Chemical Industries Sector Education & Training Authority, Wholesale & Retail SETA, Fibre Processing & Manufacturing SETA Annual Reports 2011/12

Meeting report

The Chairperson welcomed the Sector Education and Training Authorities (SETAs) present. He urged them to focus on their response to the Auditor-General's report. There should also be a focus on bursaries and student placement.

Wholesale and Retail SETA (W&R SETA) briefing
Mr Joel Dikgole, W&R SETA Chief Executive Officer, introduced the delegation. He apologised for the absence of the Chairperson of the Board. During the 2011/12 financial year (FY), expenditure had been R722.9 million, an increase of 52% over the previous financial year (FY). The total revenue was R691.1 million (increase of 23%). The deficit was R31.8 million, which had been funded by use of reserve funds.

Mr Dikgole said that there had been a greater than expected increase in revenue. He ascribed this to an increase in salaries, growth in the companies in the sector paying sector levies, and the contribution of fuel retailers. The increase in expenditure was due to increases of 19% in mandatory grants and 123% in discretionary grants. At R384 million, grant expenditure was at its highest in several years. A new bursary scheme had been introduced for first and second year students. The unemployed youth assistance programme accounted for 35% of expenditure.

Mr Dikgole briefed Members on the financial position. The total assets at the end of the FY amounted to R982.3 million against liabilities of R100.3 million. Capital and reserves amounted to R882 million. The cash and cash equivalents total was R965.9 million, but this included a discretionary reserve of R877.9, some of which was committed to projects. The decrease in cash reserves was due to increased expenditure and a corresponding decrease in the amount of interest received.

Mr Dikgole said that 338 240 people had been trained during the FY. Top training interventions had been for sales staff, retail managers, cashiers, general administrative workers, store workers, and debtor's clerks.

Mr Dikgole said that the Board had approved R636 million for discretionary grants. The Board had approved 48 projects, for which R803 million had been allocated. He outlined a number of key strategic projects. These included an international leadership development programme (R13.8 million), a retail management development programme (R10 million), discretionary grant funding windows (R327 million, through 280 grants benefiting 20 000 employed and unemployed learners) and a disability project (R30 million). There were two bursary schemes, one funded by the National Student Financial Assistance Scheme (NSFAS) (R185 million) and the other by the W&R SETA (R153 million. Another key strategic project was for small, medium and micro-enterprise (SMME) support. The target was to assist 7 000 small companies and the achievement was 7 683.

Mr Dikgole said that this was the first time in the history of the SETA that a qualified report had been made by the AG. He felt this was mainly due to incomplete reporting. The SETA had fallen short by allocating more to its programmes than was in the budget. This error would be corrected. All contracts, of which there were between 600 and 700, fell under discretionary grants.

Discussion
The Chairperson said the situation regarding the uncertainty over the number of contracts and the R800 million which could not be accounted for had to be discussed. He was happy with the bursary awards, but the AG report showed that this SETA could not account for its contracts.

Mr Dikgole said that the W&R SETA did take the matter seriously. It was the first qualified AG report in the body's twelve year existence. There were 48 projects, to which R300 million was allocated. The AG had asked for a list of the contracts with the tracking of payments. The accounting system was not set up to record each contract.

The Chairperson said that as long as there was accounting, even if it was not done in the neatest way, the AG would be happy. He quoted from the AG report. Contracts had been awarded for more than R500 000 without a public tender process. This was illegal. If this was the first time this had happened, action needed to be taken. He asked who was in charge of procurement.

Ms Daphne Matloa, W&R SETA CFO, replied that the major expense was regarding property leases. There had been challenges, and the public tender process had not been followed. There had been varying amounts for the various offices. Most were over the amount of R500 000 over a three year period. She thought the total amount involved was about R3.2 million for nine offices.

The Chairperson asked who had entered into this transaction.

Mr Dikgole felt it was not important to go into the context. The finding was that a public tender process should have been followed. When the new Minister had come into office and taken charge of the SETAs, there had been an extension of the SETA landscape. This allowed the Minister to update the National Skills Development Strategy (NSDS). At that time, W&R SETA had been busy re-negotiating leases. There was uncertainty over their long term future, and they had felt that they should continue their leases on a monthly basis. There had been a feeling that it would be better for continuity to remain in their current premises. This was why they had gone the three quote route.

The Chairperson asked if this was the only affected transaction of over R500 000.

Ms Matloa confirmed it was the only one for this amount.

The Chairperson said that the Committee would need a full list of all the projects and the costs involved. Companies had been paying their levies. He warned that heads would roll once all the information was made available.

Mr G Radebe (ANC) said that the explanation offered was not acceptable. When a lease was due to expire, proper process should be followed. This had been done deliberately to prevent a tender process from being followed. The Public Finance Management Act (PFMA) said that all processes should be determined in advance. The update of the NSDS did not mean that all current arrangements would cease.

Mr Dikgole said that the monthly extensions were done as all leases were bound to the time period of the NSDS.

The Chairperson asked in how many other projects the amount of R500 000 had been exceeded.

Mr Dikgole said that the amount of R500 000 was for administrative expenses, under which the leases fell. There were no projects in which an award of R500 000 was made without a competitive bid.

The Chairperson noted that a contractor had underperformed to the tune of R1.6 million.

Mr Dikgole said that the name of the service contractor was Silvex Training, which had been providing Adult Basic Education Training (ABET). Certificates had not been issued by the Independent Election Board (IEB). W&R SETA had laid criminal charges with the South African Police Service (SAPS).

The Chairperson said that the annual report (AR) mentioned another service provider who could not be located despite a contract being in place.

Ms N Gina (ANC) said that a number of financial issues were raised in the AG report. She asked if there were any difficulties with finances in the SETA. The SETA should be honest in its report to Parliament. It was clear that there were such problems.

The Chairperson said that the CFO earned R1.5 million per annum and should therefore be a competent person. Accountability was needed.

Mr Michael Lawrence, Chairperson: Finance Committee, W&R SETA Board, said that there were clearly different matters. One was the property lease; another matter had been addressed through the appropriate legal channels. The Board had been in place for a year and had investigated the projects concerned. While there was insufficient information to satisfy the AG, there was a process currently under way to reconcile each of the 700 contracts. There had been some investigation on the record keeping between hard records and software systems. The Board was satisfied that once all the records were examined all the questions would be answered. He believed that there was the necessary expertise. There had been 'glitches' in the system. While mistakes had been made, remedial action was being taken.

Mr Z Makhubele (ANC) noted some contradictory indications in the AR.

Mr M Mpontshane (IFP) asked why the internal audit function continued to be outsourced. Internal controls had been only partially effective. He pointed out some discrepancies with the number of learners completing programmes. R70 000 was spent on a learner per annum. He asked if this was across-the-board figure. The rural development programme was noted as being one of the challenges, while the SETA was reporting that it was achieving success in its efforts in the rural areas. Only fourteen of 200 learner targets had been achieved.

Mr ​C Moni (ANC) asked what was meant by a supplier not being located, when there was an issue of R1.6 million. This should surely be the subject of litigation.

Ms D Sibiya (ANC) would have preferred to see the SETAs with which W&R SETA had partnerships being specified.

The Chairperson wanted the officials to answer the questions posed. There would be interaction with the Board later.

Mr Dikgole said that when the legal route had been decided on, a case had been registered with SAPS. The Sheriff had gone to serve the summons, but the individuals concerned were not to be found at the address quoted in the contract. These persons had to be traced. One provider was in Bloemfontein, but the office had been closed by the time of the investigation. The first case had been registered some time previously. The R4 million case was being handled by the Hawks.

The Chairperson felt that the reporting was more for the sake of compliance than trying to reach resolution. The same companies could be operating in other sectors.

Mr Dikgole had the case numbers, and would forward these to the Committee.

Ms Matloa said that the internal audit was outsourced, but made quarterly reports to the Audit Committee. They operated within the organisation.

The Chairperson was not satisfied with this answer. There were many unemployed graduates who could perform this function rather than companies that were 'milking' the system. He answered if SETA had the capacity.

Mr Hennie Zwarts, W&R SETA Chief Operations Officer, said that the figure of underachievement related to bursaries which were to be allocated by NSFAS. These had not all been allocated at the end of the FY.

The Chairperson wanted a list of all students to whom bursaries had been awarded, and on all the contracts. This information was to be submitted within three months.

Mr Dikgole said that the figure of 1 000 bursaries had been achieved for the one provider. The problem had been with the NSFAS bursaries. A new CEO had been appointed there.

The Chairperson said that the Committee would do its own investigation. He was beginning to lose faith in the SETA system. The law must be respected. The Board must report in the next six months on what they were doing regarding the unlawful conduct. They should be taking action rather than making excuses for management. Board members had a duty to control expenditure, failing which the PFMA made provision for criminal prosecution. Board members could find themselves in jail for up to five years. The report tendered was not a proud one. The strategic objectives had not been outlined. Every SETA came to the Committee with their projects, but these were of a dubious nature. Huge amounts of money were being wasted. Certificates were useless.

Ms Gina asked how accessible the SETA was at Further Education and Training Colleges (FETs).
 
Mr Dikgole said that W&R SETA had worked with FETs for ten years. They were now reaching out to almost all of them. In KwaZulu-Natal some two months previously there had been a joint project with five FETs. A thousand street vendors had been trained in partnership with the eThekwini municipality. The SETA was looking at establishing centres of excellence. A Wholesale and Retail Academy would be established. There was close liaison with principals of FETs. A memorandum of understanding between the SETA and the principals of all fifty FETs was being drafted. Most final year students were funded by the SETA together with the Economic Development Department (EDD) to put learners through a twelve month workplace experience project.

Ms S Mayatula (ANC) asked if the mystery company in Bloemfontein had been cleared by the South African Revenue Service (SARS).

Mr Dikgole replied that there was a SARS clearance in place, but the company had disappeared once the fraud was uncovered.

Mr Mpontshane felt that if the companies could not be traced, then the students would not be able to be traced either.

Fibre Processing and Manufacturing SETA (FP&M SETA) briefing
Mr Mike Truelock, FP&M SETA Board member, said that this was a newly formed SETA. Elements of three previous SETAs had been combined to form FP&M SETA. The Board had been extremely disappointed over missing documentation over artisans. This had been a long standing problem.

Mr Bheki Zulu, Acting CEO, FP&M SETA, said that the SETA had inherited from a now defunct SETA. FP&M SETA had disbursed R37 million in discretionary funds and had allocated R111 million for grants and special projects.

Ms Gina Layzell, FP&M SETA CFO, said that revenue had been R293 million. The majority of this (R173 million) had come from mandatory grants. Funding from donors was matched to the amount spent during the FY, and amounted to R11 million. Expenses had been R161 million, the majority of which was expended on mandatory grants. Total discretionary funds amounted to R359 million, of which R102 million was in the form of committed funds.

Ms Layzell said that R250 000 was allocated to post graduate studies, R60 million to learnerships and skills programmes and R12 million to artisan training. A total of R74 million from the fixed grant funding had been allocated to benefit 2 634 employed and 2 148 unemployed learners. These were two separate groups. Special project funding amounted to R27 million and was aligned to the NSDS III mandate and FP&M SETA Strategic Plan. These programmes included projects in the rural areas and to assist people with disabilities.

Discussion
The Chairperson was happy that bursaries were awarded. Members wanted to know about the missing information.

Mr Radebe wanted an explanation for the challenges that had inhibited the achievement of targets, and what measures were being put in place. The AG had found that the internal audit committee had not been effective.

Mr Makhubele said that there had been no risk assessment. Members appreciated the smooth transition in the merger process. Some challenges were to be expected. Some students were recipients of funding from previous SETAs, and he asked what was being done for these students. He noted an amount of over R3 million for consultants. He asked if this expenditure had been necessary. He asked how small firms could benefit, and how community organisations were being helped in training the unemployed.

Mr Zulu replied that the 51% underachievement was due to the initial lack of harmony. The Board first wanted to see structures in place before committing funds to projects. By the end of the FY in March, most contracts were still being signed off. He expected to see an improvement in the current FY. The former SETAs had been funded primarily through provincial treasuries. All key business units in the SETA should have been reviewed by the end of the current FY.

Mr Zulu said that risk assessment was a rigorous process. Currently, the process of resource management was being wrapped up. The Board would soon meet to assess strategic risks. Members of the former SETAs were working together.

Mr Zulu said that the only outstanding issue was certification. Much documentation had been handed in shortly before the termination of the former SETAs. There had been staff challenges due to resignations in the winding-down process. The learners should not be disadvantaged. There was a project to examine the data, especially for students who completed their training during the 2011/12 FY.

Mr Truelock said that each SETA should have been fully staffed with operational systems. The philosophy was to use best practice. The bulk of the consultancy fees were for the acquisition of a combined management information system. This was the major challenge faced by the SETA.

Mr Radebe could not see representation of the disabled groups. Some people had been denied access in the past. He asked what the black economic empowerment (BEE) strategy was to assist previously disadvantaged communities. He asked who was given the training. Some might fall outside of the procurement threshold.

Mr Makhubele noted that there was no spending on recognition of prior learning (RPL). He asked what was happening with this process. There was no real commitment to ensure that it did happen, when there were so many who qualified.

Mr PK Naicker, FP&M SETA COO, said that 10% of the budget went towards rural development. There was a target of reporting on twenty small entities. There had been some under performance due to financial constraints and the number of applications reached. More SMMEs would be helped in the current FY.

Mr Zulu said that there was a breakdown on the demographics of the SETA. He quoted the employment figures. The majority of employees were black. The SETA had fallen short of the 4% target in terms of those with disabilities.

The Chairperson said that workplace skills plans were submitted in order to receive mandatory grants. It was unknown what these grants were used for. Billions were being spent without explanation. It could even be used to pay scab labour. Information was needed.

Mr Truelock said that RPL relied on the employers putting resources together. The Board was disappointed in the numbers. They wished to increase the number of assessors and moderators. All students, whether local or foreign, had been taken on board by the FP&M SETA.

The Chairperson said that employers should commit themselves to taking on a set number of apprentices and other workers.

Chemical Industries Education and Training Authority (CHIETA) briefing
Ms Nolitha Fakude, CHIETA Board Chairperson, said that the new Board had been appointed on 1 April 2012. The then CEO had been under suspension at the time. There were other issues pending. Morale of the staff was low. The previous Board had looked into various issues. A confidential report had been made, and staff felt that nothing was being done. There were some areas where the Board was comfortable. The Board of Governors was dedicated and effective. Corporate governance was a major priority. Some time had to be spent on enterprise risk management. The Board was addressing the PWC findings. A special task team had been appointed to look at these findings.

Ms Fakude said that the Board was working closely with the National Skills Authority (NSA) and the Department of Higher Education and Training (DHET) on Section 14A matters. A permanent CEO should be appointed shortly. Management and staff would be assisted to deliver on the CHIETA mandate. The Board was committed to making this SETA one of the best. In eleven years there had only been unqualified audits with no emphases of matter.

Discussion
The Chairperson said that the only unqualified report was from the Committee on achieving targets. The language used in the AR was incorrect. There was no such concept as 'over target'. South Africa needed to produce as many skilled workers as possible, who could then also be used in other African countries. The Committee had no problem with the performance of the Board, but had heard reports in the media of opulence by Board members. He wanted to know what had been done about the former CEO, and if the money for irregular leave had been recovered. He asked if the leave policy had been amended.

Mr Radebe said that he appreciated the way gender balance had been addressed. Credit was due to CHIETA for this. However, he was shocked to see that the CFO earned more than the accounting authority.

The Chairperson said that interaction with the Board and officials was more important than going through a presentation which Members could read for themselves.

Ms Fakude said that the confidentiality of the report, especially concerning disciplinary action, made it difficult to discuss all matters openly.

The Chairperson reminded the presenters that any matters raised in the Committee were protected.

Ms Fakude said that the previous CEO had been suspended in February 2011. An Acting CEO had been appointed. The Board had agreed to settle with the CEO and a mutual agreement had been reached. The Board had investigated whether further action was needed. Two disciplinary hearings had been held, one of which was still in process.

Ms Ingrid Dimo, CHIETA Board member, said that the persons involved was the head of the grants unit, a Mr Naidoo, who had been reduced to a lesser position, and the former COO who had been dismissed.

Ms Fakude said that missing information had been recovered. All of the issues raised concerning discretionary grants had been investigated. Sometimes such issues were a gift in that it allowed for processes to be reviewed in order to prevent recurrences.

The Chairperson found that a general issue was work-based skills plans. Skills development was essential, and could not be over-emphasised. Targets had to be addressed. Perhaps the solution would be to create one mega SETA. The wage bill was enormous and the results minimal. As many students as possible should be placed. The Minister should be impressed' by the results achieved in reconsidering the roles of SETAs. Government would never tolerate any unlawfulness. He urged the delegations to read the sections of the PFMA dealing with offences, and Treasury regulations and guidelines. These could never be contravened. If a SETA spent more than R500 000 without proper process, that official should resign. Such a person did not respect the law and should be dismissed forthwith. Public money was being squandered. The SETAs' lack of accountability was raising the anger of Members. There were many SETAs, but only those who were not spending their funds would be called to Parliament to account to the Committee. If a SETA was summoned, the CEO should come with his or her letter of resignation already prepared. The AG had found that SETAs were not providing useful information. He was happy that action had been taken on the CEO, but was not happy that there had been no disciplinary action. The CEO had abused public funds and had still received the benefits that he should have forfeited.

Mr Moni said that Boards could not afford to sleep. People appointed to Boards should understand the principles of corporate governance. If there was leadership in an institution, there should be no compromise. There had to be a line between friendship and work. This was why SETAs were failing. Lack of output could not be tolerated. The mandate of Higher Education Institutions was to produce learners. Anything less was a waste of taxpayers' money. The current malpractices were challenging the very rationale behind them. While SETAs were still seen as the correct approach, the Boards had to take an active role in ensuring good corporate governance. Officials had to be held accountable. Board members also had to be held to account.

Ms Gina supported the stance taken by the Chairperson. While some congratulations were due, there should be some consolidation of SETAs. Examples of good practice amongst SETAs should be highlighted. She hoped that SETAs would be better motivated going forward after this interaction.

Mr Makhubele said that CHIETA had received an unqualified report, and yet some of the findings of the forensic investigations were scary. Millions had been abused by members of the organisation. There were deep seated problems within the SETA. It was worrying that it had taken a forensic investigation to raise the matter.

Ms Fakude pointed out that the Board had been uncomfortable, and had instigated the investigation. The action by the Board had been decisive. There was always a management report, even in an unqualified AG report.

The Chairperson said that there was some good work being done by the SETAs. The issue of targets had to be addressed with DHET, and proper work-based skills programmes. Placement of learners was a key issue. DHET had a continuous oversight duty. Learners and projects had to be interrogated in the light of cases of nepotism and corruption. Some of the employees were not worth their place. This is why the Committee wanted details on all projects. Billions were reportedly committed, but plans were very short on detail. Members were not afraid of reading thick volumes of information.

Minutes of meetings
The Committee consider the minutes of the meetings of 9, 10, 12, 17, 24 October 2012 and accepted them with corrections. Members accepted that the minutes of the meeting of 31 October be held over to the meeting the following week for approval.

A Committee Report was accepted with corrections.

The meeting was adjourned.