Department of Small Business Development on its 2014/15 Annual Report; Auditor-General & DPME inputs

Small Business Development

14 October 2015
Chairperson: Ms N Bhengu (ANC)
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Meeting Summary

[Missing doc: Department of Small Business Development 2014/15 Annual Report email]

The Chairperson noted the presence of the Deputy Minister and welcomed the new Director General of the Department of Small Business Development (the Department). The Auditor-General South Africa briefed the Portfolio Committee on the performance of the new Department, but highlighted that in the period covered by the audit it had still been part of the Department of Trade and Industry (dti) and so the audit of its functions was essentially included in the dti report, which was a clean report. For this reason, the bulk of the briefing by the Auditor-General focused on best practices that the new Department should put in place in order to ensure that it could set up good controls and systems and ensure that it would maintain clean audits. In particular, it was recommended that good and qualified personnel with a strong understanding of supply chain management, the audit process and procurements should be in place. It was stressed that vacancies should be filled timeously and that no Acting positions should last past twelve months. One issue raised as a concern by Members was that there had not been strict compliance with prescripts and it was explained that often problems in compliance arose when the personnel did not have a good enough knowledge of what was expected of them, which indicated that training was required. Monitoring and vigilance internally were vital, and the importance of quarterly meetings with the Auditor-General and the Committee were also emphasised.

The Portfolio Committee discussed the status of the “Annual Report” that had been presented to the Committee. It seemed that there was some uncertainty whether there was in fact only a draft or a final version of the Report, and the Deputy Minister had asked that it not be regarded as a final document because it had not been signed off. Once it had been ascertained that the draft Report had not been formally tabled to the Committee in the usual way, via the Office of the Speaker, the Committee concluded that this was not to be regarded as a final document. However, Members were prepared to take a presentation on it, and to consider some of the issues raised, in order not to waste time, although obviously they would not as yet approve that Report.

The Director General then proceeded to introduce some aspects of the new DSBD's vision, mission and work to date. The Department was working on getting personnel in place, in particular a Chief Financial Officer, and also wanted to bolster its internal audit division. Information had been extracted from the dti's reports, and it was illustrated that some functions had moved across, although the Director General asked that the Committee should also help in identifying areas where the funding had not necessarily yet followed the function.  Aspects that were briefly raised and highlighted included broad based economic empowerment and participation ,the early achievements of the Department, its founding principles, the fact that there was a programme review, to be reflected by March 2016, and its connections with the Small Enterprise Finance Agency and Small Enterprise Development Agency. It was attempting to leverage public and private procurement. There was a suggestion that some corporations be approached to contribute to the new budget, but in answer to this the Deputy Minister clarified that specific processes would need to be followed. Some Members expressed appreciation for the presentation, but the DA felt it was a little vague and more detail was needed. There was discussion as to whether the Department was to create wealth or alleviate poverty, but Members highlighted how it could work with other departments and functions in order at least to highlight areas where its work was most needed and would be apposite, and it was also suggested that its aims and objectives be clearly profiled also to other departments who might be able to identify opportunities for it to become involved. Members asked to what extent it was liaising with municipalities, how its position was with the dti, how it was finding marginalised communities and what was being done to assist those in rural and marginalised areas. Members were interested in hearing whether any amendments were proposed to the Cooperatives Act, called for clarity on transverse agreements, and recommended that the Department do some studies on how communities might be financing each other and where the methods they were using were not of assistance. They asked if in the process of migration the new Department might have done things without the due authority to do so.

Members agreed to appoint a sub-committee to look into catering for Committee meetings.

Meeting report

Chairperson's introductory remarks

The Chairperson acknowledged the presence of the Deputy Minister, and noted that the Committee would receive briefings from the Auditor-General South Africa (AGSA) on the audit outcomes, the Department of planning, Monitoring and Evaluation (DPME) and the Department of Small Business Development (DSBD or the Department). No documents had been provided by the DPME but the delegates did have a copy of the Auditor-General's report and extract submitted by the Department of Trade and Industry (dti) on the performance on certain programmes. She explained that the audit was originally given to the dti when the functions now handled by the DSBD still resided there.

She specifically welcomed the new Director General of the DSBD, Professor Edith Vries, who had previously worked for the Independent Development Trust, the Department of Agriculture, Forestry and Fisheries and Department of Energy, and it was hoped that she would help the DSBD stabilise.

Introductory Remarks by Director General
Prof Edith Vries noted that she was very excited about this new position, and she had recently been at a colloquium with the Netherlands where it was explained how closely the economic and agricultural sectors were linked. She would like the Committee to be upfront about the information that it expected from her.

The Chairperson was pleased that the vacancy of Director General had finally been filled. She cautioned Prof Vries that she could expect some tough questions from the Committee. She noted with appreciation the good relationship that the Committee had enjoyed with the Acting Director-General.

Mr D Chance (DA) extended a welcome to the new Director General on behalf of his party.  

Mr S Mncwabe (NFP) welcomed Ms Vries, whom he knew from her days with the Department of Agriculture, Forestry and Fisheries and hoped that the small agricultural farmers and cooperatives would benefit from her experience in the field.

Rev K Meshoe (ACDP) also welcomed Prof de Vries.

Mr X Mabasa (ANC) also welcomed Prof Vries and hoped that she would help disadvantaged people start businesses. especially women.

Auditor General South Africa (AGSA) briefing on audit outcomes: Department of Small Business Development functions (formerly under Department of Trade and Industry)
Mr Ahmed Moolla, Senior Manager: Small Business, AGSA, introduced his colleagues. He said that the purpose of the AGSA presentation was to reflect on the work that the AGSA does and how it assisted the Portfolio Committee in its oversight. The mandate of the Auditor-General (AG) was set out in the Constitution, and its basic function was to ensure that a department's financial statements would be free from d financial misstatements or errors that would affect the users of the statements. The AG would also examine actual performance against its projected performance as set out in the Annual Performance Plan (APP). It would also report on material non compliance with key legislation. The AG conducted fraud risk, but not fraud identification.

He noted that the units of the DSBD had fallen previously under the audit for the dti, but from 1 April 2015 would become separately accountable for its own financial statements so it was necessary to have good systems in place to ensure a good audit outcome in the future.

Ms Corne Myburgh, Business Executive, AGSA, stressed that the audit report for this year should not be seen as a completely separate report from the dti report, and that the dti had received a clean audit, which included the DBSD, at that stage one of its sub-units. There were thus no audit findings against the DSBD, in relation to financial statement, compliance, nor fraud risk. The AGSA presentation would therefore look forward, to highlight what this entity, now a new department, should be aware of, and what the Portfolio Committee would need to do to assist it to remain compliant and obtain clean audits.

She tabled a number of slides showing the general trends in government audit outcomes, and gave guidance to the DSBD throughout on best practices to achieve clean audit outcomes. She stressed that this was a long process of showing due diligence and exercising good financial controls on a daily basis. It was very important that departments should have in place a person who thoroughly understood supply chain requirements for auditing processes, and procurement contracts. Positions should not remain vacant for too long, and certainly acting positions should not persist for longer than 12 months. Invoices would have to be paid within 30 days.

Mr Chance commented positively on the presentation and stressed the need for a clean audit.

Mr Mabasa also thanked the AGSA and urged that the Department needed more support than usual, given its status as a new Department. He recommended that it must work closely with the AGSA.

Rev K Meshoe complained that DSBD had shown very low improvement in the area of compliance and wanted to know whether this non-compliance was a result of a lack of understanding on the part of the leadership.

Ms Myburgh postulated that most departments would show problems with non-compliance where there was a lack of understanding of the requirements that needed to be in place. This would, for instance, include not only having the right people, but they must have adequate understanding, so that implied the need for training. Policy must be clear, there should be daily supervision and monitoring and actions plans would have to be implemented.

Rev Meshoe asked why committees were not set up immediately to ensure compliance.

Ms Myburgh answered that there should be quarterly meetings arranged between the AGSA and departments. Feedback, at least quarterly, should also be given to the portfolio committees, reporting on the controls in place.

Mr H Kruger (DA) asked for more detail on page 12 of the Annual Report and asked when a Chief Financial Officer would be appointed.

The Chairperson responded that the Chief Financial Officer appointment was nearly finalised.

Ms Thabethe Elizabeth, Deputy Minister of Small Business Development thanked both the dti and the committees of Parliament for their assistance and said that Prof Vries would be meeting with the Ministry on Friday.

The Chairperson congratulated the DSBD, even though it was then part of dti, for achieving the clean audit. She was a little uneasy, however, about the migration process because the new department had not been fully in control of its own allocations. She thanked the dti for looking after the interests of small businesses, and asked that the Minister convey thanks also to the Minister of Trade and Industry, Dr Rob Davies.

Department of Small Business Development  2015 Annual Report: Status: Deliberations
The Ministry had to leave during a short break, and on resumption of the meeting, Mr Mabasa mentioned a letter sent on 7 October to the Office of the AGSA, in relation to the Department of Planning, Monitoring and Evaluation. He and other Members discussed whether the meeting could proceed in the absence of the Ministry

The Chairperson noted that the Annual Report for 2014/15 was in draft, not signed by the Minister, and said that the Deputy Minister had requested that it not be tabled officially until she had had a chance to proof-read and sign it.

Ms N November (ANC) agreed that an unsigned  and as yet not proof-read document could not be submitted.

Mr Chance said that he had received an email,, with a signed letter dated 1October  from the Minister, attaching the Annual Report. He asked Prof Vries how, if that letter was signed, the Annual Report to which it was attached would be considered not valid. He asked if the Deputy Minister had been proposing to withdrawn the Annual Report also from the Office of the Speaker.

The Chairperson and Mr Mabasa suggested that the Committee deal with only one matter at a time. In relation to the withdrawal  of the Annual Report, it was decided that the document could be tabled and discussed, but it would be regarded at this stage as for information only, and would not have the status of a formal report.

Mr Mabasa indicated that this decision should be made to allow the Portfolio Committee to move forward. However, he would not like to see this situation being repeated in the future.

Mr Chance commented that procedurally an objection should be made to Prof Vries formally, in order to prevent this situation happening again.

The Chairperson agreed and summarised the sentiments of both Mr Chance and Mr Mabasa saying that in future the Committee would like to see only signed and final documents being submitted to the Committee. A similar situation had arisen previously, with the Small Enterprise Finance Agency (SEFA), and that had wasted Committee time, since two meetings had to be devoted to SEFA matters instead of only one.  She said that if the report now being tabled was not the same as the report previously submitted to Mr Chance, then this too had to be looked in. There was already pressure from Parliamentary deadlines.

Prof Vries apologised to the Committee for submitting the draft report instead of the final one, explained how this had happened and committed herself to correcting the sequencing of the work in the future to ensure that it would not happen again.

The Chairperson asked the Content Adviser to give input on the legal status of the document.

The Content Adviser explained to the Members  the process by which an Annual Report was lodged through the Speaker and concluded that the report in front of the Committee had no legal status because the manner in which it was requested had not followed due process. He said an Annual Report first had to be tabled to the Speaker and then referred to the relevant committee.

Mr Chance agreed but would have no objection to looking at the draft Report, provided that it was understood that it had no legal status, and that this would be done to allow the Committee to continue with its work.

The Chairperson agreed and finally categorized the report as additional information.

Draft Annual Report presentation
The Chairperson requested  Prof Vries to inform the Committee how the fact of the DSBD being part of the dti had impacted on its early development. She reminded the Committee that if Prof Vries referred to the draft Report, it was regarded still as 'additional information'. She hoped that Prof Vries could then indicate how the DSBD would develop in the future.

Prof Vries then continued with her presentation and in summarised the following topics

- broad based economic empowerment and participation.
- establishment of DSBD and its early achievements.
- founding principles of the new Department
- programme reviews within the Department to be reflected by March 2016.
- leveraging public and private procurement
- objectives of the Department
- connections of the Department to SEFA and Small Enterprise Development Agency (SEDA).

Prof Vries stressed that the many vacancies in the Department needed to be filled urgently, especially that of the CFO, which she planned to have filled before end of financial year.  She also spoke about unfunded functions inherited from the dti that subtracted from the new Department’s financial performance.  She referred to the current budget of the DSBD and suggested that corporations be approached to contribute to this.

Mr Chance encouraged the new Director General and Department to produce results particularly the creation of jobs. He suggested that communication between departments be improved and that the DSBD imperatives be impressed on the agenda of all other departments in government. He felt that the presentation was too vague in its objectives.

The Deputy Minister noted that at one point there was a moratorium on agencies being development and spoke to how this still affected the funding of new agencies. She also spoke to the ways in which agencies might be co-funded and noted that the Cabinet would have to get approval from the Competition Tribunal and the agency if any different funding were to be facilitated.

Mr Chance appealed to Prof Vries to act as a 'new broom' to sweep the DSBD clean of old inefficiencies that it might have inherited from the dti. Again, he noted that the vision and mission as presented were too vague and suggested that they should relate to specific and accountable actions, so that jobs were created. One example of this might be – to create 15 million jobs within five years. He repeated that the mission of the DSBD should be put at the forefront of all government departments so that the DSBD was able to create jobs across all sectors of government and even in the private sector and NGOs.

Mr T Mulaudzi (EFF) wanted to be clear about staff functions in the DSBD, and asked how many staff from the dti, currently or now, were working in the DSBD.

Mr Mabasa wanted to know what the relationship was between SEFA and DSBD. He asked about amendments to the Cooperatives Act of 2005, and wondered if it could be amended again.

The Chairperson pointed out that budgetary constraints could hamper the work of the new Department. She referred to the queries about the Cooperatives Act and said that prior to any amendments being proposed or discussed, it must be remembered that the DSBD had a mandate of developing Small Medium and Micro Enterprises (SMMEs) and cooperatives, and it would need to be sure of where the agency was situated that should attend to that function.

Prof Vries thanked the Committee for the different perspectives. She said that the Department was being assisted to revise work arrangements and the new strategic plan was in the course of being prepared and should be finalised in November.

The Chairperson stressed that all involved in the new Department must present a common and uniform mission of the DSBD to the outside world. She suggested that the DSBD would benefit more by working with the Committee than working with outside consultants. She hoped that this suggestion would not be seen as any encroachment on Prof Vries' authority to run the administrative side of the Department.

Prof Vries asked the Prof Vries whether she saw this suggestion as an encroachment on her authority to run the admin of the DSBD.

The Prof Vries responded that the reason they consult with outsiders was so that when they meet with the Committee they don't come empty handed but armed with good research from experienced professionals in their consultative fields.

The Chairperson thanked the Prof Vries for a satisfactory answer. She stressed to the Prof Vries that it was imperative that she understood Mr Chance's commented about a practical, accountable and do-able mission and vision for the DSBD and that at the next meeting with the Committee this understanding would need to be reflected in the presentations. She also said that before the Prof Vries arranged a final document on the new mission and vision for the DSBD, that she should interact with members of the Committee for their input so that at the next meeting there could be total agreement on the new mission and vision. She also said that the model presented in the Prof Vries's presentation, which was accepted in principle, needed further investigation.

Prof Vries appreciated the clarification. She raised another issue that was proving something of an administrative difficulty – and that was that Cooperatives and SMME functions were handled under separate units in the Department. She mentioned the proposed inclusion of “cooperatives” into the name of the new Department.

The Chairperson asked how Prof Vries understood the importance of cooperatives in the SA economy.

Prof Vries responded that as yet DSBD did not have formal agreements with municipalities or provinces in regard to cooperatives. She added that SEFA and SEDA were implementing agencies for the DSBD at a municipality level. She noted that currently, there was one person responsible for internal audits, but not at a director level, and that the internal auditor should ideally be at a director level. The DSBD was scanning other departments to try to see if it could source suitable candidates to fill the positions. She expected the first internal audit to be done in November. She spoke about some positions not yet being filled, at Deputy Director General level, and the pros and cons of being located in the same building as the dti. She mentioned that none of the transversal agreements had been concluded.

The Chairperson asked for clarity on the transversal agreements. She said that transversal agreements with other departments should only be negotiated if both parties had a common interest. She thought, for example, that the DSBD should have a transversal agreement with the Dept of Social Development to fight poverty in that sector at the level of targeting poor people who received social grants, who should then also be the ones targeted to benefit from SEFA financing and SEDA development. Transversal agreements should also be arranged with the Department of Water Affairs and Sanitation, to target poor people who were getting toilets and drains built at their houses in the townships and rural areas. If the DSBD succeeded in bringing finance and development to these groups, it would also succeed in permanently removing them from the social grant register, and thus would be eradicating poverty in these poorest of groups.

Mr Chance commented that the job of the DSBD was wealth creation, not poverty alleviation. He said that any transversal agreement should contribute first of all to wealth creation, so that people could use that increased wealth to improve the quality of their lives. This would move South Africa away from being a welfare state to being a prosperous, wealthy country.

The Chairperson responded that the responsibility of the DSBD was to allow people that had nothing to actually have something, and said that this involved making them less dependent on welfare, and in a position to pay their own bills. 

Prof Vries thanked the Committee for the clarification, and commented that with the migration from the dti, there had been some suspicion that financing was being held back in the old structure that should be available for the new structure.

The Chairperson responded that this was not a suspicion, and that there were functions that migrated but did not bring their resources with them.

Prof Vries asked the Committee to assist in identifying these sources of migrating finance. She spoke about the difficulty of paperwork and getting VAT certificates in rural areas, which was restricting free economic activity.

The Chairperson agreed and emphasised the need for small municipalities and SEFA and SEDA to be co-located.

Mr Chance repeated again that it would be ideal for the new Department to get a clean audit. He felt that the red tape and regulations connected with third party financing were a hurdle to unleashing capital needed for growth stimulation.

Prof Vries agreed and noted that these were amongst the many issues that needed to be resolved.

The Chairperson recommended that the Department should be travelling to the rural and poor communities to find out how the community would lend each other money and how they were spending their money. Certain local processes in the communities were hampering efficient and free and speedy business transactions. She also was not in favour of intermediaries charging poor and unestablished businesses very high levels of interest for money loans.

Prof Vries responded to Mr Mabasa on the DSBD relationship with SEFA, and noted that SEFA only migrated into DSBD on 1 April 2015, and the tripartite agreement between SEFA, Department of Economic Development and DSBD had very recently been signed.

Rev Meshoe was concerned that the Prof Vries had earlier said that the mission and vision of the DSBD could not be changed within the financial year. He wanted that statement to be rectified and for Prof Vries to confirm that the mission and vision of the DSBD would be changed according to the suggestion of the Committee, before the next meeting of the Committee. He also asked about the migration of the DSBD from the dti and wondered whether some aspects of the migration of various functions were accomplished without formal approval.

The Chairperson answered for Prof Vries by saying that services that ran while the DSBD was part of the dti could not simply be cut during migration. The dti had an established client base that could not be ignored simply because the DSBD was in process of trying to establish itself It was possible that the DSBD may have incurred expenses or performed certain functions for established clients, and in the process may have done so without apparent approval. Certain functions were approved because the existing client base of dti that migrated over with the new department had to continue being serviced. In the same way, she argued that some objectives of the new Department were inherited objectives of the dti servicing the inherited client base, and so these might not be able to be changed by the next Committee meeting. She hoped that this would address the first part of Rev Meshoe's question. She added that the final Annual Report presented by Prof Vries to the next Committee meeting should be written in such a way that a layman could understand it, even one who did not necessarily have all background information about the Department.

The Chairperson thanked all staff involved in the migration of the new Department, especially given the difficulties associated with change management and proffered special thanks to the Deputy Minister and Prof Vries.

Other Committee business
The Chairperson noted that the Committee had been informed that only R1 100 per meeting was available for catering.

Mr Kruger commented that value for money was important, where catering was concerned.

Mr Mncwabe stated that it was “un-African” not to be able to offer guests refreshments at the Committee meetings. 

Mr Mulaudzi agreed that the amount was low but agreed also with the comment on value for money and said that perhaps the menu could be revised.

Mr Mabasa agreed in general but commented that there tended to be uniformity across committees.

The Chairperson commented that many delegates had to get up at 04:00 to catch their flights and could not have breakfast until arriving at Parliament. .There were other ways to cut costs that would not involve offering any poorer quality food.

The Committee Secretary suggested that the Committee could perhaps opt for a different menu, and Mr Kruger wondered if credit should not rather be provided for delegates to visit the restaurant instead of eating in the meeting room.

After more discussion on the issue, it was decided that Members should submit their preferences to the Committee Secretary. Ms November, Mr Mabasa, the Chairperson and Mr Kruger were asked to make up a Task Team to debate and resolve the catering issues. .

The meeting was adjourned. 

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