International Trade and Administration Commission 2011/12 Annual Report

Economic Development

12 November 2012
Chairperson: Ms E Coleman (ANC)
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Meeting Summary

The annual report briefing by the International Trade Agreement Commission of South Africa (ITAC) was continued, and covered corporate governance, the Auditor General’s report and the financial performance of the Commission.

ITAC had adhered to all applicable regulations and had maintained internal controls to manage risk. ITAC’s Risk Management Committee had reviewed ITAC’s risk and made recommendations for implementation by management. The internal audit committee had held four meetings in the year under review.  ITAC had acknowledged the Auditor General’s report findings on pre-determined objectives related to the usefulness of performance information, and had used the report in crafting its 2013 strategic plan.

The Commission had received an unqualified audit opinion from the Auditor General, with one finding on irregular expenditure.  Irregular expenditure had totalled R788 708, of which 73% had been for not specifying the points system criterion to service providers when requesting quotations. Fruitless and wasteful expenditure had totalled R35 074 because of under-payments on the pension payment system.  ITAC had developed an action plan to address the issues raised by the Auditor General, and a committee had been established to monitor its implementation.

ITAC had assets of R30.4m and liabilities of R10.1m.  The surplus of R20, 3m was a cumulative total from previous years.  Total operating revenue was R71.7m, of which R69.6m was from an allocation by the Economic Development Department.  Operating expenses were R68.8m, of which employee compensation accounted for 75% and goods and services for the remaining 25%. There was an operational surplus of R2.9m, through savings made because of staff resignations


Members asked why people were resigning and why ITAC regarded this as “savings.”  Had these posts been filled?  Had single quotations been requested because of the specific needs of ITAC? Was interest incurred for the late payments made by ITAC and what time period had elapsed before the payments were made?  Why had the procedures for getting quotations not been followed, and what systems were in place to prevent this recurring?  What had led to the irregular expenditure?  Members wanted a breakdown of the structure of ITAC. It appeared that the CFO had not given the Auditor General’s office enough information. Members questioned whether the audit unit had looked at procurement issues and if so, whether their action plans had been implemented.  What did the legal fees relate to?   Members were concerned that ITAC was not accepting what the Auditor General had said. They asked for clarification on what had led to late payments being made, and why ITAC had requested money from the Department when it had unspent money from previous years.  Had there been an improvement in the performance information, as the Department of Performance Monitoring and Evaluation had said that planned performance targets had not been aligned with the strategic plan?

Meeting report

Briefing by the International Trade and Administration Commission (ITAC) on its financial performance for the 2011/12 financial year
Mr Siyabulela Tsengiwe, Chief Commissioner of ITAC, said that the Commission would continue its briefing from where it had ended in the previous meeting and would cover corporate governance, the Auditor General’s report and its financial performance.

ITAC had adhered to all applicable regulations and had maintained internal controls to manage risk. The risk management committee had reviewed ITAC’s risk and made recommendations for implementation by management.

The internal audit committee had held four meetings in the year under review.  Notwithstanding the satisfactory internal audit controls, he acknowledged the Auditor General’s report findings on pre-determined objectives, related to the usefulness of performance information.  ITAC had used the AG’s report in crafting its 2013 strategic plan.

Mr Zanoxolo Koyana, Chief Financial Officer (CFO), said ITAC had received an unqualified audit opinion from the Auditor General, with one finding on irregular expenditure, which had totalled R788  708.   Of this, 73% had been for not specifying the points system criterion to service providers when requesting quotations, and 25% had been for procuring services without having at least three quotations.  ITAC had supplied reasons why it had used only single quotations, but the Auditor General had said the reasons given had not been satisfactory and it had to follow supply chain management guidelines. The balance of 2% was for procurement exceeding the petty cash limit of R2 000. Fruitless and wasteful expenditure totalled R35 074 because of under-payments on the pension payment system.  ITAC had developed an action plan to address the issues raised by the Auditor General, and a committee had been established to monitor its implementation.

Turning to the financial performance, he said that ITAC had assets of R30.4m and liabilities of R10.1m.  The surplus of R20, 3m was a cumulative total from previous years. The total operating revenue was R71.7m, of which R69.6m was from an allocation by the Economic Development Department.  Operating expenses were R68.8m, of which employee compensation accounted for 75% and goods and services for the remaining 25%. There was an operational surplus of R2.9m, through savings made because of staff resignations


Discussion
Mr Z Ntuli (ANC) asked why people were resigning and why ITAC regarded this as “savings.”

Mr N Gcwabaza (ANC) asked if the posts had been filled. He asked if the use of single quotations had been because of the specific needs of ITAC.

Ms Tsotsetsi asked if interest had been incurred for the late payments made by ITAC, and what time period had elapsed before the payments were made. Why were the procedures for getting quotations not followed and what systems were in place to prevent it recurring?

Mr M Hlengwa (IFP) asked what reasons had led to the irregular expenditure.

The Chairperson said she wanted a breakdown of the structure of ITAC. It appeared that the CFO had not given the Auditor General’s office enough information. She questioned whether the audit unit had looked at procurement issues and if so, whether their action plans had been implemented.   What had the legal fees related to?

Mr Koyana replied that money not paid in salaries to employees was regarded as savings. The resignation period was 30 days.  The CFO, a senior manager in the legal department and a general manager had resigned, the latter having resigned outside of the period under review.

Mr Tsengiwe added that the CFO had resigned to take up a higher post at the Department of Education and the senior manager (legal) had resigned to take a higher post in the Department of Trade and Industry. It took approximately four months to appoint a new person.  ITAC’s organisational structure had 130 posts, of which 123 were filled and the remaining 7 were in the process of being filled.

Mr Koyana said that the CFO post and the post for a senior manager (legal) had been filled. On the question pertaining to getting three quotations, ITAC had provided reasons to the Auditor General which had been regarded as not acceptable.  The only acceptable reasons were in cases of an emergency or if there was only one provider of the good or service, as per the Treasury practice note.

The Chairperson said she was concerned that ITAC was not accepting what the Auditor General had said.

Mr Koyana replied that the supply chain management team had been sent on an SCM training course.

Ms Tsotsetsi asked for clarification on the pension payment system and its maintenance, which had led to late payments. She said that the organisation had to plan for induction and training.

Mr Koyana said it had engaged with the service provider which had underpaid pensions for two months, and which had attracted late payment penalties. ITAC did budget and provide for maintenance.

Mr Tsengiwe said ITAC was composed of two full-time commissioners – the chief commissioner and the deputy commissioner, a post which was currently vacant. The three-year contract of the previous deputy commissioner had not been renewed.

Mr Koyana said the service provider was on a three-year contract, so future payments would still be irregular. ITAC had written to the Treasury for guidance on the matter, and could apply to Treasury via Section 79 for exemption. The contract would end in the following year. ITAC had introduced a checklist to prevent SCM incidents from recurring.  Transfers from the Department were done quarterly.

The Chairperson asked why it had requested money when it had unspent money from previous years.

Mr Koyana replied that the R71m was budgeted for ITAC’s use, based on the projects it intended doing in the year. It had generated R1.4m in interest. All surplus monies had been declared to the Treasury at the end of the financial year and ITAC could not use this money without Treasury’s approval. The budget did not include capital spending, and this was the reason ITAC wanted to keep the surpluses.  In 2010, ITAC’s budget had been cut by the government and it had been given the opportunity to maximise the use of its money by keeping a portion (R2. 9m) in a call account.

Mr Ntuli asked if there had been an improvement in the performance information, as the Department of Performance Monitoring and Evaluation had said that planned performance targets had not been aligned with the strategic plan.
 
Mr Tsengiwe replied there had been problems with the performance information. The information was reliable, but it was not meeting Treasury guidelines.  ITAC had accepted the recommendations of the Auditor General and had made adjustments to its 2012/13 plans.

The meeting was adjourned.

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