Audit outcomes of Department of Tourism: AGSA briefing; FFC on its recommendations related to tourism; 3rd Term Committee Programme

Tourism

17 October 2014
Chairperson: Ms P Adams (ANC) (Acting)
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Meeting Summary

The Auditor General SA briefed the Committee on the 2013/14 audit outcomes of the National Department of Tourism (NDT). In 2013/14 the NDT had obtained a clean audit outcome with no findings on predetermined objectives and compliance. SA Tourism had received an unqualified audit outcome with findings on predetermined objectives and compliance. On supply chain management all was good with the NDT. It was an area of concern to SA Tourism as a contract was awarded to a close family member of a person employed by SA Tourism however the person did not recuse himself from the procurement process. On predetermined objectives both the NDT and SA Tourism had material misstatements in their annual performance reports submitted for auditing on reported performance information. These were subsequently corrected. On Information Technology Controls there were concerns for both the NDT and SA Tourism. The NDT had issues pertaining to user access management and programme change management. SA Tourism had issues with security management. On leadership and governance the NDT had no issues. On financial and performance management there were concerns with processing and reconciling controls, reporting and IT systems controls. SA Tourism was good on governance and leadership but there were concerns around policies and procedures and action plans. On financial and performance management SA Tourism had concerns around reporting, compliance and IT systems controls. Other matters of interest were that both the NDT and SA Tourism had fruitless and wasteful expenditure as well as irregular expenditure.

The Committee was to be updated on the controls being implemented by both the NDT and SA Tourism to address the misstatements in the predetermined objectives.

The Financial Fiscal Commission briefed the Committee on its recommendations related to tourism. The Committee was provided with specifics on tourism trends. Total contribution to Gross Domestic Product (GDP) in 2013 was R323bn. Domestic expenditure on tourism showed the fastest growth at 4% per annum. Infrastructure investment in tourism had fallen from 2008-2013 largely from a slowdown in the local economy. Tourism was a labour intensive sector and a significant contributor to total employment at 12% in 2013. Policy considerations included the National Development Plan (NDP) which had a target of creating 225 000 jobs by 2020. The New Growth Path also had a target of creating 225 000 jobs but by 2015. A financial analysis of the NDT was provided to the Committee. Average departmental spending increased in real terms by 2.2% per annum compared to 4.9% over the Medium Term Expenditure Framework (MTEF). The Domestic Tourism Programme was the major cost driver over the MTEF as a result of a new tourism incentive programme to support Small Medium Micro Enterprises (SMMEs) and social responsibility programme to create jobs through the Expanded Public Works Programme grant. Total spending performance by the NDT had improved from 97% of the total budget in 2010/11 to 99% in 2013/14. A summarisation of the financial assessment showed that the NDT was doing well to achieve a high rate of its targets and spending was in line with its budget. The biggest challenge to the NDT was to get value for money for funds disbursed. There was a possible overlap of responsibilities between the NDT and SA Tourism on the marketing of SA internationally. The NDT was less likely to receive a major unconditional cash injection. On the achievement of performance targets the NDT had met or exceeded 88% of its targets in 2013/14.

In conclusion the briefing spoke to recommendations made by the FFC. On unemployment and job creation the FFC recommended that government should redirect government spending towards activities that directly or indirectly create jobs through enhancing productivity performance. Activities such as health care, durable goods manufacturing, agriculture, community services, and hospitality and food service should also form the basis of much of the expanded infrastructure expenditure plan which traditionally have gone chiefly to construction activities like the building of bridges and roads. In response to the recommendation government’s response was that it already had several job creation initiatives. Another recommendation related to the EPWP (2009/10) and stated that in accordance with the prescripts of the EPWP, job creation target groups such as women, youth and people with disabilities should be included in the reporting of the outcomes measures. Government’s response was that it supported the recommendation. 

Members asked whether the FFC had done on impact study of the new visa regulations on the tourism sector. A Member of the DA, as in other meetings, reiterated the importance of SA moving towards the use of electronic visas as other countries like Zambia and India had or will be doing. Concerns were raised about forensic investigations that were taking place on Social Responsibility Implementation (SRI) projects. SRI projects were intended to assist rural communities. Discrepancies in domestic tourism figures and internal tourist figures as contained in the Annual Reports of the NDT and SA Tourism were highlighted. The Committee requested that the figures be checked. Greater detail was also requested regarding the recommendations that the FFC made on tourism. On unemployment and job creation recommendations made by the FFC, it stated that government’s response was that it already had job creation initiatives. It was felt that the response given by government was not good enough. Specifics on the job creation initiatives were needed. Questions were asked about how transfers were made to entities and whether monitoring took place.

The Draft Third Term Committee Programme was adopted unamended. Committee Minutes dated the 19 September 2014 was also adopted unamended. 

Meeting report

In the absence of the Committee Chairperson Ms B Ngcobo (ANC), the Committee elected Ms P Adams (ANC) as Acting Chairperson.
The Committee agreed that the briefings would follow one another where after members would be given the opportunity to engage with the presenters.

Briefing by the Auditor General SA (AGSA)    
The Office of the Auditor General SA briefed the Committee on the 2013/14 audit outcomes of the National Department of Tourism (NDT). The delegation comprised of Mr Thami Zikode, an AGSA Business Executive, Ms Maryann Whitford, an AGSA Senior Manager and Mr George Wolfaardt an AGSA Manager.

The Acting Chairperson informed everyone present that the NDT had received a clean audit opinion for 2013/14. It was one of the 13 out of a total of 41 state entities that had received the opinion. The NDT was the only national department that had received the award.

Mr Zikode said the AGSA in total audited 41 government departments and its entities. Only two government departments and 11 entities had received clean audits. He noted that the purpose of the awards was to encourage departments and entities to aspire to clean audits. Many departments and entities were aspiring towards this goal.

Ms Whitford did the presentation. In 2013/14 the NDT had obtained a clean audit outcome with no findings on predetermined objectives and compliance. SA Tourism had received an unqualified audit outcome with findings on predetermined objectives and compliance. On supply chain management all was good with the NDT. It was an area of concern to SA Tourism as a contract was awarded to a close family member of a person employed by SA Tourism however the person did not recuse himself from the procurement process. On predetermined objectives both the NDT and SA Tourism had material misstatements in their annual performance reports submitted for auditing on reported performance information. These were subsequently corrected. On Information Technology Controls there were concerns for both the NDT and SA Tourism. The NDT had issues pertaining to user access management and programme change management. SA Tourism had issues with security management.

On leadership and governance the NDT had no issues. On financial and performance management there were concerns with processing and reconciling controls, reporting and IT systems controls. SA Tourism was good on governance and leadership but there were concerns around policies and procedures and action plans. On financial and performance management SA Tourism had concerns around reporting, compliance and IT systems controls. Other matters of interest were that both the NDT and SA Tourism had fruitless and wasteful expenditure as well as irregular expenditure.

The Committee was to be updated on the controls being implemented by both the NDT and SA Tourism to address the misstatements in the predetermined objectives.

Briefing by the Financial Fiscal Commission (FFC)
The Financial Fiscal Commission briefed the Committee on its recommendations related to tourism.
The delegation comprised of Mr Bongani Khumalo, FFC Acting Chairperson and Chief Executive, Mr Ghalieb Dawood, FFC Program Manager and Mr Ramos Mabugu, FFC Head of Research. 

Mr Khumalo spoke on the role of the FFC and its mandate.

Mr Dawood continued with specifics on tourism trends. Total contribution to Gross Domestic Product (GDP) in 2013 was R323bn. Domestic expenditure on tourism showed the fastest growth at 4% per annum. Infrastructure investment in tourism had fallen from 2008-2013 largely from a slowdown in the local economy. Tourism was a labour intensive sector and a significant contributor to total employment at 12% in 2013. Policy considerations included the National Development Plan (NDP) which had a target of creating 225 000 jobs by 2020. The New Growth Path also had a target of creating 225 000 jobs but by 2015. A NDT financial analysis was provided to the Committee. Average departmental spending increased in real terms by 2.2% per annum compared to 4.9% over the Medium Term Expenditure Framework (MTEF). 

The major Programme cost drivers for the period 2009/10-2013/14 was Administration as a result of the filling of vacant posts and International Relations from the increased implementation of bilateral and multilateral engagements. The Domestic Tourism Programme was the major cost driver over the MTEF as a result of a new tourism incentive programme to support Small Medium Micro Enterprises (SMMEs) and social responsibility programme to create jobs through the Expanded Public Works Programme grant. Total spending performance by the NDT had improved from 97% of the total budget in 2010/11 to 99% in 2013/14. Specifics on expenditure patterns of the Programmes of the NDT were also provided. A summarisation of the financial assessment showed that the NDT was doing well to achieve a high rate of its targets and spending was in line with its budget. The biggest challenge to the NDT was to get value for money for funds disbursed. There was a possible overlap of responsibilities between the NDT and SA Tourism on the marketing of SA internationally. The NDT was less likely to receive a major unconditional cash injection. On the achievement of performance targets the NDT had met or exceeded 88% of its targets in 2013/14. Public entities to which transfers took place were SA Tourism and Eastern Cape Parks and Tourism Agency. Both entities spent their full allocations.

Mr Mabugu spoke to the recommendations made by the FFC. On unemployment and job creation the FFC recommended that government should redirect government spending towards activities that directly or indirectly create jobs through enhancing productivity performance. Activities such as health care, durable goods manufacturing, agriculture, community services, and hospitality and food service should also form the basis of much of the expanded infrastructure expenditure plan which traditionally had gone chiefly to construction activities like the building of bridges and roads. In response to the recommendation government’s response was that it already had number job creation initiatives. Another recommendation related to the EPWP (2009/10) and stated that in accordance with the prescripts of the EPWP, job creation target groups such as women, youth and people with disabilities should be included in the reporting of the outcomes measures. Government’s response was that it supported the recommendation.  

Discussion
Mr J Vos (DA) pointed out that the new visa regulations would also impact upon tourism. In 2011/12 the FFC had stated that the NDT would not meet its targets. He noted that the NDT had not done an impact study on the new visa regulations. Did the FFC factor in the new visa regulations into its projections? He informed everyone that Virgin Airlines had stopped it flights to Cape Town. The tourism value chain was huge. He felt that the impact of the new visa regulations should have been captured in the FFC briefing. He felt that SA needed to go the route of electronic visas. Zambia already had electronic visas and India would have them by 2015. In 2013 the then Minister of Tourism Mr Marthinus van Schalkwyk had said electronic visas was the way to go.
He pointed out that on Social Responsibility Implementation (SRI) projects R53m had not been spent. The SRI projects were supposed to assist rural communities. Since 2011 there were forensic investigations. He noted that there was a serious discrepancy on domestic tourism figures in the Annual Report of the NDT and the Annual Report of SA Tourism.

Mr Khumalo replied that the issue of the visa regulations was a government policy issue. The FFC was aware that there was an outcry about it. Conversation over the issue was needed. He conceded that it would have an impact on tourism. A discussion was needed between the Department of Home Affairs and departments that would be affected by the visa regulations. It had to be remembered that there were genuine issues which the visa regulations aimed to address. If the visa regulations had unintended consequences then there was a need for discussion. The FFC had not done an impact study of the visa regulations. There was still uncertainty over what the final outcome would still be. The FFC was aware that there were unintended consequences.

Mr Dawood referred to domestic tourism figures and stated that there were two sources, the first was StatsSA and the second was the World Travel and Tourism Council. He noted that there were occasions where different institutions used different methodologies. In many cases government documents did not state the source or the methodology used.

Mr Mabugu spoke to the importance of the domestic component of tourism. When there was a depreciation of the rand not only did it attract more tourists to come to SA but it also made foreign tourism more expensive for South Africans. Hence South Africans would opt to visit local tourist sites. It therefore became apparent that rand depreciation could have a positive effect on domestic tourism. He conceded that the FFC had not looked at SRI projects as a standalone. If the Committee strongly felt that there was issues relating to SRI projects which the FFC should look at then it would be done.  The FFC could then brief the Committee on what their research had shown.

Ms Whitford from the Office of the AGSA referring to the discrepancy in domestic tourism figures as reflected in the Annual Report of the NDT and the Annual Report of SA Tourism said she would check up on it. Once checked she would report back to the Committee.

Mr A Whitfield (DA) asked whether there was a more detailed document which contained detailed recommendations made by the FFC. Could it be made available to the Committee? Relating to policy considerations when an analysis was done was the National Development Plan (NDP) or the New Growth Path (NGP) taken into consideration. On unemployment and job creation recommendations made by the FFC, it stated that government’s response was that it had done enough on it in that it already had job creation initiatives. He did not feel that it was a good enough response by government. Specifics were needed on the job creation initiatives. What could be done to increase productivity?

Mr Khumalo said the FFC wished there to be a conversation between parliament and the Executive. He agreed that the response from government sounded benign. It was an issue that needed looking into. Detail was needed on what government had done. He would try to engage with National Treasury over the matter. The job of the FFC was to empower parliament. When the FFC made recommendations it was made available to all committees of parliament, Ministers, Director Generals and was even made available at provincial and local level. On the issue of the NGP versus the NDP he said before the NDP was adopted the FFC used both the NGP and the NDP. The guiding principle was alignment with NDP objectives. He agreed to forward a more detailed document to the Committee.

Mr Mabugu said there were three sets of documents relating to the recommendations. The first was a policy brief document which was a one or two page document. The second document was a submission document which contained recommendations and thirdly there was a technical report on the recommendations. All these documents could be made available to the Committee.

Ms E Masehela (ANC) asked whether adverse findings and disclaimers formed part of the same thing. How were transfers done to entities? Was it done well enough and how was it monitored?

Ms Whitford referring to adverse findings and disclaimers said when it related to an unqualified outcome financial statements were found to be accurate and there were no material adjustments. The statements were a true reflection of the state of affairs. The AGSA audited on a sample basis. When an outcome was qualified there were three types to consider. The first was where there was a qualification on an aspect like assets. The second type of qualified outcome could have adverse findings attached to it. This meant that financial statements had too many errors on it but it could be corrected. The third type of qualified outcome could have a disclaimer attached to it. This meant that the AGSA had requested documents but had not received it. There could be no findings but if there were findings the AGSA looked at compliance issues such as compliance with regulations etc.

She explained that transfer payments were made and monitored. For the NDT there were three areas of transfers. The first was to SA Tourism, the second to the Eastern Cape and the third to Expanded Public Works Programme projects (EPWP). She added that transfer criteria needed to be considered. SA Tourism had to show that funds were correctly used.  EPWP projects were crucial. There was a great deal of forensic investigations however taking place. There was an upfront payment initially on EPWP projects. Thereafter project plans needed to be submitted. There were criteria which needed to be implemented. When projects like the building of bridges and houses were not done then forensic investigations were done and thereafter it could lead to criminal investigations. The NDT used engineers to assess projects. The AGSA did site visits and looked at audit reports and criteria that needed to be met.

Mr G Krumbock (DA) pointed out that there was once again no correlation between the annual reports of the NDT and SA Tourism on the 12m figure for internal tourists. He asked whether there was something he was missing. He also did not understand how funds could be paid up front on EPWP projects. In many instances no work was done. No houses or bridges were built. It was beyond him how money could be paid before any work was done.

Mr Whitford explained that in the private sector money was not paid upfront. It was a social initiative that was started by government to empower people and to create jobs. The individuals did not have initial funding to start projects. She noted that the NDT could elaborate on the issue.

Adoption of Draft Third Term Committee Programme
The Committee Programme was adopted unamended.

Adoption of Committee Minutes
Committee Minutes dated the 19 September 2014 was adopted unamended.

The meeting was adjourned.

 

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