Department of Arts & Culture, National Arts Council, SA Heritage Resources Agency 201011 Annual Reports: hearing

Meeting report

The Chairperson welcomed the delegation from the Department of Arts and Culture, headed by the Director-General, Sibusiso Xaba, as well as the delegates from the National Arts Council (NAC) and the South African Heritage Agency (SAHA), and representatives from the National Treasury, and the Office of the Auditor-General. Mr D George (DA) asked whether the Minister of Arts and Culture had been invited to the hearing, and if so, what his response had been, as he noticed that he was not present. The Chairperson confirmed that the Minister had indeed been invited, and asked Mr Xaba what had become of the invitation. Mr Xaba replied that he had been informed by the Minister’s office that the Minister was on his way, and was currently on a flight to Cape Town. The Chairperson noted that the meeting was scheduled to start at 9:00, and that time was not something that everyone had in surplus.

The Chairperson explained that the exercise of the day was no more than an exchange of information. The Committee wanted to clarify certain issues, so that it could communicate with Parliament from an informed position. The Committee’s task was ultimately “to find out what killed the patient”.

National Arts Council Hearing
Mr George referred to a table on page 132 of the financial statements of the National Art Council (NAC), which made reference to supply chain management. The documentation showed that there had been no procurement officer in place at the time in question, and that there had been problems in that area. He asked whether there was now a procurement officer in place. Angelina Makwetla, Chairperson: National Arts Council, said that the NAC was currently in the process of appointing a supply chain management officer. Monica Newton, CEO: National Arts Council, said that during the time reported on, the NAC’s organisational structure had not made provision for a supply chain management officer, but that the situation had been remedied, and the NAC was on track to have one in place within the next two months.

Mr George made reference to the purchase of the Downtown Studios, and asked why it had been purchased. Ms Makwetla replied that the Department of Arts and Culture had requested the NAC to hold the building on the Department’s behalf until such time as it could be transferred to an appropriate state-owned entity. The NAC was currently busy with an audit of the Downtown Studios, and would submit the audit report to the Committee. The NAC took full responsibility and accountability for the asset in question. Mr George labeled the purchase irregular, and asked who had signed the offer to purchase. Ms Makwetla replied that a task team had been appointed in order to look into the purchase. Ms Newton added that the irregularity of expenditure had been related to non-compliance. The NAC’s then-CEO had signed the offer to purchase. That CEO had left the NAC in June 2011 and Ms Newton had been appointed in January 2012. The Chairperson asked Ms Makwetla whether she had been a part of the NAC leadership before the current CEO had been appointed, and upon receiving her answer in the affirmative, noted that Ms Makwetla should be better placed to answer the question.

Mr George asked the Director-General why the Department had requested the NAC to purchase the property in question. Mr Xaba replied that the then-Minister of Arts and Culture had made a decision to purchase a recording studio based on research that had been done about the South African music industry, and had found that many artists struggled to find opportunities to record in studios. The then-Ministry had accordingly decided to acquire an asset in order to assist recording artists. Downtown Studios had been purchased in terms of the Culture Promotion Act, 1983 (Act No. 35 of 1983). The Department itself was unable to purchase the asset, as it was not allowed to purchase companies. That was why the Department had asked the NAC to purchase the property from Gallo Records and hold it until such time as an appropriate state-owned entity could be established to hold the property in its name.

Mr George said that he understood the state of the building to be “derelict” and asked whether that was the case. Ms Makwetla replied that the building, which had been purchased in 2009, was “functional” but that it needed work. Mr George asked whether it was operational, to which Ms Makwetla replied that some recordings had been taking place there. The Chairperson asked whether Downtown Studio’s finances had been audited since the 2009 purchase, to which Ms Makwetla replied that they had not. Mr George said that he would like to visit the studios, and asked if there would be people there if he stopped by the next time that he was in Johannesburg. The leadership of the NAC assured him that there would be, and he said that he would visit the next time he was in the area.

Mr George referred to page 40 of the report, which made reference to the adverse opinion on non-current assets held for transfer. He asked why there had been a failure to account in that instance. Thami Kubheka, CFO: National Arts Council, said that the NAC had been engaging with the Auditor-General about how to account, since in the past, there had been “differences of opinion” arising from the advice of a consultant that the NAC had appointed to help it. The Chairperson was bemused, and said that there could not have been a “difference of opinion”, as that would connote an interaction between two equals, which was not the case with the Office of the Auditor-General and the government bodies that it oversaw. Mr George agreed that there could indeed be no difference of opinion. He asked the name of the consultant who had disagreed with the Auditor-General’s way of doing things. Ms Makwetla reiterated that the NAC leadership did not intend to shirk from its responsibilities. Zamindlela Bhengu, from the NAC’s audit committee, replied that the consultant in question was one SM Xulu, a qualified chartered accountant. Mr George asked whether the audit committee had properly considered the difference of opinion, to which Mr Bhengu replied that the audit committee had chosen to follow the consultant’s opinion, as it was “convenient”. Mr George said that when the Auditor-General told a state body that there was a problem, it was exceptional for that body to tell the Auditor-General that he was mistaken. He asked whether NAC’s audit committee had sought a second opinion, to which Mr Bhengu replied that they had not. Part of the problem had been that the new council had only been put in place in March 2011, by which time the decision had already been made. Mr Bhengu affirmed for the Chairperson that there had been no council in the period ranging between December 2010 and March 2011. The Chairperson remarked that it was the first instance “and hopefully the last” that SCOPA had come across a scenario in which the opinion of a consultant had been accepted over the guidance of the Auditor-General.

Mr George turned to page 40 of the report, which referred to the Auditor-General’s adverse opinion. He asked what steps had been taken to ensure that the next annual report would not result in another adverse opinion. Mr Bhengu said that the NAC was in contact with the Auditor-General, and that they would be sure to follow his guidelines in future.

Mr George made reference to the restatement of figures on page 40 and asked why errors had occurred. Page 41 showed that supplementary information had not been audited, and he asked why that was the case. Mr Bhengu answered that the information Mr George referred to was related to the Downtown Studios, and that the problem arose from the fact that the financial year of the Downtown Studios was different to that of the NAC. The Chairperson asked why the financial years were different. Mr Bhengu replied that there was a board in place to run the studios under the auspices of the Department, but that the transfer to that new body had not yet occurred. The Chairperson asked how it was possible that the board could run the studio without ownership having been transferred to the Department. The Director-General explained that a special purpose entity had eventually been formed to run the studios. However, transfer of ownership had not taken place because there had been an error in the initial purchase. Section 54 of the Public Finance Management Act, 1999 (Act No. 1 of 1999) (“PFMA”) required that the National Treasury be informed of any acquisition by a Department. Because that had not happened, the Department was currently in the process of requesting condonation for the lapse. Once the property was transferred to the special purpose entity, the NAC would no longer be involved with running it. Currently, the NAC was still in charge of the studio. Over the past year, the NAC had been engaging with the studio to ensure that its audit was in order so that when it was eventually transferred, its finances would be in order.

The Chairperson asked how such an anomaly had come about. The Director-General admitted that the transaction could have taken place in a better fashion, and that the special purpose entity should have been in place before the purchase. When the NAC had come on board, it had started to deal with the operations of the studios without actually owning the asset. The Chairperson noted that the anomaly resulted from the fact that those running the operations were independent of the NAC even though the asset was legally owned by the NAC. He asked what the Department’s position had been on that arrangement. The Director-General said that the Minister had appointed the special purpose entity, and that formed the basis of that entity’s authority. The problem was a result of delayed transfer, which arose as a result of the condonation process. The Chairperson remarked that the state of affairs had led to a situation in which the NAC was being questioned on matters that it did not have control over. He asked what the Department had done to try to address the situation. The Director-General said that until recently, nobody knew exactly what the NAC would be transferring, as there had not been a proper accounting of the studios. The Department, together with the NAC, had set up a process in order to secure condonation. Mr Xaba agreed that non-compliance should not be passed on from one entity to another.

Mr George said that the scenario was a clear example of bad governance, and asked Mr Xaba who was responsible for that state of affairs, and whether it was the Director-General himself. Mr Xaba replied that the Department could not escape accountability, as the NAC fell within the Department’s fold, and had acted as a conduit for the Department. The NAC had been treated unfairly, and that was why the Department had taken the decision to do the audit and the application for condonation for the Downtown Studios. Mr George repeated his question about who was ultimately accountable. Mr Xaba said that as the studio was owned by the NAC, the NAC’s accounting officer was accountable, and that he as Director-General shared that accountability.

Mr George referred to page 41, and asked why the NAC’s performance information was deficient and its deadlines were unclear. The Chairperson made reference to the grant income of R65 million, as reflected on page 88 of the report, and noted that it was a lot of grant money for an entity that had not practiced proper accounting practices. The entire leadership of the NAC was new, and there was no one present at the meeting to explain what had happened in 2010. SCOPA had encountered this same problem repeatedly since the beginning of the year. Mr George asked about the NAC’s human resources capabilities, to which Ms Makwetla replied that the NAC, with the Department’s assistance, had made strides in that direction. While there was still no staff member to manage human resources, the NAC now had policies in place to guide its human resources decisions. She assured the Committee that they would see clear and measurable standards reflected in the next annual report. The Chairperson said that the Committee appreciated that changes had been made, but decried the fact that SCOPA always seemed to be dealing with entities that appeared to be starting from scratch.

Mr George asked about the issue of non-compliance, to which Mr Bhengu replied that it was related to the difference in financial years between the NAC and the Downtown Studies. Mr Bhengu said that the wasteful expenditure in question was related to the previous CEO, who had been fired and paid a settlement. The Auditor-General had seen the payment of the settlement as wasteful expenditure. The decision to pay the settlement had been taken by the former CFO during the time that the NAC had operated without a Council. When the NAC decided to fire the then-CEO, he had threatened to take the case to the Commission for Conciliation, Mediation and Arbitration (CCMA), and that prompted the then-CFO to pay him a settlement. The Chairperson asked where government had been at the time, as it seemed as though certain important decisions at the NAC had been “taken in the middle of the night.” Mr Bhengu replied that the newly-instated Council was currently undertaking a forensic report, to discover what had happened during the time that the NAC had operated without a Council. Mr George said that it was clear that there had been a “huge vacuum in leadership” at the NAC. He asked Ms Makwetla for her opinion about the management of the entity in terms of the records under consideration by SCOPA that day. She admitted that it was less than satisfactory, and explained the steps that the new council had taken to address the weaknesses currently being faced by the NAC.

Mr N Singh (IFP) looked at the overall budget of the NAC, and asked, with specific reference to the large amounts spent on human resources and administrative costs, whether Ms Makwetla thought that the NAC had a good rate of return on its grant. She replied that the NAC was currently in the process of overhauling its grant-making policy. The NAC had decided to halt the way that grants had been made in the past, and to handle them in a more professional and efficient manner. Ms Newton added that the NAC had a very wide mandate, and the line item for “administration” included a number of functions, including research. The NAC did, however, recognise the need for cost-saving measures. Mr Singh referred to fruitless and wasteful expenditure, and asked about the amount that was spent on recruitment services that had failed to return results. Ms Makwetla admitted that a large amount had been spent on recruitment costs that had not yielded results. Mr Singh asked to what extent the NAC used consultants, and whether there were performance agreements in place with those consultants. Ms Newton explained that the NAC had been substantially cutting down on the number of consultants it employed. There were performance agreements in place, which had been brought in at a late stage during the current financial year. The Chairperson said that SCOPA frowned upon the blind use of consultants, as it believed that government should employ competent people to do their jobs, and that if this occurred, there would be little to no need to resort to consultants.

Mr P Rabie (DA) said that the acquisition of the Downtown Studios was an area for “grave concern”. He asked Ms Makwetla when the NAC’s next set of financial statements would be released. Ms Makwetla replied that the current leadership of the NAC was doing all it could to transform, and that the financial statements for the previous financial year were due on 31 May 2012.

The Chairperson made particular reference to pages 87 and 88 of the report, and noted that the Committee might want to deal further with issues around the Downtown Studios. SCOPA needed to learn more about the reasoning behind the rushed acquisition of the Downtown Studios, and what the relationship between political and administrative decision-making had been. Page 76 of the report detailed 17 cases of irregular expenditure, but there was no description of any corrective action. It could not be correct that when rules and regulations were contravened, no action was taken. Mr Bhengu said that all of those instances of irregular expenditure had taken place during the time there had been no Council. The forensic investigation that was currently taking place would find out more, and NAC would take action once it had more details.

The Chairperson noted that the report was “quite bad.” The Committee decried the adverse opinion, and the impression that the NAC was a brand new, incompetent entity, when in fact it had been around for quite some time. It raised questions about who the responsible parties were and how they had originally been appointed. He thanked the delegation for their contributions to the hearing.

Department of Arts and Culture Hearing
Mr S Thobejane (ANC) dealt with the Department of Arts and Culture’s annual report and financial statements for 2010/11. Two major causes of concern were the high vacancy rate in the Department and the fact that the office of CFO had been empty since 2010 until the date that the report had been finalised. Mr Thobejane asked why the Department operated in that fashion, and if there was a CFO in place yet. The Director-General replied that the position of CFO was still vacant. When the position became vacant, the Department had advertised for a new CFO. In 2011, the position had been offered to an appropriate candidate, who accepted it, but then turned it down in favour of a different offer. Since then, the Department had identified another three suitable candidates, two of which had subsequently fallen through. The third was now being sent for assessment in terms of Senior Management Service (SMS) rules. Mr Thobejane remarked that it was good that Mr Xaba acknowledged that it was an unsatisfactory state of affairs.

Mr Thobejane enquired about the Department’s under-spending of about 17% on Programme 4. The Director-General explained that the Department’s expenditure programme, called “Invest in Culture”, had been a grant-making programme that invited proposals from communities who engaged in various arts and cultural activities. The programme had run into problems in 2010, when questions had arisen about the monitoring of the various projects, and a lack of sufficient accountability on the part of grant recipients. The Department had asked the Special Investigating Unit (SIU) to conduct an investigation, and as a result, the grant-making programme was suspended. That resulted in a situation in which no further transfers could be made and no further calls for proposals could be issued.

Mr Thobejane said that it was positive that the Department had received unqualified audits over the course of the previous three consecutive years. It was concerning, however, that unauthorised expenditure amounted to tens of millions of Rand. He asked why that unauthorised expenditure had taken place, and remarked that the Department’s senior officials should not be shy to admit that they wanted to attend every game during the 2010 FIFA World Cup. The Director-General said that he did not think that they had attended every game. The Department had received a grant during the 2006 World Cup to send officials to Germany for hand-over initiatives. The announcement that South Africa would host the 2010 World Cup had been made in 2004, so that was not an excuse for the Department’s failure to plan. Mr Xaba explained that some of the funds that had been allocated for the 2010 World Cup had been re-routed for the purposes of the 2006 hand-over programme in Germany. The SIU had just finished its investigation and the matter would be addressed in the Department’s financial statements for the current financial year. Mr Thobejane asked what the SIU recommendations had entailed. Mandla Langa, Director: Financial Administration, Department of Arts and Culture, said that the SIU had suggested that the Department request condonation from the National Treasury. Mr Thobejane asked whether the report had identified any particular persons who had been responsible for the unauthorised expenditure in question. The Director-General undertook to provide the Committee with a copy of the SIU’s recommendations. Mr Thobejane asked why the matter of the R64 million in unauthorised expenditure, had not been reported to National Treasury, in terms of Section 38 of the PFMA. The Department replied that it was because a SIU investigation was ongoing. Mr Thobejane pointed out that the SIU could not usurp the function of the Auditor-General. The Chairperson said that the Department should just admit that they made a mistake, and that they should have reported the matter to National Treasury. Mr Langa said that the Department’s new management had believed that the matter did not need to be reported to the National Treasury until after the investigation had been completed. The Chairperson said that the failure to report was a dereliction of duty, and asked what had happened to the person who had failed to report as required by the PFMA. There should be consequences for failing to comply with the law. The Director-General said that the then-CFO, who should have reported the matter, had subsequently been dismissed. The Chairperson asked whether the CFO had been dismissed for the failure to report that was under discussion, or whether it was for other reasons, to which Mr Xaba replied that it was for other reasons.

Mr Thobejane asked what the R64 million of irregular expenditure was composed of. Mr Langa said that some of the amount had been inherited from the 2006 Germany trip. An amount of R3 million was for the purchase of the Downtown Studios. Other amounts were for the appointment of contract workers, and verification processes, for which the Department had paid more than it should have. Almost R6 million of the total amount had also been reported in the financial statements for the 2008/09 financial year. The Department had just received the SIU’s report, and would implement its recommendations. The Chairperson said that the Committee needed more information about the irregularity of the transaction for the purchase of the Downtown Studios. Mr Langa said that the R3 million that had been paid for the studios was reported as irregular due to the way in which the Department had paid the money over to the NAC, by not following the proper processes and delegations of authority. The Chairperson asked why there was a failure to adhere to established processes, and what had actually happened. Mr Langa replied that he did not know the details, because he was not there at the time, but that there was a lack of proper controls and systems in place to detect irregularities.

Mr Thobejane asked how it was possible that the Department had been paying employees who did not have contracts of employment. Veliswa Baduza, Chief Operating Officer: Department of Arts and Culture, said that the three employees in question had been transferred from the Gauteng provincial government along with the arrival of the Deputy Minister. They had been appointed to the Gauteng government on fixed term contracts, and when they were transferred, their contracts had been transferred with them. Ms Baduza explained that the Department had in fact signed contracts with the employees in question, but that those initial contracts had expired. In order to formally appoint them, the Department had required approval from the then-Minister for the extension of the contracts. Mr Thobejane asked whether the Auditor-General’s report – which stated that certain employees were working for the Department without contracts – was correct or not. The Chairperson asked whether it was the case that the then-Minister had been reluctant to renew the contracts, and that as a result, the Department had kept the employees on while negotiating the renewal of their contracts. Ms Baduza answered that they had continued working without contracts after their initial contracts had expired. Mr Thobejane said that the Department should have obtained a letter of permission from either the Minister or the Deputy Minister, in order to avoid a situation in which people were being paid without employment contracts. The Chairperson said that administratively, the ministry had failed to act in time to negotiate the renewal of the contracts.

Mr Thobejane asked what the reasons were for the R743 000 in fruitless and wasteful expenditure, as reflected on pages 177-8 of the report. Mr Langa said that the amount in question was related to the 2008/09 financial year. That amount had been used to make payment to service providers, but the calculations had been found to be inaccurate by the Price Waterhouse Coopers investigation that had taken place during the 2010/11 financial year. Mr Thobejane asked how that had happened, to which Mr Langa replied that when Price Waterhouse Coopers had examined various invoices, it revealed that the amounts that the Department had actually paid were different from those that were reflected on the invoices. More details about the transactions in question would be provided in the SIU’s report. Mr Thobejane asked whose calculations had been used to pay the service providers, and whether the accuracy of those calculations was in question. The Director-General replied that they were inaccurate, and that as a result, the Department had paid out more than they were supposed to. Mr Thobejane asked who had signed off on those payments that had been made by the Department. Mr Langa said that he was unable to say, because the applicable paperwork had not yet been forwarded to the Department. Mr Thobejane pointed out that it had been over a year since the incorrect payment amounts had been discovered, and asked why the Department did not know who was responsible. The Chairperson asked how was the amount of R743 000 had even been arrived at, given the Department’s uncertainty on the matter. He asked whether the investigation had determined who had been responsible for the incorrect payments. Mr Xaba replied that when the SIU had undertaken its investigation, the Department had given all of its relevant documentation to the SIU, and had not yet received it back. Mr Thobejane asked whether the Department had prepared for its meeting with SCOPA that day, to which Mr Xaba replied that they had. Mr Thobejane asked why the Department had not requested the applicable documents from the SIU, to which Mr Xaba replied that they had attempted to retrieve the documents from the SIU, but that the Department and the SIU had been unable to match their respective diaries. Mr Thobejane asked the Director-General whether he thought the proper preparation would have entailed getting the documents from the SIU before the Department’s engagement with SCOPA, to which he responded that it would have been good, but that time had not allowed for the retrieval of the documents. The Chairperson remarked that the next time the Department gave out source documents to an external body, it would be good practice to make copies of those documents.

Mr Thobejane moved on to the part of the report dealing with the Department’s legal and regulatory framework, and asked what progress the Department had made in relation to the improvement of its performance information. Mr Xaba explained that the amounts listed as unauthorised expenditure would remain on the Department’s financial statements until such time as the National Treasury granted the necessary condonation. He was confident that the Department now had a new and competent financial team to work with the Auditor-General to address the Department’s financial problems, some of which had been happening for over a year. Mr Thobejane pointed out that almost R59 million had been paid to consultants, and asked why the Department enjoyed working with consultants as opposed to dedicated departmental staff. The Director-General explained that the amount spent on consultants was mainly for information technology (IT) services. Mr Thobejane asked whether there were dedicated officials within the Department to deal with IT matters. Upon receiving a response in the affirmative, he asked why those officials were not doing their work. Mr Xaba said that most of the Department’s IT officials dealt with simple desktop issues, and that consultants had been called in for the purposes of network maintenance, which was a substantial task, and a difficult one to undertake with only a handful of officials. In the previous year, the Department had requested the National Treasury to increase its budget for hiring IT staff. Mr Thobejane asked how much was being paid to people working on IT within the Department, as opposed to external consultants. Mr Xaba said that the Department’s budget for IT staff was in the area of R3 million. Mr Thobejane asked whether the Director-General acknowledged that the outsourcing was not a good thing. The Chairperson explained that the Committee wanted to hear that the Department was in the process of building its capacity so that it could cut down on paying external contractors. Mr Thobejane added that government was “not a training institution”, and that people should only be hired if they knew how to do their jobs. The Chairperson told the Director-General that the employment of more personnel in the Department would be sure to bring about improvements, especially in relation to IT security.

Ms G Saal (ANC) pointed out that the Department had received the report from the SIU two weeks prior, but that the Director-General had stated that the Department had not had enough time to process the information from the report. She asked whether the information could be included in the Department’s annual report for the current financial year, or whether two weeks was not enough time. She referred to page 11 of the report, which revealed that allocations to five provinces had been stopped in the middle of the financial year, and asked why that was the case. The Director-General replied that the Department’s financial year-end was 31 March, and that National Treasury regulations required their financial statements to be finalised between 31 March and 31 May of each year. The SIU had investigated a large number of events in the Department, and two weeks ago, the Department had received a pile of reports. The reason that the Department was not better prepared for its engagement with SCOPA was because of the sheer volume of those reports. The allocations to provinces that had been stopped related to library grants. The law allowed the Department’s accounting officer to put a hold on allocations – in cases in which the accounting officer believed that expenditure on a conditional grant was not working as it should – until such time as the conditions were being met. The Chairperson agreed that was indeed the correct approach. Mr Xaba said that at the beginning of 2010, it was clear that certain provinces were failing to spend their allocations the way they were supposed to. When those problems were not adequately resolved, the Department had put a stop on the payments, after informing the National Treasury and the affected provinces. Those problems had since been addressed, and the grants were now being given to all provinces once again. Ms Saal said that her question about the deadline for submission of financial statements related to the Department’s need to start preparing their financial statements early so that they would not have to rely on the three-month grace period.

Mr Singh asked how the Department had prevented double-dipping from organisations involved in the “Investing in Culture” programme who might be receiving funding from both the national Department and the provincial departments, and what risk management measures were in place. He noted that 70% of the Department’s expenditure was made up of transfers to other state entities and the provinces, and asked what kind of oversight the Department exercised over those other parties. The Director-General said that there was no foolproof way of preventing the issue of double-dipping in the “Investing in Culture” programme, and that was one of the reasons that the programme had been brought to a halt. The Department’s monitoring and evaluation unit played a big role in oversight, and over the past year, the Department had been strengthening its oversight mechanisms. The Minister and Deputy Minister met regularly with the chairpersons of organisations who received grants. The Department received monthly financial reports and quarterly performance reports from all entities that it issued grants to. In addition, quarterly site visits were made to all recipient entities.

Mr Singh noted that it was over two hours into the meeting, and the fact that neither the Minister nor the Deputy Minister was present was cause for serious concern. He asked why the Department had systematically failed to pay its creditors within 30 days of receiving invoices, and why there had been no performance audits for the previous three financial years. Sakiwo Tyiso, Chief Director: Monitoring and Evaluation, said that those performance reports had been undertaken and submitted to the necessary authorities, and that the performance reports included a financial component. Mr Singh referred to page 19 of the report, which said that no performance reports had been submitted over the past three years, and asked why there was a discrepancy between the Auditor-General’s report and the Department in that respect. An official from the Office of the Auditor-General confirmed that the Department had submitted certain performance reports. The Chairperson said that the Auditor-General had not performed any performance audits on the Department. An official from the Department admitted that they had not always paid creditors within 30 days of receiving invoices, but that they were working to improve that state of affairs.

South African Heritage Resources Agency Hearing
Mr R Ainslie (ANC) started the hearing with reference to the Auditor-General’s qualified report on the financial statements and financial well being of the South African Heritage Resources Agency (SAHRA). He noted that the Agency had taken a step backwards from its previous record of receiving unqualified reports. He said that as the review of SAHRA’s financials unfolded, the themes would be the lack of leadership and an absence of consequences for contraventions with rules and regulations, especially as contained within the PFMA. SAHRA’s report was qualified in three areas, as set out on page 119. Fruitless and wasteful expenditure and trade receivables were both qualified because SAHRA had been unable to provide documentation about its assets. He asked why there had been a failure to adhere to such a simple matter. Somadoda Fikeni, SAHRA Council Chairperson, apologised on behalf of the Agency, and explained that the new Council had only been in place since the end of its new financial year. The Council had immediately investigated the irregularities, and had engaged with SAHRA’s financial management. The CFO’s contract had just ended, and the Council insisted that they obtain someone with higher qualifications to act in the capacity of CFO, even if it were in an acting capacity.

The Chairperson said that at the risk of sounding cynical, it seemed strange that SAHRA’s top financial management could not make it to the SCOPA meeting. Mr Ainslie said that SCOPA’s job was to do post-mortem examination, and asked whether anyone in the delegation was at SAHRA at the relevant time, that would be able to give an explanation for what went wrong. Sibongile Van Damme, SAHRA’s CEO, said that some of the problems had stemmed from the fact that there had been a poor working relationship between the then-CFO and the CEO’s office. The CFO had worked more directly with the Office of the Auditor-General than the CEO had. While there had been some degree of monitoring on her part, the main documentation had being monitored by the CFO. Mr Ainslie remarked that the explanation marked a return to the theme of poor leadership he had mentioned earlier. He referred to page 146 of the report, which showed that there had been a failure to supply sufficient information to the Auditor-General about fruitless and wasteful expenditure. If that were the case, he asked where the information had come from to arrive at the listed amount. If no proper documentation was being kept, he wondered if it was just guesswork. Ms Van Damme said that in the absence of the Acting CFO, she was not in a position to answer the question.

Mr Ainslie asked whether anyone from the delegation would be able to answer financial questions, and Ms Van Damme referred him to Prof Fikeni, as the chairperson of the audit committee. She told the Committee that SAHRA was currently restructuring its financial management. Mr Ainslie said that it appeared that there was a serious lack of financial capacity, and asked whether SAHRA had any financial capacity at all. Ms Van Damme said that they had recently appointed a chartered accountant, with the right qualifications and experience, as Acting CFO. Mr Ainslie remarked that most of SAHRA’s answers to his questions had been centred on the lack of capacity, and that he supposed the answers would remain the same as he enquired about cash flow. Ms Van Damme agreed that lack of capacity had created some major problems, but stated that there was now capacity. SAHRA now had a supply chain manager and a project manager. There was now enough capacity in the supply chain unit to deal with the difficulties SAHRA had experienced in the last financial year. Mr Ainslie pointed out that during its thirteen years of existence, SAHRA had operated without proper financial management. He asked whether the Director-General could explain why, and asked him whether he was at all responsible for the state of affairs at SAHRA. Mr Xaba replied that the appointment of staff within an entity was the responsibility of that entity’s Council. Ms Van Damme added that SAHRA had not previously been in a position to attract staff with the appropriate skills, but that it had now started to do so. Prof Fikeni assured the Committee that SAHRA was in the process of turning the situation around. Mr Ainslie remarked that with the lack of qualified staff during the financial year under consideration, SAHRA was lucky that they had not received an adverse report.

Mr Ainslie referred to pages 105-118 of SAHRA’s performance report and noted that 44% of its reported targets had major variances which were not adequately explained. He asked whether SAHRA was able to explain why the performance report was generally so poor. Prof Fikeni replied that for 18 months, there had been no Council whatsoever, and the result was that there was no oversight. Since then, the Agency had been working with the Auditor-General and the Department’s monitoring and evaluation unit in order to ensure that every manager at every level was enabled to do his or her work. Mr Ainslie asked, the matter of the Council aside, what the high-level paid staff had been doing if they were unable to provide a proper performance report. Prof Fikeni replied that because there was no proper oversight at the time, he was not able to answer those questions.

Mr Ainslie moved on to page 107 of the report where one of the key objectives was listed as securing funding from foreign donors. He noted that there was no indication in the report whether that objective had been successful or not, and asked whether any foreign funding had been raised. Throughout the report, there was mention of a failure to secure funding, which was one of the most important sources of revenue for the Agency. Ms Van Damme replied that the Agency had in fact received funding from the Dutch as the result of a follow-up proposal. Mr Ainslie asked why that fact had not been mentioned in the report. The Auditor-General had been correct in his assessment that there was not much use in those figures, and it was generous of the Auditor-General not to give SAHRA an adverse opinion. From reading through the report, an unclear picture emerged of SAHRA’s relationship with the provinces. On page 109, one of the key objectives involved defining and implementing effective organisational structure, including devolving key functions to the provinces. He asked why page 21 of the report stated that the Agency was in the process of closing its provincial offices, and how the key objective and the closures interacted, as it seemed like a contradiction. Ms Van Damme explained that in terms of the National Heritage Resources Act (Act No 25 of 1999), SAHRA was responsible for national heritage sites while the provinces were responsible for provincial heritage sites. Up until recently, SAHRA had been administering some of the provincial functions. As a result, SAHRA had been accommodating capacity training in order to transfer provincial functions back to the provinces.

Mr Ainslie asked whether there were functional provincial offices in place. Ms Van Damme replied that the legislation’s emphasis was on resources of national significance. The discovery of such resources could not be anticipated, and as a result, there was an unpredictable climate, which affected the provincial offices. The Minister of Arts and Culture together with the respective MECs were responsible for setting up the provincial offices. Mr Ainslie asked how many provinces were currently competent, to which Ms Van Damme gave a brief outline of the level of competency of each provincial office. Mr Ainslie said that it was “a great pity” that so little emphasis has been put on bringing the provinces on board.

Mr Ainslie moved on to page 121 of the report, which revealed that SAHRA’s audit committee had consisted of two members for most of the financial year. He asked why that was the case, when Section 77 of PFMA required there to be at least three. He asked why it had happened, whether Section 77 was so difficult to understand, and whether the Agency had a copy of that legislation. Prof Fikeni said that when the Council came into being, they realised that they could not operate with an audit committee of two people, and they immediately set about fixing that state of affairs. The Chairperson asked what justification had been given at the time, and whether the CEO had been disciplined for failure to comply with the PFMA. Ms Van Damme replied that most members of the previous Council had resigned. Mr Ainslie said that it was her job to ensure that the PFMA was adhered to. It was a recurring theme that SCOPA faced, whereby people got away with the failure to follow laws and regulations, as there were no consequences.

Mr Ainslie noted that there had been a dismal failure in relation to supply chain management. Page 146 of the report showed that there was close to R13 million in irregular expenditure, arising mainly from the failure to follow proper procurement policies. He asked who was responsible, what disciplinary measures had been taken, and how much of the R13 million had been recovered. He failed to understand why the simple procedures as set out in the PFMA were not followed. One of the SAHRA delegates said that the figure of R13 million was an estimated amount based on figures given to SAHRA by the Auditor-General. Mr Ainslie asked whether the amount could in fact be more, to which the official conceded that it could be. Mr Ainslie said that it was another instance of “absolute contravention” with “no consequences.”

Mr Ainslie referred to page 106 of the report, and asked who dealt with promoting heritage sites for the purposes of tourism, among other functions. Prof Fikeni replied that there was a National Heritage Council that was responsible for promoting heritage sites, and that SAHRA was primarily responsible for management. Currently, a departmental review of functions was underway. Mr Ainslie said that not enough had been done historically to promote our heritage sites. The Director-General said that the Department of Arts and Culture shared that responsibility with the Department of Tourism. Mr Ainslie said that more needed to be done to promote heritage sites in the provinces, and pointed out that there were nine frontier war sites in the Eastern Cape, none of which were marketed as having tourism potential.

Mr Ainslie referred to one of SAHRA’s key objectives, which was to control the export of natural heritage items, and to page 64 of the report, which made reference to permits for export, and asked what criteria were used to determine whether or not to grant such a permit. Ms Van Damme replied that the National Heritage Resources Act prescribed the establishment of committees to monitor SAHRA’s function in that respect. There was a permit committee that sat to determine if an object was of national significance. If it were considered to be of national significance, it would not be exported. There was however, no fund, as provided for in the legislation, to allow SAHRA to purchase objects of national significance. Mr Ainslie asked how SAHRA defined what “artwork” was for the purposes of seeking to export it to overseas markets, and what level of art required the Agency’s permission. Ms Van Damme said that the artwork had to be older than 60 years, and an object of historical value, embedded with historical or political value. The Committee used those criteria when it made its determinations.

Mr Ainslie turned to pages 148-9 of the report, which dealt with project funds, and noted that the Agency had received funding from various entities for 65 projects. SAHRA’s expenditure, however, showed that only part of that funding had been spent, on 15 of the 65 projects. He asked about the relationship between the Agency and the funds. Ms Van Damme replied that some of the listed funding referred to trust funds that were managed for SAHRA, but that were not necessarily to be used for its activities. A project manager had been hired particularly to look into the matter.

The Chairperson reiterated that the task of SCOPA was to deal with what killed the patient, and that was why they were less interested in what was being done now than in what had happened that had led to problems in the past. As much as the NAC and SARHA employed staff and were responsible for other functions through their respective councils, the Department still had oversight of those entities. The Committee hoped that the NAC would move forward in a positive way. There were still some issues that had to be resolved in relation to the Downtown Studio. The Chairperson thanked the Director-General, the delegates, and the representatives from Office of the Auditor-General and the National Treasury for their participation. He asked Mr Xaba what had happened to the Minister, and pointed out that if he had indeed been on a flight to Cape Town at the beginning of the meeting, the fact that he had not arrived more than three hours later could be a point for concern. He would expect to hear from the Director-General about what had happened. The Committee expected interaction from accounting officers as well as political officers, especially when the invitation was sent in good time, as it was in this case. Unless executive authorities were incapacitated, they should attend SCOPA meetings. During the meeting, questions had arisen that only the Minister or Deputy Minister could have answered. In terms of the Constitution, the Committee’s accountability process required the input of the executive. Until there was an explanation, it caused problems and concerns for the Committee. The office of the Minister should have communicated directly with the Committee in response to the Committee’s direct communication to the Minister.

The meeting was adjourned.