Competition Tribunal & International Trade Administration Commission (ITAC) on their 2015/16 Annual Performance & Strategic Plans

Meeting report

International Trade Administration Commission (ITAC) on its budget allocations and projections

The Chairperson said that the meeting was a follow up meeting with ITAC on their financials flowing from the last meeting with Members. She stressed the fact that ITAC’s strategic plan was not complete and they needed organisational structure.

Mr Zanoxolo Koyana, Chief Financial Officer, ITAC, said that the strategic plan for 2015 – 2019 had been prepared in line with the National Treasury guidelines, and included the approved 2015/16 budget to finance the programmes and the medium term expenditure framework (MTEF) estimates. There had been improvements in the internal controls and compliance-related matters over the recent past as evidenced by the clean audit that ITAC had obtained for the 2012/13 financial year. Budget management controls were in place. ITAC reported quarterly, including its financials, to the EDD as its parent department, which was a pre-requisite for receiving its quarterly transfers.

He commented that over the past financial years, ITAC had retained surpluses which were used to finance programmes where financial gaps existed, while all the relevant governance structures had been put in place.

On compliance and internal controls, ITAC strived to comply with all applicable regulations governing the operations of public entities. There were policies that guided the activities of the organisation in order to ensure effectiveness of corporate governance strategies in terms of applicable legislation or guidelines. These checklists had been developed to assist in enhancing compliance, and any identified non-compliances were addressed.

ITAC maintained effective internal controls which were designed to ensure that risks were reduced or mitigated to ensure that the organisation was able to meet its objectives. ITAC’s internal control measures included, amongst others, risk management activities, internal audit activities, the relevant committees (Risk and Audit) and other internal governance structures. ITAC had a Risk Management unit which worked closely with the Internal Audit unit in conducting risk assessments. The Audit Committee (AC) met quarterly to discuss finance related matters, risk management, governance and other matters of interest regarding executing its responsibilities, as per the Audit Committee Charter. In the latest annual financial report of ITAC for the period 2013/2014, the Audit Committee expressed its satisfaction that:

• the systems of internal control applied by ITAC over financial risk and risk management was effective, efficient and transparent; and
• It was satisfied with the content and quality of monthly and quarterly reports prepared and issued by the Accounting Authority of ITAC during the year under review.

Mr Koyana said that the budget of ITAC for 2015/ 2016 was R91.2million, of which 77% (R69.8 million) was used to pay salaries, while 23% (R21.8 million) was used for goods and services. ITAC’s funded staff complement was 131, with six vacant positions, excluding 13 contract employees, while the ratio of core business staff to support staff was 69:55. The biggest expenditure items outside of personnel included legal fees and subsistence and travel. The budget had been cut by the National Treasury as part of the government-wide cost cutting measures to address the fiscal challenges. The period affected by the cut on the MTEF were 2015/2016 and 2016/17, but with its positive bank balance, ITAC could still operate. The budget cuts were highlighted in the presentation (see document for full details).

Mr Koyana observed that the surpluses were used to finance where there was a shortfall, and had also been earmarked, among others, for the following: the organisational development, which includes the job evaluation and the organisational structure re-design; training; bursaries; internships; contract employees; and IT expenditure.

In the opinion of the Auditor General, the improvement in internal controls had resulted in ITAC receiving a clean audit opinion for the first time in 2012/13, but in the 2013/14 financial year, ITAC had reverted back to an unqualified audit opinion, with some findings. Going forward, ITAC was striving to regain its clean audit opinion status, and had taken drastic measures to address each audit finding.  

Discussion

Mr I Pikinini (ANC) reminded the Committee of its earlier agreement on wide consultation before the financial plan was prepared. He also sought clarification on the issue of budget surpluses.
He asked for further explanation on the 77% of the budget being spent on salaries. On the issue of legal fees, he wondered why the Commission would put funds aside for something in abeyance, whereas there were issues that needed to be addressed. He advised the Commission to prioritise projects.

Ms C Matsimbi (ANC) noted that there had been significant cuts in the budget of the Commission. She was therefore interested in how those cuts had impacted the work of the Commission. Since the Commission had estimated over and above what it was going to be allocated, she wanted to know how the Commission would be able to solve that dilemma. She also asked for the challenges the Commission was facing in terms of surpluses.

Ms D Rantho (ANC) asked if ITACs salaries depended on the vacancy rate as indicated in their presentation. She wanted to know if for as long as there are vacancies, that is, there are open spaces, for those people and there are no salaries paid to those vacancies, those salaries are diverted to other people in the company.

She also expressed worried that if salaries are given to people that are working and at the end of the day those salaries will need to be decreased, what will happen to the workers and  what impact will it have on the affected members that will get a decrease?

The Chairperson sought for clarifications on the budget complement where the ITAC’s funded staff complement is 131 with 6 vacant positions, excluding 13 contract employees. She asked where people are excluded. Does the Commission exclude from the 131 or do they exclude from the 6 vacancies? She asked the Commission to expand on the ratio as regards their core business. She asked if this is a surplus or under-expenditure.

She engaged the Commission on the fact that if the Commission does not spend money that is intended for something, that particular assignment is not done, that means the Commission has not spent. If the Commission has done the work with less money, then it is a saving which is a surplus. She therefore asked the Commission to elaborate on the issues surrounding surplus versus under-expenditure as done in their presentation.

The Chairperson also sought clarification on the budget in relation to ITAC’s funded staff complement, and asked the Commission to give more details on the ratio of core business staff to support staff. On the legal fees, she asked whether there was a baseline. Strategy had to be derived by coming up with a budget for an estimate on legal fees. She emphasized that the Commission had to exercise some kind of prudence. She asked the Commission to clarify the subsistence and travel expenditure.

She noted that the Commission said its budget had been reduced but looking at the budget, it did not seem like it had been reduced. She thus asked for further explanation. She was worried that the Auditor General (AG) had made some findings and the Commission was not taking them seriously. These were quite substantial. If there was irregular expenditure related to hiring people without proper tax clearance certificates, this was a very serious matter. If the Commission’s Audit Committee said everything was in order and the AG came with this report, there was serious doubt concerning the risk management of your committee.

Response by ITAC

ITAC responded on the effect of budget cuts, saying that there were positive balances from past surpluses which had been rolled over with approval from NT, so that it could execute other programmes. Regarding vacant positions, the post of Deputy Chief Commissioner had been vacant for three years and could not be removed from the budget. Other positions were filled over time.

On the question of whether salaries were dependent on the vacancies, the fact was that ITAC was not diverting the unpaid salaries to other programmes. Salaries represented 77% of the budget, and when vacancies were not filled, this resulted in under-spending. On the surpluses, if ITAC did not spend on the salaries, this was understandable but unfortunately it was not easy to control, because people moved from one organization to another.

On the legal fees, ITAC had to consider the cases that were being conducted and which could take many years. ITAC’s budget had been based on the 6% increment which Treasury had allocated to it. ITAC had escalated the baseline budget from this. It was not sure when the cases would be finalized. It depended on the cases in court, which could take a long time. It had worked with its legal unit to determine the legal fees, which had been based on the baseline.

The issue of subsistence and travel expenditure did not relate to all ITAC employees. They were very insignificant for people who were in support functions, and related more to those people who were executing the core functional items. 

The issue of risk had been discussed in the audit committee, and irregular expenditure had been highlighted in the disclaimer. ITAC had established an action plan, which included measures to ensure compliance with tax clearance requirements. To address the issues raised, staff have had to attend training in order to identify where the problems emanated from, and to implement controls to ensure past mistakes were not repeated.

The Chairperson expressed her disappointment at the poor financial performance of ITAC. The financial input into the strategic plan failed to explain how to realise the entity’s objectives. She was not convinced it had a proper plan in place that would see them through to 2018. It seemed to be confusing issues. ITAC had had surpluses in the past financial years, and Members knew which items had contributed mainly to those surpluses. One of them was the salaries, and ITAC had said salaries were dependent on the vacancy rate. Likewise, the legal fees depended on the cases lodged each financial year. It talked about subsistence and travel expenses in the years when there had been fewer investigations, which meant money was just being allocated without accountability.

The Chairperson maintained the presentation showed that strategic planning had not been taking place. If one could not plan long-term, as the strategic plan required, one could at least have the MTEF, which was the annual plan that would support the entity’s overall strategy. For instance, ITAC had earmarked organizational development, which included job evaluation. This meant money had been earmarked for job evaluation, even though the Commission was saying there had been no clear pronouncement or action from the Department. The redesigned organizational structure was meant to support ITAC’s strategic plan. There were areas that had not yet been designed, such as training, bursaries, and internships.

Though there had been some budget cuts, maybe ITAC needed to provide a letter from Treasury that gave it permission to use the surpluses, because Members needed to understand why permission had been given.

The CFO should look at the issue of redirecting the work of the risk management committee.

Regarding the number of contract employees, what informed the number 13 if it was not part of the whole strategic plan of the Commission? Was this a temporary situation or would it be a recurring expense? ITAC had to go back and re-work the budget because it was not clear.

Competition Tribunal on its Strategic Plan and APP

The Chairperson expressed her disappointment at the inability of the key officers of the Tribunal to attend the initial presentation. It had sent junior officials who could not answer Members’ questions. This showed disrespect for the Committee. 

Mr Norman Manoim, Chairperson of the Competition Tribunal, apologised for his failure to attend the earlier presentation.

Ms Lerato Motaung, Head of Registry, said this was a continuation of an earlier presentation by the Tribunal, and summarised the presentation that had been made earlier on the strategic objectives. She said the first goal was to ensure effective and efficient adjudication on matters brought before the Tribunal. The strategic objectives, outcomes, KPI and targets set for 2015/2016, were highlighted in the presentation. The second goal was to build and develop effective stakeholder relationships, while the third goal was to ensure effective leadership, transparency and accountability in the Tribunal through capacity building, effective reporting, policy management and financial compliance. (See document for full details).

Mr Manoim presented the challenges facing the Tribunal. These were basically funding, office space and the appointment of Tribunal members.

He explained why budgeting in the Tribunal was difficult. The Tribunal was an adjudicative system. Looking at the work it did, it was not a proactive department, which meant that it did not determine the number of cases to adjudicate per year. The volume of cases depended on the Competition Commission and the private sector that brought the cases. Its case load fluctuated, but had also increased over time.
The volatility in the number cases brought showed that the Tribunal did not decide which cases were brought before them. While in some quarters there had been an upsurge in the number of cases brought, in other areas there had been a decline. This volatility made budgeting problematic because the variable cost was dependent on the amount of work done. For this reason, most budget forecasting could not be used to plan for the future. However, the overall total budget was not very large. It was not a big tribunal, so the volatility was reasonable.

He said there were two sources of income -- a government grant and merger filing fees. Expenditure had been increasing constantly and income had been volatile. The presentation also showed the amount of money requested from National Treasury over the years and the amount actually received (see document for full details). The Tribunal had asked for more money because it had been under-funded over time. Furthermore, there had been an Increase in the size and activity of the Tribunal over 15 years. As the years of reliance on retained surpluses were coming to an end, there was more reliance on grant allocation.

The Tribunal had submitted a revised request for funding in July 2014. In March 2015, the Tribunal had had to re-do its budget. At that time, it was urgently required to prepare a budget that excluded a deficit. This budget was contained in an approved APP and was referred to as a “slash and burn” budget. In March 2015, a letter had been sent to the Director General of the EDD requesting approval for the revised budget. It had been necessary to prepare a revised budget, because in March 2015 there had been evidence that the Tribunal had received filing fees in excess of its budget.

He also made reference to two other major challenges affecting the operations of the Tribunal. These were office space and rental. To get around the office space problem, the Tribunal had made five single offices become offices for two people. It had also created five work areas in passage spaces and encouraged full-time staff to work from home so that they would not disturb each other.

Another issue was that there had been two vacancies for part-time Tribunal members since 31 July 2014, when the term of office for the position of seven members had expired. The President had appointed five members, and this was two members short of what the Tribunal needed. The Tribunal had been asking for those positions to be filled. The Minister had felt he needed more time to consider two new people.

Discussion

Mr P Atkinson (DA) asked for clarity as to how many part-time and full-time members worked in the Tribunal at the moment.

The Chairperson expressed her confusion over the mission statement of the Tribunal. The mission of the Tribunal was to develop credible competition law and an effective structure for administering the law, so she asked if developing the law was not the Minister’s responsibility.

She asked what the AG was saying about the challenges surrounding funding. The AG should be able to assist in terms of how best the Tribunal could budget properly so that there would not be a problem of non-compliance. She wanted to know whether the Tribunal could project the number of cases it was going to hear. Did the Tribunal get an indication from the market about what would be coming in the next financial year? She noted that the procedural matters were fluctuating, and asked whether this was the reason why the Tribunal was talking about unpredictable market issues?

She sought for clarity on the budget, especially what the Minister was saying concerning the re-drafting of the Tribunal’s budget. The Treasury had said the Tribunal should engage with the Department so that it could finance its shortfall in 2017. Would the Tribunal be able to finance its R9.5 million shortfall? How much would the contribution from the Department be in respect of the Tribunal’s rental query?

She expressed concern over the issue of office space. She recalled that the Department had earlier informed the Committee that it had acquired more office space for the Department and its agencies. However, in the Tribunal presentation, she had been surprised to learn that people were sharing offices. People’s morale would be down. She emphasised that it was not right to squeeze people into offices.

If people were to work from home, what did it mean to the Tribunal and government, especially with regard to documents and security? Whatever documents they took home, would they be accounted for?

Tribunal’s Response

The Tribunal responded that it had grown from having three full-time, to four full-time, members. However, there was a deficit of two part-time members. The difference between full and part-time members was in the remuneration -- the full-time members were paid salaries, and the part time members were paid only for the work done. If they did not work, they were not paid. The Tribunal had historically increased the number of full-time members as the work increased.       

On developing credible competition law, the Tribunal did not change statutes but interpreted them. Statutes gave room for interpretation and the Tribunal had to interpret them. The Tribunal was an adjudicative body. In interpreting the law, the Tribunal created precedents in law.

The discussion with the Minister was about what the Tribunal needed from the Treasury. The discussions had not yet been concluded. The Tribunal would inform the Committee if its input was needed in this regard.

On the budgeting issue, as regards rent, the Tribunal had asked the DTI for an explanation on what made up the R290 per m² revised rental, but nothing had been heard from them. It was an ongoing process. The DTI had also wanted the Tribunal to sign a memorandum of agreement on the rental. The Tribunal was of the opinion that a 10% per annum increase was higher than the market value increase for rent. This also included other items, like security and parking. 

The AG had raised some issues on the Tribunal’s budgeting. The Tribunal did not use experts and incur legal fees. One of the advantages of the new electronic system was to see every year how many days were spent in hearings and how for long the hearings took place. The Tribunal did get some ideas, so when it budgeted it got the hearing dates and was able to make some predictions on that basis. 

The consulting fees were for experts the Tribunal employed for policy development and risk management. The fees were small. They also included situations where the Tribunal got software and needed technical consultants to assist. The Tribunal had tried to cut back on consulting quite substantially, and that had become easier now that it had increased its staff size. Compliance required outside intervention, but it was a small portion of the Tribunal’s budget.

The meeting was adjourned.