Auditor-General on Key Challenges in Agriculture Department's Audit Report 2013, with Minister in attendance

Agriculture, Forestry and Fisheries

07 October 2013
Chairperson: Mr M Johnson (ANC)
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Meeting Summary

The Office of the Auditor-General (AGSA) briefed the Portfolio Committee on Agriculture, Forestry and Fisheries (Committee) on key issues of the Annual Report of the Department of Agriculture, Forestry and Fisheries (DAFF) and Entities. The Minister of Agriculture, Forestry and Fisheries
also attended the meeting and briefed the Committee as well.

The Minister stressed that the Committee should not focus on the negative and should acknowledged that the Department had received its fifth unqualified audit report. In addition, she accused the Committee of failing to assist her Department, citing that a number of Bills had not been passed, and hoped that the new Committee would offer better assistance to her Department.

The AGSA highlighted that the Department and five entities, namely the Agricultural Research Council (ARC), Marine Living Resources Fund (MLRF), National Agricultural Marketing Council (NAMC), Ncera Farms, Onderstepoort Biological Products (OBP) received an unqualified audit opinion with findings on reporting against predetermined objectives and /or compliance with laws and regulations. The overall regression in audit outcomes was caused by the NAMC that deteriorated from a clean audit opinion to an unqualified with findings audit opinion. The Perishable Products Export Control Board (PPECB) PPECB was the only entity that received a clean audit.

The greatest concern for the Department was predetermined objectives. It had shown no improvement and there were also material adjustment errors in the Annual Financial Statements (AFS) submitted for audit. There were usually technical reasons for adjustments and in those instances, non-compliance was not raised. Non-compliance was only raised where internal controls had failed to identify the adjustments required.
 
The internal audit function was a critical area for the Department. Intervention was required for the drivers of internal controls, these being Leadership, Financial and Performance Management, and Governance. Generally in the portfolio, when it came to financial issues, there were quick responses, but in other areas, turnaround was slow. AGSA believed that the Department was ‘almost there’. The Accountability Model included recruiting competent, skilled and well-qualified management and a Human Resource Management system that worked perfectly well. This also included monitoring and evaluation to ensure information went through proper and consistent checks and balances and reconciliation done daily, weekly, and as and when required and in a disciplined manner to achieve clean audit outcomes, plan accordingly and to focus on service delivery.
 
The Department had movement on supply chain for a number of years and had improved on irregular expenditure. Irregular Expenditure in 2011/12 was R34.7 million and in 2012/13 it was R1.3 million. Fruitless and Wasteful Expenditure in 2011/12 was R20 000 and in 2012/13 it was R410 000.
 
There had been great improvement with OBP and the ARC. The ARC previously had findings on compliance on rules and regulations and currently had findings on material adjustments to the AFS. This was a concern, as without controls in place to ensure that there were no material adjustments to the AFS, ARC may receive qualifications.
 
The AGSA had established that in terms of the generic indicators, there was no alignment between national and provincial departments and this made it difficult for AGSA to develop sector procedures and to generate a sector report. However, AGSA was in contact with the DAFF and Monitoring and Evaluation in the Presidency, which had started to develop these indicators. AGSA would continue to work on the sector report and give feedback to the Committee on how far it was with the report.
 
Members asked if the AGSA shared the opinion of the Minister that the Committee should commend the DAFF for exceptional work done, or if it should hold the Minister accountable for lack of leadership and both the Minister and the DAFF accountable for the findings and transgressions as identified by the audit. Some Members felt that the Minister was criticizing the Committee where the Minister herself had failed. In addition, Members asked for clarity on what funds were misstated and whether the AGSA had been able to determine how those misstated funds had been spent; for progress on the alleged corrupt marine fleet tender to Sekunjalo; for a breakdown of the findings so that the Committee could know where to focus on critical areas; what accountability existed between national and provincial departments and how oversight could be expanded; and if the impact of the budget was transferred to the lives of the ordinary people to the extent that predetermined objectives could be linked to the outcome - so that the Committee could relate what they heard from the AGSA to what they saw on oversight visits.
 
Members also asked what percent of the DAFF’s targets were achieved and how much of the budget had been spent in the current year; if AGSA was satisfied with the DAFF’s turnaround plan; for the detailed Management Report over the past five years from the DAFF and for the sector reports from the various provinces from the AGSA, as it was a concern for the Committee that they did not receive reports from the DAFF.
 

Meeting report

Opening Remarks by the Minister of Agriculture, Forestry and Fisheries (DAFF)
Ms Tina Joemat-Pettersson, Minister of Agriculture, Forestry and Fisheries, introduced Professor Edith Vries, the newly appointed Director-General and Mr Joe Kgobokoe, the newly appointed Deputy Director-General for Food Security and Agrarian Reform. The Director-General had been developing action plans and policy over the past year while working alongside and advising the staff of the Ministry and the DAFF. The Minister stressed that it should be acknowledged that the DAFF had received its fifth unqualified audit report. However, her single biggest failure as Minister for five years was the inability to pass Acts and to have to leave 20 out of 22 pieces of legislation untransformed for the next Committee and Administration. It was the job of the Committee to ensure that Acts were in line with the Constitution of the country and its key function was to provide legislative guidance. She hoped that there would be a better Committee the following year to pass the twenty pieces of legislation. The Committee had to take responsibility for focusing on the negative and this had resulted in the Committee being left far behind. One piece of legislation had been passed and hopefully the amendments to the Marine Living Resources Amendment Bill (MLRA Bill) would also be passed. The Auditor-General of South Africa (AGSA) was aware that DAFF had been operating within a legal vacuum and the Acts which governed the Department were out of date. For example, the Perishable Products Export Control Board (PPECB) had been operating under Acts which were completely out-dated and this had been a huge stumbling block.
 
The Chairperson thanked the Minister for her kind words and welcomed and congratulated the Director-General and Deputy Director-General. He urged them to stay focused in their work.
 
Briefing by the Office of the Auditor-General of South Africa (AGSA)
Ms Meisie Nkau, Business Executive: DAFF Portfolio, AGSA, said that the purpose of the meeting was to brief the Committee on the audit outcomes of the Department and its entities. Thereafter, she gave a background to the audit outcomes and how they were reflected in the Auditor-General’s (AG) report.

Ms Nkau informed Members that financially not qualified, no findings on predetermined objectives, and no findings on compliance with rules and regulations was an ideal report. She further stressed that attention had to be drawn to where findings had been raised.
 
Mr Fanie Kok, Senior Manager: DAFF Portfolio, AGSA, said that the DAFF Portfolio included the DAFF and the six entities, namely the Agricultural Research Council (ARC), Marine Living Resources Fund (MLRF), National Agricultural Marketing Council (NAMC), Ncera Farms, Onderstepoort Biological Products (OBP) and PPECB.  The Department and five entities received an unqualified audit opinion with findings on reporting against predetermined objectives and /or compliance with laws and regulations. The overall regression in audit outcomes was caused by the NAMC that deteriorated from a clean audit opinion to an unqualified with findings audit opinion. The PPECB was the only entity that received a clean audit.

Intervention was required for the following: 
DAFF:  Predetermined objectives had shown no improvement and there were material adjustment errors in the Annual Financial Statements (AFS) submitted for audit. The internal audit function was a critical area for DAFF, as without controls there would never be unqualified audit opinions with no findings. Intervention was required for the drivers of internal controls, these being Leadership, Financial and Performance Management, and Governance. Fruitless and Wasteful Expenditure in 2011/12 was R20 000 and in 2012/13 it was R410 000. Irregular Expenditure in 2011/12 was R34.7 million and in 2012/13 it was R1.3 million.
 
ARC: The main issue was material adjustments errors in the AFS submitted for audit. These had been corrected during the audit. Fruitless and Wasteful Expenditure in 2011/12 was R8632 and in 2012/13 it was R0. Irregular Expenditure in 2011/12 was R1.02 million and in 2012/13 it was R1.1 million.
 
MLRF: Supply chain management and predetermined objectives had regressed. Fruitless and Wasteful Expenditure in 2011/12 was R9000 and in 2012/13 it was R0. Irregular Expenditure in 2011/12 was R0 and in 2012/13 it was R 9.1 million (due to supply chain management).
 
NAMC: The previous year NAMC had received a clean audit. However, in the current year, supply chain management had regressed and Irregular Expenditure had regressed from R0 in 2011/12 to R 2.9 million in 2012/13 due to liability of management. NAMC had an overdraft at the end of the financial year as a result of a transfer payment not yet approved by Treasury before the end of the year. 
 
Ncera Farms: As per the previous year, Ncera still had no internal audit functions and its Audit Committee had not met at least twice during the financial year.
 
OBP: Fruitless and Wasteful Expenditure in 2011/12 was R474 187 and in 2012/13 it was R300 000. Irregular Expenditure in 2011/12 was R11.96 million and in 2012/13 it was R1.2 million due to internal controls improving.
 
Ms Nkau added that had material adjustments not been identified through the audit, the entities would have received qualified financial opinions. Normally, there were technical reasons for adjustments and in those instances, non-compliance was not raised. Non-compliance was only raised where internal controls had failed to identify the adjustments required.
 
Regarding Ncera Farms, the only issue was in relation to the Audit Committee and internal audits, but this was due to consultants assisting them with their AFS and why their report was squeaky clean.
 
Ms Nkau concluded that having presented those outcomes, the DAFF was “almost there”. It was a matter of fixing issues and this could be done. The Accountability Model included recruiting competent, skilled and well-qualified management and a Human Resource Management system that worked perfectly well. It also included monitoring and evaluation to ensure information went through proper and consistent checks and balances and reconciliations were done daily, weekly, and as and when required and in a disciplined manner to achieve clean audit outcomes, plan accordingly and to focus on service delivery.

[See attached Briefing Note on the 2012/13 audit outcomes by the Auditor General for a full breakdown of the audit outcomes, which highlighted the findings, root causes and recommendations].
 
Discussion
Mr P Van Dalen (DA) referred to page 150 of the DAFF Annual Report and noted that funds were materially misstated. He asked for clarity on what funds were misstated and whether AGSA had determined how the funds had been spent.
 
Ms Nkau replied that the AGSA was not able to verify the targets reported by DAFF as there was not sufficient and appropriate evidence to do so. Simply put, the AGSA was of the opinion that the targets were misstated as they could not be verified.
 
Mr Van Dalen commented that the Minister’s scathing attack on the integrity of the Committee had left him “gobsmacked”. He asked if AGSA shared the opinion of the Minister - that the Committee should pat the DAFF on its back for the exceptional work done - or if the Committee should hold the Minister and the DAFF accountable for the findings and transgressions.
 
Ms Nkau said that she would like to refrain from responding to the question.
 
Mr Van Dalen asked for progress on the alleged corrupt marine fleet tender to Sekunjalo. The AGSA had said in the previous year that the matter would feature in the current years’ audit report.
 
Ms Nkau acknowledged that the AGSA had made reference to the investigation in relation to the MRLF in the previous year. She however commented that her Western Cape colleague, who was responsible for the MRLF audit, was present and could respond to that specific question.
 
Mr Leslie Holland, Deputy Business Executive, AGSA, said that both the Accounting Authority’s and AGSA’s report indicated that the investigation was still in progress. During the audit, the AGSA had attempted to obtain information on the investigation but had not had any success. It may be worthwhile for the Committee to pursue the matter further with the MRLF and with the DAFF. There was also no indication as to when the investigation would be complete.
 
Mr Van Dalen commented that the Auditor-General and Minister appeared to live in two totally different worlds. He asked how the DAFF could be commended while it had such findings. The audit report had found that “the management did not exercise sufficient oversight over reporting and internal controls”. It further stated that “although action plans were implemented, limited or no progress was implemented to address the root causes, with the result that repeat findings were raised. Management did not ensure that key functions, internal audits, regional offices and various senior management positions within the DAFF were properly resourced and skilled”. This was a direct result of the Minister failing to lead. Furthermore, the Committee could only handle legislation that was before the Committee. The Minister was criticising the work of the Committee for which the Minister herself had failed.
 
The Chairperson reminded Members that the focus of the meeting was with the AG’s Office. The following day’s meeting could refer to and address the DAFF.
 
Ms Nkau replied that due to the fact that AGSA was reporting on the root causes relating to leadership which was accountable to Parliament, Parliament had the responsibility to hold the leaders accountable when they reported to Parliament.
 
Ms A Steyn (DA) asked if the Minister would be present at the meeting the following day so that specific questions could be directed at her.
 
The Minister replied that she reported to the President who required her to be in Cabinet the following day. Therefore she would not be attending the meeting with the Committee the following day.
 
Ms Steyn said that she was very concerned about the findings. She had asked in a written question to the Minister earlier in the year about the food parcels given out in De Doorns, as it appeared that the DAFF used money in the way that it suited the Minister. She had asked the Minister to share how the R10 million was spent on the food parcels and had received a 12-page handwritten response which looked like a school child’s document - to a Member of Parliament - on how the DAFF had spent the money. She would share it with the Members of the Committee and the AG. She then asked how the AG could use this type of reporting to explain if public money was spent correctly and in the right fashion. A breakdown of the findings was required so that the Committee could know where to focus on critical areas, and where it could be rightfully happy about an unqualified audit.
 
Ms Nkau replied that if the food parcels were in the strategic plan of the DAFF, AGSA would audit a financial and service delivery aspect. In the financial aspect, AGSA looked at the supply chain process, contract management, project management if applicable, invoicing and payment. Once satisfied that this had taken place, it would give rise to whether that was a qualification or clean opinion, depending on how material the amount was. Supply chain would also impact on compliance on rules and regulations. In terms of service delivery, AGSA would verify whether the people who were targeted in the project did actually receive the food parcels. Without going into specifics – there were many projects under performance information that was audited by AGSA - the audit report stated that in the majority of cases, AGSA could not verify because supporting documentation was not submitted. She could not be sure whether lack of documentation related directly to this project, but when it came to performance information, the DAFF had a lot to address.
 
Mr S Abram (ANC) asked how the budget by Treasury impacted on the responsibility of the province to service delivery and the overall lives of the ordinary person. National government provided the total budget and the National Assembly had to approve it, yet there was no accountability from the provinces to where the budget originated for the millions of rands the provinces received. This was a major anomaly. He asked what accountability existed between national and provincial departments and how oversight could be expanded and controlled to be more eloquent. The ordinary people believed that the recipients of provincial spending were always a select few and that the ordinary citizen had to wait for scores of years without any assistance whatsoever.
 
Ms Nkau replied that from the AGSA side, it would be much easier to give the Committee perspective if it had a sector report for the Agriculture Portfolio, so that it could give an indication on how provinces were fairing in terms of financial performance information and compliance with rules and regulations, as AGSA did for other bigger sectors such as health, education, public works and others. AGSA had also established that in terms of the generic indicators, there was no alignment between national and provincial departments and this made it difficult for AGSA to develop sector procedures and to generate a sector report. However, the AGSA was in contact with the DAFF and the Department for Performance Monitoring and Evaluation (DPME) which had started to develop those indicators. It was difficult for her to report on what the provinces did as she believed that provinces received funding through the Division of Revenue Act. In terms of the Division of Revenue Act (DORA), the Department’s responsibilities ended at some point and that was as far as AGSA went in terms of the transfer. If the Chairperson allowed, perhaps the DAFF could share what happened in the provinces when it came to Agriculture. A further complication was that in most provinces, Agriculture was not a standalone department. It was grouped together with Transport or Rural Development. AGSA was working on those issues with the DPME.
 
Mr Abram said that in the previous year, 99% of the budget was spent and 52% of the targets were achieved. He asked what the status was for the current year.

Ms Nkau replied that the current analysis was not included in the report, but according to AGSA calculations, the DAFF had achieved 62% of the targets and had spent just over 99% of its budget.
 
The Chairperson asked if the impact of the budget transferred to the lives of the ordinary people to the extent that the predetermined objectives could be linked to them, so that the Committee could relate what it heard from the AGSA to what it saw on oversight visits.
 
Ms Nkau replied that the current targets achieved, as per her previous response, was the impact that the budget had on the people of South Africa. As the AGSA had discussed previously with the DAFF and the Committee, the strategic plan should identify the specific areas targeted for service delivery. Currently, the areas were not specified and it was difficult for the DAFF to account to Parliament and to the people it was serving.
 
The Minister added that to give perspective on the division of the budget, one third of the R6 billion allocated to Agriculture was for transfers through the DORA to the Comprehensive Agricultural Support Programme (CASP) and to Ilima Letsema in the provinces and R1 billion went to the six entities. Direct delivery took place at CASP and Ilima Letsema and in terms of oversight of these projects, it was important to note that the national DAFF had less than 1% of the budget to spend on direct delivery.
 
Ms Steyn commented that the Committee had continuously tried to obtain information on CASP and Ilima Letsama and conditional grants to provinces. The whole issue with the tractors and implementation was all on record. The DAFF could not report to the Committee because it could not get the information from the provinces and the Minister was criticizing the Committee for not doing its work while the Committee was always busy trying to get information from the DAFF on how the DAFF money was being spent.
 
Ms Nkau said that the details of the findings per project were published in the Management Report that AGSA presented to the DAFF before the audit was finalised and a report was issued. If the Committee would like to have sight of the detailed Management Report, the request should go to the DAFF.
 
The Chairperson said that the DAFF was not on the agenda for the current meeting and Members should focus on AGSA.
 
Ms Steyn asked how and when the Committee could ask the Minister questions relating to the DAFF’s Annual Report if the Minister was not available the following day.
 
Mr Van Dalen asked how AGSA could have an opinion if details could not be verified by supporting documentation and whether if details could not be verified, it could mean that “it never happened”.
 
Ms Nkau replied that the lack of documentation could mean a number of possibilities and without an investigation the AGSA could not come to a conclusion.
 
Ms N Twala (ANC) asked how the AGSA could determine that 62% of the DAFF’s targets were achieved when information was lacking and there was no alignment between national and provincial departments.
 
Ms Nkau replied that the 62% related to the national targets. The AGSA’s work focused on the national DAFF. 
 
The Chairperson asked why agricultural trusts, which used public funding, were not accountable to the NAMC or to Parliament.
 
Ms Nkau replied that the AGSA agreed that this involved the use of public funding and had raised the question with Treasury whether they should be listed in terms of the PFMA and for clarification on the issue of agricultural levies and was still waiting on a response. The AGSA would give the Committee feedback on the progress.
 
Mr Abram asked if the AGSA had received a response from DAFF since the report was published in the Annual Report and if so, was it satisfied with the Department’s turnaround plan. It was important that the DAFF was absolutely accountable to the Committee’s questions as it had to deliver on the mandate given to it by the voters of the country.
 
Ms Nkau replied that discussions were held with the DAFF throughout the audit. At the end of the
Audit, the AGSA had met with the Director-General and then the Minister to give feedback on the outcome. The Director-General and management usually then compiled an action list to address the audit findings raised and the Minister would commit to holding the Director-General and management accountable to ensuring that the DAFF addressed the findings raised and was committed to the action list. The slow response was a concern.
 
Ms Steyn commented that it would be good to get the sector reports from the various provinces as it was a concern that the Committee did not receive reports from the DAFF. DAFF’s small budget may need to be addressed. She further asked if the DAFF had increased its capacity over the past five years in response to the AGSA’s report showing no improvement each year.
 
Ms Nkau replied that there had been great improvements with the OBP and the ARC. The ARC previously had findings on compliance on rules and regulations and currently had findings on material adjustments to the AFS. This was a concern, as without controls in place to ensure that there were no material adjustments to the AFS, the ARC may receive qualifications. The DAFF had movement on supply chain for a number of years and had improved on irregular expenditure. The greatest concern for the DAFF was predetermined objectives. Generally in the portfolio, when it came to financial issues, there were quick responses, but in other areas, turnaround was slow. The DAFF was capable of making huge differences and could improve on its response to turnaround.
 
Ms Steyn proposed to the Committee that it should get the detailed Management Report over the past five years to ensure that the Department was moving forward. There was the example of the missing computers and the 72 tractors with implements supposedly in the Free State. The money had been spent but whether more or fewer people were food secure was the question. The quarterly reports from the DAFF did not tell the Committee anything and on oversight visits the Committee found no service delivery. She was upset by the situation and wanted to see the detailed Management Reports to get clarity on such issues.
 
Ms Nkau replied that the AGSA would continue to work on the sector report and give feedback to the Committee on how far it was with the report.
 
The Chairperson asked if the report was public.
 
Ms Nkau replied that the report was not a public document as it was a report submitted to the DAFF. However, the DAFF had the prerogative to make it public.
 
The Chairperson asked if the issue of the Management Report could be discussed the following day.
 
Mr Van Dalen supported Ms Steyn’s proposal for the Committee to have access to the detailed Management Report.
 
The meeting was adjourned.
 

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