The Auditor General of South Africa (AGSA) reported to the Portfolio Committee on the audit outcomes of the Department of Mineral Resources (DMR) for the 2014/2015 financial year. The Committee’s Researcher briefed it on his analysis of the DMR’s annual report, after which the Department and the Mine Health and Safety Council (MHSC) also briefed the Committee on their 2014/15 annual reports.
AGSA reported that in general, the Department had no disclaimers or adverse opinions, but there were unqualified audits, meaning that although its financial performance was good, there were still weaknesses in terms of either compliance with laws or regulations, or the performance management. The unqualified audits were as a result of irregular expenditure in the DMR, the MHSC, MINTEK and the Council for GeoScience (GGS).
The major challenges in the DMR were that there was a slow response by management in addressing the root causes of poor audit outcomes, key officials lacked appropriate competencies and there was instability because of vacancies in key positions. AGSA recommended that management should timeously implement the action plans to address all the issues that had been raised during the audit process, as this would enable entities to have enough time to appropriately address them. It also recommended that assessments should be conducted timeously in order to identify deficiencies, and these should be promptly addressed through training courses and on the job training. In addition, it emphasised that management should strive to fill critical positions timeously and where entities battled to fill those vacancies, assistance from the executive authority should always be requested.
The Committee sought clarity on the role of internal audit in the departments, as they felt that the internal audit processes should trigger actions to be taken internally even before the AGSA made its findings or recommendations for those actions. Other questions related to the action which should be taken against people implicated in irregular expenditure, the procedure for retrieving the money and the penalties given to the culprits. Some Members were concerned about the AGSA findings, since they revealed that there were people who were occupying positions which they were not competent to occupy.
The Committee Researcher said the DMR had achieved 90 percent of its performance targets. The general concerns of the Department were the need for policy clarity on how mining legislation would be used to promote mineral beneficiation, the difficulty of amending the laws that regulated the mining industry, and harmonising the compensation laws with other laws in South Africa.
DMR reported that commodity prices had been fluctuating, resulting in mineral and petroleum royalties for the first quarter of the 2015/16 fiscal year dropping to 49.2 percent lower than for the same quarter in 2014/15. Due to the depressed nature of commodity prices, coupled with large scale retrenchments, there was a need for an intervention by DMR to design a plan to counter the possibility of future job losses.
The Mine Health and Safety Council reported that both its strategic objectives of a general improvement in research spending and overall usage of its financial resources had been achieved. However, an area of concern was that the failure to declare a conflict of interest by a bid committee member that had resulted in the MHSC incurring an audit finding of irregular expenditure. An investigation into this matter was currently under way.
Committee Members questioned the high vacancy rate in the DMR, as it was five percent higher than the average for national departments. They asked why some of the most critical positions had not been filled. The causes and effects of fluctuating commodity prices on the mining industry were discussed, while there was criticism that R200 million was being held by the DMR as reserves, and not being used to finance its activities and challenges.
The Chairperson noted the absence of most Committee members, and welcomed Mr Mosebenzi Zwane, Minister of Mineral Resources, warning him that as the new Minister, he was likely to be measured against his predecessor’s accomplishments and strengths. However, he urged him to take courage as he had the Committee’s support.
Apologies from Mr J Lorimer (DA), Mr J Malema (EFF), M. J Esterhuizen (DA) and Mr S Jafta (AIC) were noted.
Auditor General: Audit outcomes of Mineral Resources portfolio for 2014/15
Mr Barry Wheeler, Corporate Executive, Audit: Auditor General South Africa (AGSA), said that in general, the Department had no disclaimers or adverse opinions, but there had been unqualified audits, meaning that the financial performance of the Department was good even though there were still weaknesses in terms of either compliance with laws or regulations, or the performance management. However, the portfolio was doing well overall, and ought to improve to get clean audits.
Mr Steven Maluleke, Audit Manager: AGSA, said that the overall audit outcomes for the Mineral Resources portfolio had resulted in six clean auditees. AGSA had six focus areas -- quality of submitted financial statements, quality of submitted performance reports, compliance with legislation, financial health, human resource management and information technology. Among these factors, most auditees had not complied with the legislation, and there had been irregular expenditure of R2.7 million on the part of the Department of Mineral Resources (DMR), the Mine Health and Safety Council (MHSC) and the Council for Geoscience (CGS).
The DMR irregular expenditure related to instances where the preference point system was not used, and the contract had ended up being evaluated on functionality only and not evaluated on price. There had also been quotations and contracts which had been awarded to bidders who had not submitted the declaration of independence forms. The CGS’s irregular expenditure related to goods which had been procured without quotations and contracts which had been awarded to the bidder who had not scored the highest points. The MHSC’s irregular expenditure concerned the non-declaration of a conflict of interest by a bidder who had a relationship with someone who was involved in the contract which had been awarded.
MINTEK had also had irregular expenditure of R9.6 million. This was related to the issue of a tax clearance certificate which was valid during the process and during the evaluation of the contract, but had later expired by the date when the contract was awarded. The supplier did obtain a valid certificate upon supplying the goods, however, and as such this irregular expenditure had been condoned. However, with regard to the R2.7 million in irregular expenditure by the DMR, MHSC and CGS, current investigations were being carried out by the three institutions to determine whether anyone was liable for any of those amounts.
He explained that irregular expenditure was expenditure incurred in contravention of key legislation whilst fruitless and wasteful expenditure was expenditure that should not have been incurred or incurred in vain in circumstances that could have been avoided and not value for money.
He then referred to the 2013/14 year, when there had been an irregular expenditure of R5.1 million, with R4.8 million relating to the CGS where tenders had not been advertised for 21 days and adjudication and evaluation criteria had not been stated on the bidding documents. This had resulted in the expulsion of the Head of Supply chain. There had also been R2.1million in irregular expenditure relating to the DMR and MINTEK which had been condoned, and verbal warnings had been given.
There had also been R353 000 identified as fruitless and wasteful expenditure on the part of the MHSC, some of which had been recovered from the individuals responsible.
He concluded by stating that overall, there had been a slow response by management in addressing the root causes of poor audit outcomes, key officials lacked appropriate competencies and there was instability or vacancies in key positions. He recommended that management should timeously implement the action plans to address all the issues that had been raised during the audit process, as this would enable entities to have enough time to appropriately address all the issues raised. He recommended that assessment should be conducted timeously in order to identify deficiencies which should be promptly addressed through training courses and on the job training. In addition, he emphasised that management should strive to fill critical positions timeously and where entities battled to fill these vacancies, assistance from the executive authority should always be requested.
Mr Z Mandela (ANC) sought clarity on the action which would be taken against the people implicated in irregular expenditure, and the processes that had to take place where one was implicated in fruitless and wasteful expenditure. How was the money accounted for by the culprit? More specifically, even where monies were retrieved, there was no clarity as to how much was retrieved and the relevant penalties given to the culprits.
Mr I Pikinini (ANC) asked about the role of internal audit in departments. He felt that action should be taken even before AGSA made its findings. There should not be a repeat of findings in departments, as there were internal control systems which were in place to deal with irregular and fruitless expenditure.
The Chairperson also sought clarity on the difference between competence and educational qualifications, as it appeared from the presentation that there were people who were occupying positions which they had no competence to occupy.
Ms Zolisa Zwakala, Business Executive: AGSA, responded to the question of measures taken when irregular expenditure was discovered, saying that individual entities needed to conduct investigations to determine whether there was gross negligence, and thereafter take appropriate measures in law.
She then noted the comment made by Mr I Pikinini (ANC) that management must monitor on an ongoing basis, issues of compliance in their entities. The internal audit committee also needed to play its role to ensure that internal control systems were implemented.
On the question of competence, she acknowledged that this was a big problem in all government entities and that therefore a technical definition of what constituted competence was needed.
Mr Wheeler responded to the question of lack of consequences in terms of the maladministration of funds. He said that a distinction had to be drawn between criminal negligence -- where a criminal case would be instituted against the perpetrator -- and negligence, which required the intervention of the accounting officer to deal with measures against the negligent individual. He said that the risk management committee and internal audit unit had a big role to play in helping management to comply with laws and regulations.
Analysis of DMR’s 2014/15 Annual Report
Dr Martin Nicol, Researcher for the Portfolio Committee on Mineral Resources, said his presentation was based on the strategic plan which the Department had presented in 2014 and on the budget, focusing on whether the promises that the Department had made had been represented in the annual report.
Department had achieved 90 percent of its performance targets in the year 2014. Among these achievements had been the gazetting of the shale gas regulations, the lowest mining fatalities in a year and the hosting of the tripartite summit which had promoted ‘Zero Harm’ in mining. However, these performance achievements and improvements in the 2014/15 Annual Report were overshadowed by a serious lack of progress on matters of legislation and policy, coupled with a high level of vacancies in the Department, which had been unable to retain skilled staff, particularly inspectors.
He emphasised that the general concerns of the Department had been the policy clarity on how mining legislation would be used to promote mineral beneficiation, the difficulties of amending the laws that regulated the mining industry, and harmonising the compensation laws with the other laws in South Africa. There was a need for an annual report from the Environmental Mineral Resources Inspectorate.
Mr Mandela (ANC) sought clarity on the issue of ‘surplus’ -- whether ‘surplus’ was actual money to be spent, or saved.
Dr Nicol said that the industry had an obligation to pay levies on health and safety issues, but it saved the surplus instead of spending it on health and safety issues.
Department of Mineral Resources 2014/15 Annual Report
Minister’s introductory remarks
Mr Zwane, Minister of Mineral Resources, expressed his appreciation to the Chairperson, the National Union of Mineworkers (NUM) officials who were present at the meeting, DMR officials and especially his predecessor, for the good audit outcomes of the Department. The report of Dr Nicol on the annual report had identified pertinent issues which needed consideration by the Department, and he promised that they would be dealt with accordingly. The undertakings of his predecessor would still be carried out during his reign, and even the challenges that his predecessor faced would be dealt with. Overall, the mineral sector was facing challenges of fluctuating commodity prices and the strikes which had clouded the sector in the previous years. He pleaded for a collaborative effort in growing the sector and ensuring that the workers were safe in their workplace and that the laws and regulations were obeyed by all the relevant players in the sector.
Dr Thibedi Ramontja, Director General: DMR, gave an overview of the current status of the mining industry. There had been a sustained increase in commodity prices from 2005 up until 2012, but since then the prices of key commodities had been declining. After 2008, the mining tax revenue had been fluctuating, resulting in mineral and petroleum royalties for the first quarter of the 2015/16 fiscal year being R1.4 billion, which was 49.2 percent lower than the same quarter in 2014/15.
The revenue collection of the Department had amounted to R46.2 million against the estimated R45.1 million for the 2014/15 financial year, whilst the overall expenditure was R1.475 billion. He pointed out that the Department had improved from last year in terms of money surrendered by the Department to the National Treasury, with an amount of R384 000 surrendered in 2014/15.
In terms of the Department’s corporate services, it had launched the DMR and SASOL Artisan Learnership Project in Secunda, and launched and awarded certificates to the women-led cooperative in Kathu, in the Northern Cape. However, their corporate services challenges were the retaining of the requisite skills, while their employment equity targets for designated groups had still not been met.
Mr David Msiza, Chief Inspector of Mines, reported on the Mine Health and Safety achievements and challenges. There had been a 26 percent improvement in all fatalities -- from 96 in 2013/14, to 71 in 2014/15 -- this being the lowest level of fatalities and injuries ever recorded. Occupational diseases had also declined in the coal and gold sectors by 17 percent and 15 percent respectively. Collaboration with the respective mining companies and the Ekurhuleni Metropolitan Municipality, had led to the successful rehabilitation of Bleksbokspruit, which had consequently curbed the illegal mining activities which were taking place in that area. The DMR, in partnership with the relevant stakeholders, had further ensured that the Durban Roodepoort Deep Dam was rehabilitated, and that rehabilitation was also in progress at Goudrand in the West Rand. The Department had collaborated with the Council for Geoscience (CGS) and mining companies to sell open shafts and holes, which had consequently resulted in about 200 workers being employed during the sealing of shafts and open holes by the CGS.
Dr Ramontja continued with the report, highlighting the mineral regulation achievements. He said that 263 consultations and engagements with communities had been held to resolve matters between mining companies and their stakeholders, including the communities, whilst 133 social and labour plans’ development projects had been implemented as part of job creation.
In the area of monitoring and enforcing compliance, 2 897 inspections had been carried out during the year, while training on air quality and waste management, and environmental mineral resource inspections, had been provided to 77 officials.
He concluded by stating that due to the depressed nature of commodity prices, coupled with large scale retrenchments, a need arose for an intervention to be made, to design a plan for jobs. On the basis of the latter, he stated that a mining industry leadership stakeholder meeting was convened to develop and adopt a Declaration on Saving jobs which was signed on 31st of August 2015. This Declaration, he said, has also been developed with clear timeframes and implementation plan.
Mine Health and Safety Council Annual Report 2014/15
Mr Thabo Dube, Chief Executive Officer: Mine Health and Safety Council (MHSC), reported on the Council’s financial performance overview and the audit report findings. With regard to the financial sustainability of the organisation and the utilisation of financial resources, both the strategic objectives of a general improvement in research spending and overall usage of financial resources had been achieved. However, an area of concern was that there had been a failure to declare a conflict of interest by a bid committee member, which had consequently resulted in the MHSC incurring irregular expenditure. An investigation into this matter was currently under way.
In terms of their research outcomes achievements, research into measuring surface noise levels and developing underground equivalent noise levels by instilling silencers, had been completed. In addressing the safety and security challenges impacting on women, the organisation had launched promotional material for the prevention of sexual harassment at the mines
Regarding the organisation’s performance on customer and stakeholder perspectives, the MHSC had been able to host the 2014 Mine Occupational Health and Safety Summit, Safety Commemoration Day, the Coal Safe Conference, the mining lekgotla, the mning indaba and other consultative and awareness conferences. The New Summit milestones for the organisation had clear targets, action plans and implementation activities, including the elimination of fatalities by 2020, the elimination of equipment noise levels by 2024 and the reduction of TB and HIV/AIDS infections by 2024, including targeting a lower TB incidence rate than the national rate.
Ms M Mafolo (ANC) said that the according to the research done by Dr Nicol, the vacancy rate in all the national departments was at nine percent, while the vacancy rate for the DMR was at 14 percent, and she sought clarity on the differing vacancy rates. Why had the critical position in supply chain management not been filled till then?
Mr Pikinini enquired about the causes and effects of fluctuating commodity prices, and whether they were warnings of a crisis and if they were, what the MDR’s plan was to prevent job losses in cases where they could be affected. He pointed out Dr Nicol had said that about R200 million was not being utilised by the DMR, and if that was the case, what were the DMR’s intentions with those funds? He also asked why the preference point system was not being fully applied by the Department. He also pointed out that there had been no clarification about shale gas in the presentation.
The Chairperson said that he was aware that the MHSC had not received a clean audit because there had been no declaration of a conflict of interest, and that they had also conducted an investigation into the matter. Nonetheless, the Auditor General had still found the Department to be non-compliant after having conducted such an investigation. He was of the opinion that the MHSC could not have been aware that the official concerned could have had a conflict of interest, and therefore felt that the Auditor General’s finding had erred in this instance, as an investigation had been conducted thereafter.
In a nutshell, the DMR’s presentation had not expressly specified the action that it wanted from the Committee. He did not understand why the Department had kept R200 million in reserves when they had so many activities and shortages of inspectors. He felt that there could be no justification for this.
Dr Ramontja replied to the issue of the high vacancy rates in DMR, explaining that it had been caused by the high turnover rate which they had experienced in the Department, coupled with the challenge of recruiting the right candidates for the vacant positions. An example was the position of Chief Director of Internal Audit, with most candidates declining the offer at the last minute, although the matter had since been finalised. On the question of the position in supply chain management, he said that the recruitment process had been completed and the position would be filled.
On the issue of commodity prices, he said that they were inextricably linked to the economic situation in the world, which was currently depressed. He referred to China, where the demand for the commodities had decreased dramatically, and therefore recommended that there needed to be beneficiation, and that South Africa had to consider exporting finished materials rather raw materials. This would diversify the country’s products and lead to growth.
Regarding the potential for job losses, he said that the same issue had been deliberated upon by the former Minister and the Department, looking at possible ways of ensuring that there was a safety net for those who could be affected. The rehabilitation of mines had come up as a viable solution to this issue. He emphasised that productivity in the mines was critical, and to this effect there was a task team to address the issue of job losses in the country. He mentioned that the Mining Phakisa which was under way would help in resolving most of the pertinent and crucial issues in mining.
He praised the Department for having surrendered only R300 million to the National Treasury, as it showed improvement in managing the resources as opposed to the previous years, where about R600 million had been surrendered.
On shale gas, he said that regulations had been developed after extensive consultation with relevant stakeholders and the public. The regulations had been published. There was also a strategic research development process which was aimed at building capacity and ensuring that young people were trained in the field of shale gas.
Dr Ramontja said that the Committee had asked for clarity on what the DMR was requested from it. On that note, they needed support for the development of geo sciences and mining technology, which was critical in terms of creating opportunities and answering the questions posed on beneficiation and efficiency in mining. Mineral processing could open so many opportunities and diversify the sector, from exploration to mineral processing. The DMR also needed support for its organisational structure capacity building. Support was needed on the shale gas resource, as there had to be continuous engagement with the public. He concluded by stating that the finalisation of the Bill to create regulatory certainty -- the State-Owned Mining Company Bill -- was in the pipeline, and he therefore sought the support of the Committee in that respect.
Mr Dube emphasised that the MHSC needed support on the programmes that they would be running, especially on the issues of governance in the department, focusing on the Centre of Excellence, which would deal with the issues of under-expenditure and possibly provide a clear roadmap on how to spend the R200 million in reserves that the department had.
Mr Maluleke replied to the question of non-declaration of conflict of interest by clarifying that AGSA was required by law to report the matter as non-compliance issue. He then urged the Department to ensure that they made the necessary declarations to avoid a similar incident repeating itself.
The Chairperson concluded by saying it was imperative for departments to expressly state the kind of support they sought from the Committee, as that would assist the Committee to provide support, proper advice and clear direction.
The meeting was adjourned.
- Mine & Health Safety Council and Inspectorate 2014/2015 Annual Report
- Mine & Health Safety Council and Inspectorate on its 2014/2015 Annual Report
- Department of Mineral Resources 2014/2015 Annual Report
- Department of Mineral Resources on its 2014/2015 Annual Report
- Analysis of 2014/15 Annual Report of Department of Mineral Resources (DMR)
- Audit outcomes by Auditor-General
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