, depending on the complexities of matter at hand. There were also four strategy meetings that board members were obliged to attend. This came to eight meetings in total. He directed Members’ attention to page 19 of the Annual Report, which contained a summary of the meetings, including those of the subcommittees.
Ms P. Duncan requested clarification on the new Board, what the legislation said in this regard, and the number of meetings. She requested a breakdown of each committee on which each councillor was sitting.
Mr Letsoala pointed to the structure of the Council on page 21, and said that this was quite complex.
Ms Duncan also sought clarity on the terminology used on page 23 of the Annual Report.
Ms Makwetla said that “black” was used as usually understood in
Mr D Mavunda (ANC) wanted clarification on the terms of office for the Council, and on the management structure.
Mr Mavunda asked how NACSA intended, as set out in slide 30, to draw active participation from people on the ground, but was pleased to hear that DownTown Studios was the locale for local music.
Mr Ntshiqela asked how the “expression of national identity” would be fostered, and how resources would be delivered to those who were disadvantaged.
Mr Ntshiqela sought clarification on how promotion of national and international cooperation and activities could help historically disadvantaged groups.
Mr Mnisi said that promotion of national and international relations was done through the Mmino project, which supported various programmes of music, whilst also anticipating a Swedish based project. NACSA was also consistently approached by various embassies for artists to perform during red calendar days, but where it could not do so, this was mostly due to lack of funding. NACSA tried to foster a national identity by seeking to fund more community based arts organisations.
Ms T Lishiva (ANC) queried why only eight provinces were shown, noting that no mention was made of
Ms Morutoa queried the funding model. She questioned why
Ms Mushwana questioned if there was any breakdown available of the different cultural disciplines in each of the provinces, and wondered if the different disciplines were distributed evenly across provinces.
Ms Julie Diphofa, Manager: Arts and Development, NACSA, said that provinces such as
Ms Makwetla added that the
Professor Dominic Thorburn, NACSA Council Member, added that one of the NASCA’s special subcommittees dealt with the issues of provinces.
Ms Lishiva asked for more details around the dismissal of the Chief Financial Officer, as set out on page 11 of the Annual Report.
The Acting Chairperson questioned the circumstances surrounding the dismissal of the Chief Executive Officer, asking if there was an investigation, and how far this had it gone.
Mr Bhengu noted that the former Chief Executive Officer was employed around July 2009, and later in this year reported on irreconcilable differences with the Chief Financial Officer, who was then suspended. The Chief Financial Officer took the matter to the Commission for Conciliation, Mediation and Arbitration (CCMA), after the Minister had upheld a decision to dismiss. The matter was finally settled in November when the CEO decided unilaterally to settle the matter with CCMA by making a cash payment.
Mr Mohau Mphomela, Deputy Chairperson, NACSA, said that the Council took a vote of no confidence in the former Chief Executive Officer, and she had left voluntarily, resigning and moving to a sister State Owned Entity theatre. It was made a specific term of her resignation that should there be any findings that she had contravene the PMFA or should there be irregularities, then NACSA would pursue the matter further.
Ms Lishiva asked for more detail on which projects had been monitored and which NACSA had failed to monitor.
The Acting Chairperson also raised the issue of bursaries, asking why NACSA had only allocated R7 million of its R40 million for bursaries, and asking if the allocations were done in phases. She also questioned how these bursaries were monitored.
Ms Diphofa noted that close to 80% of the funding for the financial year had been allocated. The bursaries that would be started next year would complete the rest.
The Acting Chairperson then asked exactly how much had been allocated and what remained.
Ms Diphofa responded that R68 million had been allocated so far.
The Acting Chairperson asked why NACSA had not complied with the provisions of the Public Finance Management Act (PFMA).
Mr Bhengu noted that the bulk of fruitless and wasteful expenditure took place at a time when there was no Council in place, but now measures had been put in place to counteract this.
Mr Ntapane then questioned the NASCA as to whether the service providers that were given money regularly performed the tasks they were paid to do. He thought that DownTown Studios should be benchmarked against others in terms of workability.
Mr Letsoala replied that the service providers did perform.
Ms Mushwana noted that there needed to be a check on relationships. She wondered if some of the problems in NACSA may not have arisen because the importance of working relationships was not given enough consideration.
Ms Duncan highlighted that NACSA must attend to its supply chain management issues. Without having someone specialised and knowledgeable in this field, she could foresee more irregular expenditure. She also noted that it was the responsibility of the Director General of DAC to monitor when entities were given land or property.
The Chairperson wanted a specific answer as to when the issues of supply chain management would be resolved. The Committee had an oversight role to play in this regard.
Mr Bhengu responded that by 1 April 2012 NASCA would have the position for supply chain manager filled, but it could not do so in this financial year, because of budget constraints.
The Acting Chairperson did not accept that answer, stating that the NACSA was dealing with tax payer money and the Council must look into the issue by 25 November 2011. She stated that problems often arose in the absence of a Board that exercised leadership. She commended NACSA for going to the rural areas.
The meeting was adjourned.
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