Audit outcomes of Department of Tourism: AGSA briefing; National Tourism Sector Strategy 2020 targets: Financial Fiscal Commission briefing

Meeting report

Opening Remarks

The Chairperson said that the Committee intended to invite the Financial Fiscal Commission (FFC) to appear before the Committee once again in the first Quarter of 2017. The Auditor General’s Office of SA (AGSA) had been asked to do a financial audit but was asked if it did perform a performance audit of the National Department of Tourism (NDT), what the process would entail. It would be helpful to the Committee in terms of how funds budgeted for had been spent. If certain things went wrong what could be done about it.

Briefing by the Office of the Auditor General of SA (AGSA) on the audit outcomes of the National Department of Tourism (NDT) for the financial year 2015/16

The delegation from AGSA comprised of amongst others Mr Thami Zikode, Business Executive and Mr Polani Sokombela, Senior Manager. Mr Sokombela undertook the briefing.

The role of the AGSA in the Budgetary Review Recommendations Report (BRRR) was touched on. In 2015/16 the NDT improved on its overall outcomes due to it achieving a financially unqualified audit outcome with no material findings on both compliance with legislation and predetermined objectives (clean audit). This was due to the NDT implementing commitments to address material misstatements identified in the disclosure notes during the 2014/15 audit. South African Tourism (SAT) maintained its financially unqualified audit opinion with no material findings. The NDT had improved the status of key controls by implementing audit recommendations from the previous financial year which included strengthening financial reporting and related controls to prevent misstatements as well as implementation of proper record keeping for the collection and consolidation of information supporting disclosure notes. The AGSA noted that the NDT’s practise of implementing action plans to sustain clean audit outcomes should be continued. The level of assurance had also improved with key role players such as senior management, the audit committee, the Minister of Tourism and the Committee each playing their part. On performance management linked to programmes/objectives tested, the quality of annual performance reports remained stagnant for both the NDT and SAT. On usefulness and reliability there were no material findings reported for both the NDT and SAT. On financial management unauthorised, irregular as well as fruitless expenditure had decreased over the past three financial years - 2013/14, 2014/15 and 2015/16.

The AGSA concluded by speaking to some best practises that needed to be maintained. The leadership had established a culture of ethical behaviour, commitment and good governance and basic disciplines and controls were in place for daily and monthly processing and reconciling of transactions. Commitments made by the Minister of Tourism were also highlighted. Discussions between the Minister and the AGSA were taking place regarding the impact of foreign currency fluctuations on the operations of SAT. There was also follow up progress on further discussions with National Treasury regarding the correct accounting treatment for Expanded Public Works Programme (EPWP) infrastructure expenditure at the NDT. The NDT had for 2014/15 once again gotten an exemption on the modified cash basis of accounting. Proposed commitments that the AGSA requested of the Committee included that the Committee should regularly engage with the NDT to monitor the implementation of action plans to sustain best practises and that requests for increases in the budget of the NDT needed to be looked at.

Briefing by the Financial Fiscal Commission (FFC) on National Tourism Sector Strategy 2020 targets

The delegation comprised of Dr Ramos Mabugu Director: Research and Recommendations Programme, Ms Sasha Peters, Program Director: National Budget Analysis, Mr Ghalieb Dawood, Programme Manager: Provincial Budget Analysis, Ms Poppie Ntaka Researcher: National Budget Analysis and Mr Henry Eksteen Parliamentary Liaison Officer. Mr Mabugu initiated the briefing with Ms Peters and Mr Dawood taking over where appropriate.

The FFC had undertaken an analysis of trends in the South African economy over a ten-year period 2005-2015. The model looked at various sectors including tourism. It showed that there was a gradual slowdown of the national economy but that tourism was growing beyond the national economy. Members were given a refresher on some of the targets as contained in the National Tourism Sector Strategy (NTSS). For example on arrivals, the target was set to have 15m foreign arrivals by 2020. The FFC felt that the targets, even though ambitious, were realistic. Some lessons for the NTSS review coming out from the model were that tourism growth had a significant effect on the national economy growth rate. In 2013 tourism contributed 2.5% towards the GDP of the South African economy. The model also showed that the average growth rate of 4.1% in the tourism sector impacted positively on the rest of the economy.

The briefing continued with the NDT budget analysis. The NDT’s budget for 2016/17 was R2bn representing a real growth of 6.55% from the 2015/16 allocation. Over the outer two years of the 2016 Medium Term Expenditure Framework (MTEF) period, the allocation to the NDT was projected to decline by 3.13% in 2017/18 and by 0.76% in 2018/19. On NDT transfers to SAT, an amount of R3.2bn would be allocated to SAT over the 2016 MTEF period.

The last leg of the briefing dealt with an analysis of the NDT’s 2015/16 Annual Report. The NDT’s spending had marginally improved from 98.4% in 2014/15 to 99.1% in 2015/16. The NDT also achieved 86% of all its performance targets in 2015/16. The NDT’s variances were considered small when compared to other departments. The FFC’s assessment of the NDT’s performance indicators revealed certain shortcomings. For example some indicators were measured in percentages and not numbers. This created vagueness as it was not possible to tell how targets were measured. Other indicators were not specific and lacked an output whilst some indicators had no targets. Performance indicators were also found to be inconsistent with targets. On transfer payments made by the NDT to SAT and other recipients, the FFC found that in some instances transferred funds were not spent or there was under spending. A concern was whether the NDT had proper mechanisms in place to properly monitor the spending of transfer funds. In conclusion the Committee was given insight into a recommendation which the FFC had made on the Division of Revenue. It stated that given that funding for Public Employment Programmes (PEPs), Community Works Programme (CWP) and the Expanded Public Works Programme (EPWP) was insufficient to cover all unemployed, focus should be based on giving unemployed individuals without access to a grant priority. At present there was a significant share of participants in these Programmes who were on social grants or were employed elsewhere. Government should also balance the need to improve the conditions of employment and expand PEPs. A response from government to the recommendation was awaited.

Discussion

Mr G Krumbock (DA) remarked that the impression he got during the FCC briefing was that it was leading up to something but in the end it never came. On the analysis of the NDT’s Annual Report and the conclusion that the FFC drew that there was a misalignment of targets and indicators he was not too convinced. In his view, the FFCs analysis was more about nitpicking than about pointing out substantive issues. On page 12 slide 23 the FFC noted that performance indicators and targets of the NDT were inconsistent. He asked if the performance indicator was to have a number of capacity building initiatives to support sector transformation, how could having a target of having a programme on capacitating black women managers be inconsistent with one another? The targets set were exactly what the performance indicator was calling for. On page 6 slide 12 he felt that what was being said on the sub paragraph “going forward” seemed contradictory. What was being said was that if Gross Domestic Product growth went down it would not affect travel. Clarity was needed. He also needed clarity on slide 11 on page 6. If the budget of the NDT was around R1.2trillion. For the period of ten years that the FFC had done its modelling on it showed that there was 4.1% average annual growth in the tourism sector which also impacted positively for the rest of the economy. There was consequently a R1bn additional value added in constant 2013 in non tourism sectors. That R1bn was only one tenth of R1.2 trillion. It was not a huge amount. It needed further clarification. He further asked for clarification on page 3 slide 6 which spoke to the GDP targets as set out in NTSS. It stated that there was an increase in tourism’s contribution to GDP from an estimated R189.4bn in 2009 to R499bn by 2020. In addition the contribution of domestic tourism to GDP was to grow to 60% from 52% in 2009. Was this correct?

Dr Mabugu explained that the FFC was an institution of the Committee. The intention of the briefing was to assist the Committee on its Budgetary Review Recommendations Report (BRRR). The FFC was not an implementer. The FFC came up with questions that the Committee could ask the NDT. The FFC was however not aiming to nail the NDT. He stressed that the FFC was not mandated to respond to questions on implementation. He noted that many of the questions asked were detailed and perhaps it would be better to do a methodological presentation to the Committee when time could be set aside. On the matter of the R1bn value added he said that the FFC had put in factor constraints across the world economy. The FFC had taken an economy wide model into account. On the low elasticity of travel to GDP he pointed out that the NTSS had been premised on elasticities of GDP. What we are seeing now were other factors like terrorism coming into play in relation to travel. Travel elasticity to GDP had shifted to become low. When the NTSS is reviewed this should be taken into consideration. The elasticity of travel had changed a great deal due to changes globally. To explain other statistical data a methodological discussion was needed with the Committee where spreadsheets could be used to clear up issues.

Dr Mabugu addressed the criticism of nitpicking and said that the FFC would rather nitpick than not nitpick. Sometimes things cropped up in the future which were not trivial. It was better to go through everything. The NDT would provide the Committee with answers on issues that the FFC had raised.

Ms P Adams (ANC) referred to slide 6 of the FFC presentation which spoke to job creation figures of the NTSS and asked for clarity. She also highlighted slide 24 on page 12 where it was pointed out there was under spending of money transferred to the Tourism Incentive Programme (TIP) and that the timing of transfers was out which meant that perhaps agencies did not have enough time to spend the funds. She asked what the appropriate time to do the transfers was and what constituted sufficient time to spend funds. The FFC also had a concern about the NDT not having proper mechanisms in place to monitor the spending of transfer payments. What mechanisms did the FFC suggest the NDT put in place? She also asked what the FFC felt the reasons for under spending were. Addressing the AGSA, she asked what suggestions would the AGSA make to departments on how to get expenditure on the EPWP correct. She noted that capacity was often a problem at local government level when it came to the EPWP. What suggestions did the AGSA have in this regard? She also asked the AGSA if it considered the rate payable per day to workers on EPWP Projects was considered sufficient. On the foreign currency exchange rate issues that SAT had to contend with she asked what suggestions the AGSA could make in this regard.

Dr Mabugu replied that job creation targets were from both government and the private sector. On the timing of transfer payments, a recommendation by the FFC was not allowed as it did not fall within its mandate. The FFC could suggest that the Committee question the NDT about the timing of transfers. The question as to whether it was considered fiscal dumping did not fall within the mandate of the FFC to answer. The NDT would be better placed to answer most of the questions addressed to the FFC.

Mr Zikode said that many of the issues raised revolved around the EPWP. In 2013/14 the EPWP had been accounted for as a transfer. Later on National Treasury granted exemptions and deviations. Many departments got qualified audit reports because of the EPWP. The intention by National Treasury was good but it had unforeseen consequences. The problem was that implementing agents were not held accountable. This could not be allowed and changes were made that accountability had to be maintained by the submission of supporting documentation. The AGSA had done the audit on the accounting part, the second part was to audit the predetermined objectives part. Discussions on sustainability of EPWP projects would continue. Objectives needed to be sustainable. On the modified cash standard, more needed to be done. EPWP projects would be inspected to check on whether people were employed for the work that needed to be done. In order to get things correct on the EPWP there had to be internal controls in place. Before payments were made by departments specialists had to inspect things on the ground. Surprise inspections were also good. He conceded that not all predetermined objectives were audited, sampling was done.

Mr Sokombela said that the exchange rate issue was one of the points to be discussed with the Minister of Finance. Could there be alternative arrangements for SAT? The PFMA did have restrictions on financial management. He noted that of late SAT had benefitted from the depreciation of the rand. SAT had experienced foreign exchange gains.

Mr R Cebekhulu (IFP) referred to page 4 slide 8 and noted that the slide showed that there was an increase in growth in agriculture. He was concerned about agricultural land being bought up by developers and mines. He asked the FFC if it had taken this phenomenon into consideration.

Ms S Xego (ANC), addressing the AGSA, commented that some of the information presented was already known by Members. She asked whether it was correct that the AGSA when it did its auditing, programmes were sampled or were all programmes audited. She pointed out that EPWP issues had always come up in the 5th Parliament. She was pleased that the AGSA was following up on action plans of the NDT. Looking at EPWP Projects, she asked the FFC whether there should be a means test for persons who qualified for jobs. Even if a person received a social grant the person could still be considered poor depending on circumstances. On the late transfers by the NDT the Committee had cautioned against the dumping of funds on Non Government Organisations (NGOs). Some NGOs under spent whereas others spent nothing.

Dr Mabugu understood too well that things presented were already known to Members but said that it was a plus if an independent organisation could confirm what was already known. Cross triangulation was good. It meant that there was a meeting of minds. He stated that even the NDT was entitled to ask the FFC for advice on matters but thus far it had not happened. The research had been conducted emanating from a request by the Committee.

Mr Zikode explained that in terms of the PFMA the NDT did not have a responsibility to build capacity on the project management side at local government level. The NDT needed to check on what it was paying for when it came to the EPWP. On the credibility and reliability of the information that the AGSA audited the performance audit requested by the Chairperson would be done. The AGSA urged the NDT to be mindful that it had not met all its objectives. Reasons for non achievement had to be stated and an explanation of where the funding went was needed. The AGSA would engage National Treasury on predetermined objectives nationally. Perhaps the issue was about how objectives were set. There was a great deal happening in the background that the Committee would be informed about when the AGSA returned to the Committee.

Mr Sokombela, on whether persons who received grants should not be employed on EPWP projects, said it was best to look at the purpose of the EPWP. If there were to be exclusions then the Department of Social Development should perhaps come on board.

Mr S Bekwa (ANC) appreciated the FFC’s efforts on highlighting issues which the Committee should focus on.

The Chairperson said that the AGSA could now appreciate why the Committee requested a performance audit of the NDT. She asked the FFC what it suggested could be done about the currency fluctuations that were experienced by SAT. What role did the FFC play in discussions between the NDT and National Treasury over the issue? She noted that some of the transfers by the NDT were at the end of the financial year. How was the funds spent?

Mr Krumbock responded that he was not satisfied with the response given by the FFC to his questions. The FFC had made statements and it was not the task of the Committee to ask the NDT why the FFC had made certain statements. The figures were contradictory and did not necessitate a presentation on FFC methodology. He was concerned that the figures presented by the FFC were wrong.

Dr Mubugu reiterated that on the discrepancy of figures the methodology of the FFC had to be explained. The figures given were those of the NTSS and were not invented by the FFC. It was NTSS figures. One could not compare one slide dealing with a certain issue with another slide dealing with perhaps a different issue.

Ms Xego asked what the issue with SAT was if it had only met one of its eight targets. What was the problem?

The meeting was adjourned.