Department of Agriculture, Forestry; and Fisheries & Entities audits: AGSA & FFC input

Agriculture, Land Reform and Rural Development

13 October 2016
Chairperson: Ms M Semenya (ANC)
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Meeting Summary

The Auditor General of South Africa (AGSA) and the Financial and Fiscal Commission (FFC) briefed the Committee on the performance of the Department of Agriculture, Forestry and Fisheries (DAFF) and its entities, to provide it with relevant background information for its meeting with the DAFF scheduled for the following Tuesday.

AGSA’s presentation indicated that the most significant area of concern emerging from its audit of the DAFF was the lack of incompetence and skills at the regional level, especially within the supply chain management (SCM) area. This was identified as a recurring problem which needed to be thoroughly interrogated. Another related issue was irregular expenditure, especially in the SCM sector, where the best prices for materials were not being obtained by DAFF staff.

The Committee asked AGSA to try and come up with a way of correcting this situation, and also to hold those who were responsible, accountable. The long delay in deregistering Nerca Farms was highlighted, and the irregular expenditure at the Marine Living Resources Fund (MLRF) was also identified as a serious concern.

The FFC essentially found problems similar to those identified by AGSA, but also gave a macro perspective on DAFF and its performance. It did this by putting the DAFF’s performance into the context of the lower than expected economic growth levels and the current drought. These two factors would most likely mean that the DAFF would not meet the objectives laid out for it in the NDP over the medium term expenditure framework (MTEF) period reviewed at the meeting.

The FFC emphasised that there needed to be concrete legislation in place which would make municipalities responsible for food security. The Committee also needed to question the DAFF about how it intended to deal with the problem of production and employment declining significantly in the case of ‘emerging farmers,’ or recipients of redistributed land. They made brief recommendations for additional support and training, as well as resources, if these were needed to maintain production levels.

Meeting report

Auditor General of South Africa: briefing

Mr Fanie Kok, Senior Manager: Auditor General of South Africa (AGSA), said this financial year had seen the Marine Living Resources Fund (MLRF) of the DAFF regress due to irregular expenditure. DAFF and its entities still had problems of compliance with their financial statements and performance information, and that was why they had not achieved clean audits.

There had been an overall improvement by three of the auditees. If one looked at the performance plans, there was a huge improvement over the three years and for the current year it was only the DAFF in programme four, where it had issues of usefulness due to having targets that were not specific. This was the first year that AGSA had audited programme four, and had found the above problem. It was a sign that the Department had not looked at the root causes that AGSA had identified and ways it had recommended addressing them.

AGSA recommended intervention at the Agricultural Research Council (ARC), as there was a new system that they were working with and there needed to be assistance with material adjustments. AGSA was in the process of having workshops with the Department to address the lack of usefulness of programme four.

The MLRF was responsible for 92% of the irregular expenditure. It was the most problematic entity, with multiple issues that needed to be addressed by the Department and the Committee. The DAFF had had material accruals this year, and AGSA recommended the Department hire experts to correct this.

The root causes for the audit findings were the slow response of management and senior management, with issues raised in the last financial year still existing in this financial year, a lack of skills and competency in the supply chain management (SCM) unit, and inadequate processes and procedures to implement financial statements that would ensure that their internal audits were valid, accurate and complete. The DAFF could address the last key issue by producing monthly financial statements.

AGSA recommended that there be communication between the DAFF, its entities and the provincial governments to ensure the implementation and monitoring of the expenditure of DAFF funds. The Portfolio Committee should follow up on the implementation of the action plan that the Department had created to oversee how well management was managing and monitoring this process. DAFF and its entities must also report on their impact to the Committee.

Mr Kok concluded his presentation by saying that if DAFF and its entities could resolve the issues pointed out, they could have a clean audit all round. He also referred to the ARC intervention, and said there were further steps which could be taken by the entity to clean up its audit.

Discussion

Mr M Filtane (UDM) said oversight, responsibility, management, performance management and record keeping were a matter of concern. He had looked at the suggestions of Mr Kok and the Minister and he would agree that the Committee needed to follow up and ensure that the implementation of the action plan occurred.  He would give a qualified welcome for the big improvement in decreasing the irregular expenditure, but said there must be no irregular expenditure.

Mr C Mathale (ANC) wanted to check with the auditors how they engaged with the Department and its entities. How frequently did AGSA engage with the DAFF and in what capacity did they engage? How did the DAFF regard AGSA’s recommendations?

Mr N Paulsen (EFF) bemoaned the problem of competency within the Department, which was a recurring problem. The presentation needed to be clearer on how AGSA assessed the impact of DAFF and her entities’ programmes. He asked if DAFF had a mandate to address nutrition security. He emphasized the need for access to nutrition and promoting households to take responsibility for their own nutrition. The issue was not food security, but rather nutrition security, and he asked how many households were being serviced in this way. He spoke about the need to build a desalination plant in Mossel Bay and pump the water to the six provinces that had been declared disaster areas. If the DAFF had faced up to the serious challenges that faced agriculture, then the really poor report from AGSA would have looked even worse. He again complained about the lack of competence in the Department, and said this could not continue. There was a serious leadership problem, because the leadership did not recognise the need to address these problems with competence. He also wanted to know who was responsible for wasteful expenditure, and why  people had not been arrested because of this. He also wanted to know from AGSA what DAFF was doing to reduce the effects of the droughts that had been taking place every year for some years now.

Mr C Maloyi (ANC) said he assumed that the presentation was to assist Members of the Committee to prepare themselves to engage with the DAFF when it presented its annual report. The only thing he wanted the Committee to agree with was to pursue the good point raised by AGSA, that DAFF and it entities must report on the impact of their programmes. He asked the Committee to commit to doing this. He asked about the DAFF’s inability to create reliable financial statements, saying that AGSA’s recommendations on this issue did not seem to actually address the issues of procedure. He recommended that AGSA should tell the Department to review its action plans on a regular basis.

Mr Kok said that most of the questions raised needed to be addressed to the Department. On a quarterly basis, AGSA did look at where the Department was in implementing its action plans. AGSA had a relationship with the Director General (DG) of the Department and they had weekly meetings where they engaged with the Department. Where AGSA saw issues they did contact the Department and tried to help get them to where they needed to be. They use workshops with the DAFF to do this. On the issue of wasteful and irregular expenditure, it was not that anything had been stolen, bur rather that the Department had not obtained the best price for a certain good.

Chairperson said to Mr Paulsen that that meant no one was going to be arrested, because nothing had been stolen.

Mr Maloyi asked if one should not say that the DAFF had not carried out its action plan, but rather that it had inadequate procedures and processes, which was actually more accurate. Ncera Farms had been highlighted by its internal audit and the audit committee. He asked AGSA if this was a recurring problem. He knew that this entity was going to be subsumed by ARC, but he wanted to know if it was recurring.

Mr Kok said it had been a recurring problem for the last six years. He added that if the Department did not respond to AGSA on its action plan, then they had not adhered to it.

Chairperson said that AGSA should call out the Department for not adhering to its action plan.

Mr Kok agreed with the Chairperson, and said they would ask their technical staff to include this in the AGSA audit report and procedures, and specifically look at the actual action plan.

Mr Ntshiyisa followed up on the question about recommendations. He wanted to check if AGSA was satisfied with the way the DAFF was responding to AGSA’s recommendations.

Mr Paulsen asked about the lack of skills, as this had been reported as problem by AGSA last year, as well as this year. Was this a new skills shortage, or an old skills one? He wanted to know if it was because there were unskilled people there, or because skilled people had left. He then went on to clarify what irregular expenditure meant, and said that when someone broke the law there should be some sort of penalty, and that this penalty must be exacted with regard to the DAFF and those who were responsible for the irregular expenditure.

The Chairperson said that the Committee should follow up on the deregistering of Nerca Farms with the DAFF at the meeting next Tuesday, which was something that the previous Committee had started.

Mr Filtane said that a whole year had passed since the above deregistering had been decided upon, and it was atrocious that still nothing had occurred.

The Chairperson said the Committee should ask the Department how long it took to deregister Nerca Farms and why it had not occurred yet.

Mr Kok said that overall the AGSA was happy with the Department’s response to its recommendations, but there was still need for improvement in the identified  areas. The area in need of most attention was the lack of skills at the regional level. He also said that the DAFF did not follow procedures when it came to the supply chain, and this area needed improvement and upskilling.

The Chairperson pointed out that it might not be a lack of skills in the supply chain management area, but deliberate actions by people involved in the supply chain area. She wanted AGSA to undertake the task of finding out a way to deal with the irregular expenditure, because she thought it might not be due to a lack of skills, but was rather intentional.

Ms Z Jongbloed (DA) commented that there were repeat findings in a number of the department’s entities. She asked AGSA if it kept a check to note whether the DAFF was making alterations based on AGSA’s recommendations, or did AGSA wait until the next report before it did this.

Mr Kok spoke about what the consequences for irregular expenditure. He said that the Ccommittee should follow up with the DAFF about MLRF, because it had not yet started its investigation into its irregular expenditure. AGSA did hassle the Department on a regular basis, not just about the annual report, but also where it needed correction and guidance.

Chairperson thanked AGSA, and said that the Committee would take on their recommendations.

Financial and Fiscal Commission (FFC): briefing

Dr Ramos Mabugu , Director: FFC, said that despite agriculture’s small contribution of 3% to the economy, it was very intimately connected to many other areas of the economy and therefore important. The agriculture sector was punching below its weight in terms of the employment opportunities that it should be offering. This was determined by international benchmarking, and it was much lower in South Africa than in other comparable countries.

The reasons for the under-employment had to do with the drought and its negative affects. Six provinces had been declared disaster areas. SA was set to be a net importer of grain in seven years. The National Development Plan (NDP) had identified key objectives for the agriculture sector: increase investment in agriculture technologies and research and development, realise a food surplus, with one third produced by small scale farmers or households, and create security of tenure for communal farmers (especially women).

The FFC had found a reduction in government expenditure because of the lower than expected economic outlook, and this obviously affected the DAFF. There had been improvements in the area of under-spending in the Department, as they were now spending everything allocated to them. However, the issue was about using that money in the most efficient way and getting value for money spent.

Mr Ghalieb Dawood, Programme Manager, FFC, said the overview of the DAFF consisted of six programmes. The mandate of DAFF was to address production and consumption in the agriculture, forestry and fishery sectors, and the NDP informed its objectives.

The DAFF had been allocated R20 billion over the next three years, and if this was tracked over this period, accounting for inflation, there was a decline over the medium term expenditure framework (MTEF) period. Programme 2 (agriculture production and health and food safety) accounted for 32% of the DAFF’s total budget. This programme was the only one increasing in allocation during the MTEF period, by 2%. This meant the DAFF needed to reprioritise its base line budget.

In conclusion, he said the drought would negatively affect the sector and this meant that the Department would most likely not be able to meet the goals set out for the sector by the NDP. Recommendations for this sector included establishing a framework for evaluating and monitoring grants given to public entities, because these public entities were not contributing enough in proportion to the amount of expenditure by the department. Agriculture-based grants needed to be restricted in order to address that need as well.

Discussion

Mr Paulsen emphasised the issue of nutrition security, and said that SA did not have to worry about food security, as it exported food in fact. Desalination plants needed to be considered. There must be a move to make farm evictions illegal. If the Committee was responsible for agriculture, then it should support those working in agriculture.

Mr Maloyi agreed with the FFC that it was a problem that the Department spent 100% of the budget, but achieved only 70% of its indicators.

The Chairperson said the Committee had raised the issue of revenue allocation and that nothing had changed with regard to the unequal allocation of revenue. How could the FFC assist with a reform of the Treasury and how it allocated resources? The rich became richer, but the Treasury still allocated them more resources. How could the FFC reform the system and direct resources to where they were needed the most?

At this stage, Mr Maloyi took over as Chairperson.

Mr Filtane raised the issue that food security should be a responsibility of local government. Food production should be used as a tool to address the social issue of poverty. The Committee needs to ensure that local government must be responsible for food security. Local government needed to be responsible for feeding the local population. On 18 March, the Department had told him that employment in the agriculture sector was declining because of the drought, but in fact it had been declining for 20 years now. He asked about fiscal mismanagement issues, and whether the FFC could do anything about this. What power did the FFC have to increase the budget of the department? Information from provinces could not be validated, yet the Department still gave them money -- what legislative measures could be taken to make sure that information from the provinces had to be validated? He asked if the misalignment of policy had links to, or accounted for, some of the irregular expenditure.

Mr R Cebekhulu (IFP) asked about the use of communal land. The previous Minister had put in place mechanisms to makes use of communal land for agricultural purposes. There were no efforts being made to use the communal land for local food production. What was the FFC’s view with regard to the problem of food security and communal land? Emerging farmers -- farmers who had been the recipients of land redistribution -- had been allocated land, but they were not actually working the land. What was the FFC’s view on ensuring that these farms were productive? He referred to the previous day’s meeting, and asked the FFC how they could come up with solutions to the problem that food was cheaper in the urban areas, compared to the rural areas.

Mr N Capa (ANC) referred to the recommendations of the FFC. He said it was not enough for the Department just to say that money had been transferred to the entities. He asked whether there could be measures put in place to make sure that the entities spent all the money and in accordance with achieving the indicators.

The Chairperson asked the FFC to note if any of the questions actually needed to be answered by the Department so the Committee could note them and ask the Department next week on Tuesday.

The FFC responded on the issue of farm evictions, and said the courts had put the responsibility for taking care of farm evictees on the municipalities. The FFC was worried about the strain these responsibilities would put on the municipalities’ budgets. Making farm evictions illegal was up to the Committee Members, as they were the law makers.

The issue of 100% expenditure against the achievement of 70% of the indicators needed to be raised with the Department next week. Most departments did not come well prepared to meetings with the FFC, and the DAFF was one of them.  

The FFC Act was there to protect local government from national government and under-funding. Once there was an assignment of food security to municipal government, then there had to be funding from national government. It must be made explicit what the responsibility of local government was concerning food security. There had not been a concrete assignment of food security to municipalities and until there was this clarification, there could not be funding. Once there was clarification, then funding could be made available.

The FFC addressed the problem of how money and resources were allocated to rich and poor provinces. 97% of resources followed people, and because many people were migrating to the rich provinces, this meant that the allocation of resources followed them, so as the population of a province increased, so their allocation of resources increased.  The question was how one supported the provinces that were not attracting people like the richer provinces. There was a focus on the quality of data going in to the distributive formula, s well as how the allocation of resources accounted for “ruralility”. There was nothing in the constitution that prevented local government from playing a significant role in food security and the FFC had recommended that legislation be fast tracked to ensure that municipalities were made responsible for it.

Mechanisation was one of the causes of the under-employment in the agriculture sector in the last 20 years, and this was not confined to SA alone. The drought had even further negatively affected the under-employment percentages of the agriculture sector. Having said this, there was still under-employment if SA agriculture sector employment levels were lower than other states, if one used benchmarking.

Regarding how effective the FFC was, it had tracked how many recommendations of the FFC had been accepted, and there had been a 97% success rate in the last 20 years. However, according to their mandate, they were not responsible for the monitoring and evaluation of these recommendations. Consequence management questions needed to be addressed to the Department.

Mr Dawood said the Commission had done some investigation into land reform. There had been recommendations from the Commission. It had assessed the impact of land reform. Across the board job creation, agriculture production and food security had dropped in the three rural provinces where land reform had been carried out and assessed. The national Department of Rural Development and Land Reform was trying to give assistance to these emerging farmers. The FFC recommended that sub-national government should actually be mandated to assist these farmers, as the national government was too far removed. The FFC noted that the land reform process was under-funded.

Mr W Maphanga (ANC) asked about the allocation of grants in relation to the size of a province, and said there seemed to be a contradiction in terms of how the allocation of resources to provinces was decided.

Mr Filtane asked what legislative measures could be employed to make sure there was a connection between policy and the granting of funds.

Dr Mabugu said the Northern Cape “contradiction” was not a contradiction because it was not a conditional grant, but was an equitable grant. The Commission did not question size in relation to grants, but said that grants should be given in proportion to the agricultural production of an area or a province.

Chairperson said the reason for the presentations today was to empower the Committee in order to question the Department and the entities mentioned in the presentation.

He adjourned the meeting.
 

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