The Committee kicked off the Budgetary Review and Recommendation Report (BRRR) process by meeting with the Department of Environmental Affairs (DEA) and one of its entities, the South African Weather Service (SAWS), to discuss its audit opinion for the 2013/14 financial year. The Minister of the Department was also present for part of the meeting. The Office of the Auditor-General of SA (AGSA) took the Committee through the audit opinion for the Department and its four entities, namely, SAWS, South African National Parks (SANParks), the South African National Biodiversity Institute (SANBI) and iSimangaliso Wetland Park Authority for the 2013/14 financial year. Thereafter the reasons for findings were discussed for those entities achieving an unqualified opinion with no finding - these entities were SANParks and SAWS. The Department and the other two entities, SANBI and iSimangaliso, achieved unqualified audit opinions with no findings. Key focus areas were also discussed along with drivers of internal controls, combined assurance on risk management and fruitless and wasteful expenditure under other matters of interest.
The Committee questioned the alleged fruitless and wasteful expenditure of the Department wanting to know which programme it stemmed from, consequences involved and generally seeking more information on the matter. Other Members sought insight into the exemptions granted in terms of the minimum cash standard and what this exemption entailed. There was also discussion on the quality of submitted financial statements by the entities obtaining an unqualified audit opinion with findings.
The Department presented its annual financial statements for the year ended 30 March 2014 with the DG providing an update on the progress made with recommendations made in the BRRR of the previous Portfolio Committee. The annual financial statements presented expenditure for the seven programmes of the Department, expenditure per economic classification and revenue vs. expenditure for the Department’s four entities. Also discussed was transfers to programmes and projects related to the EPWP, transfers to public entities and other agencies, donor funding as well as an elaboration on fruitless and wasteful expenditure incurred.
Members questioned which strategies were in place to detect and ensure that fruitless and wasteful expenditure was not incurred again. Related to this, Members asked why this money was paid upfront to implementing agents. The impact of the modified cash standard on the devolution of responsibilities to provinces and municipalities, on the governance structure and on the Department itself was also queried. The expenditure on consultants was a key talking point in this discussion along with donor aid and help in the funding of maintenance and operations of research vessels.
Introduction: Committee Business
The Chairperson adjusted the agenda arrangement slightly for Members who were in another meeting scheduled at the last minute. Members of the Committee were also Members of the Portfolio Committee on Water and Sanitation. This Committee was due to meet on Wednesdays while the Portfolio Committee on Environmental Affairs was due to meet on Tuesdays to accommodate these Members.
Ms T Stander (DA) thanked the Committee Secretary for compiling the meeting agenda for the day – it was the first of its kind and was very helpful for Members.
The Chairperson spoke to the annual Budgetary Review and Recommendation Report (BRRR) process, which provided an opportunity for Members to see the performance of departments and entities in the past financial year and if resources allocated were used efficiently and in the interest of South Africans. In this way Parliament influenced the budgetary process. In this process, Committees made recommendations that went all the way to Treasury to influence the allocations Treasury made to departments. These recommendations would be clear and necessary and be based on facts. This meeting was an opportunity for Members to interact with the Department on what was achieved in the past year along with representatives of the Auditor-General’s (AG) office who were present. Members had an important duty of oversight and this BRRR was a critical process in the oversight cycle. Through the process, Members were able to assess whether the Department was able to deliver services to the people of SA and change their lives for the better. There was also a need to assess whether the Department used resources in a sustainable manner for the benefit of people. Interaction with the Department and its entities on work done in the past financial year was a very important item on the Committee’s Third Term Programme. This BRRR work would also continue on Thursday. The Chairperson knew that parties held caucuses on Thursday but the BRRR work by the Committee needed to be completed by 24 October. All Committees were required to produce reports to be tabled in the House on their findings concerning the performance of departments and to make recommendations to Treasury.
Ms Stander asked if the meeting would begin at 09h30 or 14h00 on Thursday because she had already asked to be excused from her party caucus meeting.
The Chairperson hoped the meeting would begin at 09h30 but he would know the exact starting time by the end of the day and then inform Members. He had consulted various caucuses because there was a lot of work to be done by the Committee with the BRRR process and other programme items.
The Minister of Environmental Affairs would be joining the meeting in due time but the Committee could not wait on her arrival.
Ms Nosipho Ngcaba, Director-General (DG), Department of Environmental Affairs (DEA), made some introductory remarks noting that the Department was in active engagement with the Office of the AG and the Minister was presented with the Department’s audit outcome. The Department was now busy with implementing some of the recommendations emanating from the audit findings.
Briefing Note to the Portfolio Committee on the PFMA audit outcomes of the 2013-14 financial year for the Department of Environmental Affairs
Mr Samed Omar, Senior Manager, AGSA, began the presentation by noting the AG had a constitutional mandate, as the Supreme Audit Institution (SAI) of SA, existed to strengthen the country’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence. The purpose of this briefing document was for the AG to provide an overview of the audit outcomes and other findings in respect of the Department of Environmental Affairs. It was important that the AG’s audit report not be read in isolation but for it to be supplemented by the bigger picture contained in the Annual Reports especially the chapter on programme performance information and the financial statements.
Moving directly to the crux of the audit opinion, the opinion for the 2013/14 financial year was as follows:
Department of Environmental Affairs: CLEAN AUDIT OPINION: UNQUALIFIED WITH NO FINDINGS. This was an improvement from the previous financial year where the Department received an unqualified audit outcome with findings.
South African National Parks: UNQUALIFIED WITH FINDINGS. This was a regression from the previous financial year where the entity received an unqualified audit outcome with no findings. This was due to matters relating to pre-determined objectives and compliance with laws and regulations.
South African Weather Service: UNQUALIFIED WITH FINDINGS. This was the same audit outcome the entity received in the previous financial year. This was due to matters relating to compliance with laws and regulations.
South African National Biodiversity Institute: CLEAN AUDIT OPINION: UNQUALIFIED WITH NO FINDINGS. The entity improved from the previous financial year when it received an unqualified audit with findings.
iSimangaliso Wetland Park Authority: CLEAN AUDIT OPINION: UNQUALIFIED WITH NO FINDINGS. The entity maintained the same audit outcome from the previous financial year.
Mr Ritesh Ramnanthan, Manager, AGSA, looked at drivers of internal controls highlighting where immediate intervention was needed by the Department and its entities in order to strengthen the drivers of internal controls. These interventions related to human resources controls and ICT governance and controls under financial statements. Intervention was also required for proper record keeping which was essentially adequate documentation.
Other interventions needed was for SANParks to fill the vacant CFO position to support reliable financial reporting, management at SAWS and SANParks should regularly attend training to adequately review the annual performance report for accuracy, validity and completeness and staff should be monitored and held accountable. The Minister should address the root causes and inadequate controls to address instability by ensuring that vacancies in key positions were filled. The CEOs and CFOs should address the root causes and inadequate controls to ensure that key officials at SAWS had the appropriate competencies in reporting accurate performance information.
Assurance provided by key role players should improve
Looking at other matters of interest, fruitless and waste expenditure amounting to R26 million was incurred by the Department in respect of services possibly rendered. This expenditure related to transfer payments which were not adequately monitored when the transfer was made. The fruitless and wasteful expenditure arose as a result of an investigation instructed by the Department. An investigation was conducted by Deloitte and Touche at the Department’s request to identify any fruitless and wasteful expenditure on the 120 dormant projects covering periods prior to the 2013/14 financial year. The following was noted with regards to the investigation conducted:
R12 million of the R34 million was recovered
R11 million was to be re-audited as a result of possible incorrect calculations
R11 million was submitted to the state attorney for recovery
In this matter, National Treasury granted the Department and exemption from applying the Modified Cash Standard in respect of infrastructure development projects. The Department was recommended to meet with National Treasury to resolve the matter immediately.
The Chairperson opened the floor to questions from Members.
Ms Stander questioned the alleged fruitless and wasteful expenditure to the amount of R26 million – at the time of the audit, the AG could not find services/goods/invoices rendered for that money. The AG noted the transaction in this regard was not adequately monitored – what would the AG have liked to see then? Did the AG want to see invoices and goods? What was meant by “monitoring”?
Mr Ramnanthan explained this alleged fruitless and wasteful expenditure emanated from an investigation done by Deloitte at the Department’s request into incomplete projects, why some certificates were not closed and what still needed to be done with these projects. Some suppliers had been paid funds but for some reason there was no closing of certificates which came to the Department. Deloitte found that R26 million worth of work could not be identified hence the Department had to go back and make the necessary follow-ups and investigations to further identify if adequate services were rendered to the value of R26 million. At the time of the audit, the Department could not ascertain this and, therefore, until the investigation was completed, the money remained as fruitless and wasteful expenditure.
Ms Stander asked what particular programme of the Department this fruitless and wasteful expenditure stemmed from.
Mr Ramnanthan replied that it was programme six – environmental programme.
Mr A Mngxitama (EFF) wanted more information around this fruitless expenditure as he did not quite understand. He also asked if there were any consequences in this regard.
The Chairperson thought more discussion on the matter could be held when the Department presented later in the meeting as at the time of the end of the audit, the Department had not come back to the AG on the progress made on the matter.
Mr B Hadebe (DA) questioned the quality of submitted financial statements by the South African National Parks (SANParks) given that the entity received an unqualified opinion with findings.
Mr Omar replied that the disclosure by SANParks was inadequate and not in accordance with General Recognised Accounting Practices (GRAP).
Mr Hadebe said that, in other words, the information supplied to the AG by SANParks was inaccurate and not useful.
Mr Omar said it was important that all disclosure was in absolute accordance with the financial statements and GRAP.
The Chairperson said the long and short of the matter was that the statements provided by SANParks did not make auditing sense.
Mr Hadebe was trying to find out if this was because of a lack of skill in the entity.
The Chairperson replied that the AG did say certain positions were not filled and this gave rise to misstatements and material findings. The CFO and CEO were among the positions that were not filled.
Mr Omar responded that, in terms of the CFO post, last year, SANParks had material misstatements on the annual financial statements which meant there was non-compliance but this year there was none on the financial statements.
Ms Stander, for the benefit of the rest of Committee, asked if the AG could explain exceptions granted by National Treasury for compliance with the minimum cash standard. She asked that the AG elaborate on this and describe what such an exemption entailed. This would be for the benefit of the Committee and would allow Members to contribute because it was one of the areas the Department would be interrogated on.
Mr Ramnanthan emphasised that in terms of the exemption, the Department must comply with the modified cash standard in all respects. If the Department did not apply the modified cash standard, it could request Treasury to grant an exemption. In this case, Treasury approved the budget of the Department, yet there was a problem on the budget. Treasury then investigated the finding, changes to be made to the financial statements and reasons for the Department not complying with the modified cash system. An exemption would be granted once and the Department would have the fix the issue going forward. He could not comment on whether an exception would be given again – most likely not. The exemption was for transfer payments which were budgeted incorrectly – the transfer payments should have been budgeted for as capital expenditure.
The Chairperson suggested Members move to crux of meeting and to hear from the “horse’s mouth”, so to speak. The findings from the AG showed there were improvements in the Department itself and a number of entities, save one or two which the Committee would have to establish the corrective measures. The AG spoke to the performance of the Department vis-à-vis its own plans.
Vote 30: Environmental Affairs. Portfolio Committee Briefing Annual Financial Statements for the year ended 31 March 2014
Ms Ngcaba provided an update on the recommendations made in the BRRR of the previous year. The Committee at the time was concerned about the inadequate resourcing of the Department based on the hearings into the strategic plans. There was a request for Treasury to provide funding for an immediate unforeseen circumstance. This related to emergency evacuation on Marion Island. Someone became ill and had passed away and the Department needed to make a special trip outside of the scheduled voyages the vessels followed. This was an unplanned and unavoidable occurrence. Treasury did not grant this funding. The Department also requested Treasury for provision for operational costs for fuel and food for both research vessels – SA Agulhas II and Algoa. This request was also not granted. This meant the Department needed to find money to finance these short falls on an already stretched budget. There was also a R100 million cut on the Extended Public Works Programme (EPWP) for the “Working for Fire” programme and the weather services. Treasury however, revised its decision on the “Working for Fire” programme so the funding was not cut but it was cut for the weather services.
Another concern in the previous BRRR was that there was no allocation for the Green Fund for the 2014/15 financial year in spite of commitments made. The Department approached Treasury and it rescheduled the R500 million allocation in the outer year and placed R20 million for the 2014/15 financial year and R250 million for the 2015/16 financial year. In essence, in terms of this recommendation, there was provisioning for the 2014/15 financial year for the Green Fund.
The Department needed to reprioritise the budget allocation for the waste management service to interface with the Department of Water Affairs and the Department of Mineral Resources. This was a pressure area which the Minister and Cabinet had pronounced on so the Department needed to finance it. DEA did not receive these funds. Similarly, funding was not received for marine research and conservation.
In other aspects, SANParks had taxes owed to municipalities – the entity indicated it needed about R80 million to meet its debt of about R300 million. The Department took the matter up with Treasury and the Department of Cooperative Governance and Traditional Affairs to grant SANParks a formal legal exemption in terms of payment of rates and taxes because all these entities provided services for themselves and did not rely on municipalities. The Minister had approached the then Minister of Finance in the last financial year about this matter but it had not been settled. The Minister was following up on the process.
Ms Ngcaba noted the Department was clearly not well funded and the financial situation was not improving. Another budget cut had been received for the compensation of employees for 2015/16 for R14.5 million and R16.3 million for 2016/17. There was also a cut on operations (which covered transport, bursaries, consultants, training etc) of R32.66 million for 2015/16 and R91.96 million for 2016/17. Public entities would get a cut of about R35.9 million – the question was how these deductions would be implemented. Engagement on the matter was still ongoing with Treasury with the Department asking that another cut not be placed on SAWS. All these deductions were on top of deductions made in the last financial year. These deductions had an impact on how the strategic plan already appropriated by Parliament was implemented.
The Chairperson welcomed the Minister of Environmental Affairs, Ms Edna Molewa.
Ms Esther Makau, CFO, DEA, took the Committee through the presentation outline which would cover expenditure per programme, expenditure per economical classification, transfers to public entities and other agencies and programmes and projects related to the EPWP. The presentation would also look at donor funding, a 30 day payment report and the AG’s report.
Turning to expenditure for the financial year ended 31 March 2014, the CFO went through the expenditure for each of the Department’s programmes as follows:
Administration: R704 278 million (99.7%)
Legal, Authorisations and Compliance: R102 934 million (98.7%)
Oceans and Coasts: R326 088 million (99.8%)
Climate Change and Air Quality: R229 760 million (100%)
Biodiversity and Conservation: R565 662 million (100%)
Environmental Programmes: R3 138 885 million (100%)
Chemicals and Waste: R73 113 (98.2%)
Total Expenditure by the Department: R5 200 307 million (99.9%)
After looking at expenditure per economic classification, the detailed current expenditure was discussed. The biggest expenditure items were highlighted as follows:
Consultants, contractors and agency/outsourced activities: R357 882 million – this was an increased expenditure from the previous financial year (R36 068 million) and was due to the increased operation and manning costs for the SA Agulhas and Algoa Vessels
Travel and subsistence: R141 279 million
Operating leases: R66 678 million – this was a decrease from the previous financial year where expenditure was R67 488. The expenditure was related to additional rental/accommodation charges in respect of regional offices and operating lease payments
Computer Services: R52 693 million – this was an increase from the previous financial year where expenditure was R340 382 million. This was to support and maintenance for the Working for Water and Fire Information Management Systems, premium support, a 2nd year Enterprise Agreement with Microsoft via SITA and new Departmental building expenditure
Ms Makau then took the Committee through the expenditure and revenue of the four entities which was as follows:
R2 224 017 million
R2 183 266 million
R531 060 million
R491 240 million
R335 898 million
R295 734 million
R86 020 million
R107 015 million
After allocations and transfers to other agencies and allocations and transfers to EPWP projects were discussed, foreign aid assistance was highlighted. Members were then taken through the exemption report and the expenditure trend for the Department over the past ten years.
Ms Ngcaba elaborated on the fruitless and wasteful expenditure explaining it was a decision to go back and look at all projects the Department funded since 1999/2000 to ascertain if they were closed properly. It was found that some projects were not closed properly. Deloitte and Touche were appointed as the auditors to investigate what happened with these projects and help close the books. Although these projects were before her time as DG, it was felt to be the right thing to do. In some instances the implementing agents were no longer operational or functional while others could no longer pay back the money already advanced to the projects. In was recommended that some cases be reported to the police to recover the costs while in others, another implementing agent was appointed to conclude the project and erase fruitless expenditure. Eight or ten projects still required finalisation and the R26 million was the amount disclosed in the financial statements. The AG convinced her that disclosing this was the best decision and the entire process was part of a cleaning up mechanism initiated to ensure there was compliance and that there was value derived from the funds spent. If value could not be established, the necessary consequences would follow. On the matter of disclosure, there was disagreement.
Mr Hadebe asked if there was a strategy in place to detect and prevent such fruitless and wasteful expenditure from happening in the future.
Ms Stander questioned the impact of the modified cash standard with devolution of responsibilities by the Department to provinces and municipalities. How would the modified cash standard affect the reporting of provinces and municipalities? Would the modified cash standard mean government would have to restructure the way responsibilities were devolved? What impact would the standard have on the Department as a whole? She asked if the Department could indicate if it would again get an exemption based on interaction with Treasury. Where did material misstatements take place? How would the Department ensure it did not happen again? With fruitless and wasteful expenditure, why was the money paid upfront to implementing agents?
Mr Omar clarified that DEA had no findings so it did not have material misstatements.
Ms Makau said the Department was of the opinion that the cash modified system would be implemented from this year but according to the AG, the standard should have been implemented already. In interaction with the AG and Treasury, the Medium Term Expenditure Framework (MTEF) was reclassified to remove some funds from the transfer line to the capital line.
Ms Ngcaba said it was too early to discuss matters of restructuring because of the modified cash standard.
Mr Mngxitama thought the R26 million of fruitless and wasteful expenditure was money lost from the people of SA and the explanation for it provided by the Department did not sit well. It would be good to get a sense that such an occurrence would not happen again. He wanted to know the exact/total expenditure spent on procuring the services of consultants. Who exactly benefited from the R157 million for post-retirement health care for SANParks? This was a big amount and he wanted a good sense of who benefited from this. It was a good thing and retired people should be taken care of but it could not be exclusive to a particular group of people. With donor aid, why was the Department begging for money from the Europeans?
Ms Makau said that R17 million of the Department’s entire budget was spent on consultants. She did not calculate the percentage expression of this amount. This applied to contractors, professional services and operators. There were also four classifications of contractors used. She would have to make some calculations to reach the percentage expression.
Ms Ngcaba said that, especially at local government level where the Department provided support, permanent services in the Department was pointless so then work, like waste collection, would be outsourced. This also applied to certain scientific services.
With international donor funding, these amounts were initially high and the Department was now at the point of winding down as some developed countries did not see SA as a developing country and so financial support was being reduced. The Department was not begging but she was happy if funds were donated because it was helpful given the current situation in the fiscus.
She suggested the question on post-retirement health benefits be shelved until SANParks presented to the Committee.
The Chairperson said the terminology used and what exactly was referred to as “consultants” was important for Members to understand.
Ms Ngcaba said that many types of contractors were dealt with as implementing agents in the case of the fruitless and wasteful expenditure. Money was paid upfront because of the need for these agents to pay salaries to workers and unemployed people when NGO-types were used as implementers. Equipment for the work also needed to be purchased. Having learnt its lesson, the Department was looking at how much to pay up front and controls had been tightened. Proactive planning for closure was also being looked into when the project was at a stage of 75% closure.
Mr S Mabilo (ANC) was pleased with the 30 day payment period for small and medium enterprises (SMMEs). He asked why there was an increase in consultants. What was the exact amount of money funded to Non-Profit Organisations (NPOs) and which NPOs were being funded?
The Chairperson appreciated the capacity and ability the Department had to spend the funds provided. In most cases, money was returned to Treasury because of an inability to spend. The Department was running at just over 90% in terms of spending patterns in all programmes. The Department was doing quite well. It was also important to look at the actual outcome of spending instead of just looking at the figures and this was where performance came in.
The Chairperson appreciated that the Department disclosed this information, investigated the matter on its own with external auditors instead of the AG uncovering this anomaly. Whilst this was recognised, what efforts had the Department undertaken to ensure this did not happen again?
Ms Stander, with it being a new Committee, asked that the Department provide Members with a brief description of each line item and what it entailed so that these questions were not asked again when the Committee went through this process again next year. The second largest line item was travel and subsistence – was this inclusive of expenses related to this programme? Did the Department made any progress in getting the navy, for example, to contribute to the maintenance and expenses related to running of the research vessels (SA Agulhas II and Algoa) seeing as so many department benefitted from them?
Ms Ngcaba said domestic and international travel could be seen transparently on annexure B. With the funding of the research vessels, the Department collaborated with the Department of Science and Technology where the latter contributed R6 million for scientists. SAWS was also part of the team along with various science councils and universities. Collaborate relations in this regard was important. The Department had already started charging some international scientists. There was collaboration, in some instances it was financial and in other instances not, but the area would continue to be explored.
Mr Mngxitama was not satisfied with the answer on consultants given that a big percentage of the budget was spent on this item. This was certainly more than 40% of the budget. He understood that certain services did not need to reside in government departments permanently but it raised fundamental questions. Was money simply being given to private entities to do work and provide services to South Africans? If these services were so important and strategic, internal capacity should be created for departments to carry it out themselves. This was not a problem of the Department but of the ruling party who had surrendered the state to private hands. This was the conclusion to be drawn.
The Chairperson said this was a wrong conclusion to draw.
Minister Molewa said the EPWP programme the Department had been working on had recently been consolidated from other departments like Water Affairs and Agriculture, Forestry and Fisheries. All these projects associated with the programme were looked at by DEA to see if they were closed for purposes of accountability. She felt this was important to highlight. This was part of a clean-up. On expenditure on consultants, this category consisted of a mixed bag of all kinds of services. The Department had a debate with the AG on the classification of consultants and money spent on services. There was a grey areas pertaining to consultant definitions. With creating internal capacity, this could not be done with once-off projects or when specialisation needed to be created for once-off projects. There needed to be a dissection of what/who was called consultants in the true sense of the word. Given the nature of DEA, specialist services were needed, e.g. a green house gas inventory analysis. There was no statement from government that departments should not use consultants but there should not be an over-reliance on consultants. With donor funding, this was not about begging and should not be seen as a sin.
The Chairperson agreed and noted there was a conventional terminology on consultants and unfortunately almost everything had been packed into this terminology. It would be helpful if the various categories were cleared up. He suggested the performance of the Department now be presented to explore the impact of expenditure.
Minister Molewa apologised to the Chairperson and Committee because she and the DG would have to leave the meeting to attend a meeting in Durban with the President. She needed to take the next flight out as there were only two flights out to Durban and if she took the later flight she would miss the meeting. She sincerely regretted this and it was unexpected. On the overall budget, SA had for some time been operating under stringent and difficult circumstances and this was also a global pattern. Government was doing what it could to grow the economy and tomorrow she would be at the launch of the expansion of the oceans economy that was aimed at growing the economy. There was real trouble out there in terms of budget constraints but there was need to do more. Treasury was scrutinising all programmes. She felt it useful to outline this context because she heard statements that Ministers cut budgets – Ministers did not cut budgets.
The Chairperson was sure everyone was aware of the economic outlook and difficulties faced as a country and he would not stop the Minister from attending the launch of the ocean economy. This initiative was something to look forward to for growing the economy.
Ms Stander thought the improvement of the audit report was a direct result of the team under the leadership of the Minister and DG. She appreciated the openness and transparency offered to the Committee and the proactive interventions taken were noted. She appreciated all efforts made within constraints faced. She congratulated the Department on the audit opinion.
Mr Mabilo thought the clean audit opinion was a step in the right direction and the Department was on the right course under the Minister’s leadership. This audit opinion should be sustained as it was a healthy state of affairs. The 30-day notice of payment period was also appreciated.
The Chairperson echoed these sentiments. The Department and Minister were doing a good job as it had been over many years. He was pleased the Department was able to spend what was allocated to them.
The Committee paused for a lunch break.
- PC Environ: DEA & four Entities: SANBI, SAWS, SAN Parks, & iSimangaliso Wetland Park on Audited Financial Statements 1
- PC Environ: Audit Outcomes of DEA & its entities: AGSA briefing; DEA on its 2013/14 Annual Report
- PC Environ: Audit Outcomes of DEA & its entities: AGSA briefing; DEA on its 2013/14 Annual Report 1
- PC Environ: Audit Outcomes of Department of Envionmental Affairs & its entities: AGSA briefing; Department of Environmental 1
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