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STANDING COMMITTEE ON PUBLIC ACCOUNTS
2 APRIL 2003
TOURISM, HOSPITALITY AND SPORT EDUCATION & TRAINING AUTHORITY (THETA) 2001/2: HEARING
Chairperson: Mr F Beukman (NNP)
Documents handed out
THETA Annual Report 2001/02
Auditor General's Report on THETA Financial Statements 2001/02 (See Appendix)
THETA presentation on 19 March 2003 to Labour Portfolio Committee
The Committee reviewed the Auditor General's Report on the Tourism, Hospitality & Sport Education & Training Authority (THETA) to assess if THETA as an entity was in compliance with the provisions of the PMFA (Public Finance Management Act). The Chairperson of the THETA Board had to provide answers to the Committee questions probing why THETA's administrative costs of 14,18% had exceeded the 10% legal threshold of collected levies as well as breaching other accounting ethics.
The Chair asked members of the sub-committee for this hearing to base their questions on specific areas of the Auditor General's Report as contained in THETA 2001/2002 Annual Report
Mr Chiba (ANC) posed questions on the effectiveness of the THETA Board
He made reference to Point 5.1.3 of the AG Report which stated that the THETA Executive Committee had approved an increase of the annual salary for the Chief Executive Officer without providing sufficient reasons for such an increase. He asked if the Board was the body accountable for salaries, and if so, why was the decision to increase the salary of the CEO not taken by the Board.
Mr Makheta (Chair of the Board) agreed that the THETA Board was the body accountable for all activities of THETA. Disciplinary action had been taken against the then CEO of THETA and a newly established Remuneration Committee had been set up to monitor remuneration policy and make recommendations thereto.
Mr Chiba asked for the exact procedure for salary increases.
Mr Makheta's response was that currently they were guided by the recommendations of the Remuneration Committee as outlined in their Remuneration Charter. However for 2002 financial year, the THETA Board made the salary increase because the Remuneration Committee was not yet in existence.
Mr Chiba was not pleased with THETA's attempts to put this policy framework in place only three years after coming into existence. He noted that the Annual Report did not indicate who the Chair of the Executive Committee was. He was also concerned that the same people were serving on the Executive Committee, the Resources Committee and the Remuneration Committee. Did this not interfere with the independence of these committees as well as create a conflict of interest?
Mr Makheta replied that there were systems in place to deal with conflict of interest. He said that there were vacant positions reserved for non-Board members and that would ensure a complete representitivity.
Mr Chiba requested Mr Makheta to furnish the Committee with a copy of the Remuneration Charter within a period of two weeks.
Mr Chiba asked the extent to which Mr Makheta as the Board Chairperson delegated his powers to the CEO.
Mr Makheta replied that limited powers had been delegated to the CEO. However they were currently revisiting and revising such powers and these include the procurement policy, which now limits capital expenditure by the CEO.
Mr Chiba made reference to Sections 50 and 51 of the Public Finance Management Act (PFMA), which provides for the powers and functions of a Board and also requires disclosure of conflict of interest. He asked how the THETA Board ensured compliance with these provisions.
Mr Makheta replied that with the assistance of the Auditor General, various committees had been put in place to ensure compliance with the provisions of the PMFA. Some of these monitoring structures required members to make a declaration of any conflict of interest and such a declaration could be verified by the external members.
Mr Chiba asked if there were any steps taken by the Board to ensure that that the THETA monitoring committees were accountable to the Board.
Mr Makheta replied that the oversight role over the THETA monitoring committees was performed by THETA Board members serving as members on some of these committees.
Mr Gumede (ANC) posed questions on the circumstances leading to the Board exceeding the 10 percent administration cost threshold. He referred to Point 3.4 of the AG's Report which stated that THETA had exceeded the administration threshold of 10 percent as stipulated in the Skills Development Act. He asked what had caused such a breach.
Mr Makheta provided to two reasons for this:
- THETA had a very broad mandate in terms of organising all of its sub-sectors.
- The exorbitant salaries of the executive members as well as costs of assigning some of their work to consultants had also been factors.
However he assured the Committee that for the coming financial year they would act within the limits of the Act.
Mr Gumede follow up and asked the Board to provide in writing a breakdown of the administrative costs in question.
Mr Vezi (IFP) posed questions on the unauthorised loans granted by the THETA Board
He referred to Point 3.2 of the AG Report which reported that THETA had granted irregular loans of R357 130 to an employee contrary to approved policies and procedures. He asked:
- who authorised the granting of such loans
- had the amount been recovered
- had appropriate action been taken against the person who granted the loans.
Mr Makheta replied that the former CEO of THETA had granted the loan to himself however the amount had been recovered. Appropriate steps had been taken against the former CEO.
Mr Gerber (ANC) posed questions on the authorisation of annual salary increases for THETA personnel. He referred to Point 5.1.3 of the AG Report which pointed to the authorisation by the Executive Committee of the increase of the annual salary of the Chief Executive Officer. Mr Gerber was of the view that there were very few private companies who were paying such a high salary package to their CEOs. He asked for the criteria used to determine the salary package of the THETA Chief Executive Officer.
Mr Makheta stated that the new CEO of THETA was appropriately remunerated. On the criteria used for deciding on the salary package of the CEO, he replied that the responsibilities and functions of the CEO had been taken into consideration as well as the overall budget of THETA.
Mr Gerber noted that THETA's financial statements in the Annual Report reflected that THETA had received profit from a sale of fixed assets. Was it not too premature for a young organisation such as THETA to sell assets?
Mr Mkheta pointed out that although THETA was a young organisation, it had inherited some assets and liabilities from the HIRB Board.
Mr Kannemeyer (ANC) posed questions on the disbursements made to the employers covered by THETA. He made a reference to Point 5.1.2 of the AG's Report which revealed that contrary to the provisions of the PMFA, no inspections or review of performance had been carried out by THETA in order to ensure that employers had complied with the criteria for the skills development grant disbursements. He asked why the THETA Executive Committee had made payments without meeting the performance requirements.
Mr Makheta replied that at the time the audit had been conducted, they did not have the capacity to measure performance. However in an attempt to ensure compliance with the workplace skills plan, the Board had improved its capacity.
Mr Kannemeyer asked if payments to the employers would continue despite the lack of efficient production.
Mr Makheta replied that payments would be made on the basis of the implementation of the workplace skills plan.
Mr Kannemeyer referred to THETA's income statement and cash flow statement in the Annual Report and asked why there was still a lot of cash in the bank not yet utilised for the public.
Mr Makheta replied that a letter had been written to Treasury explaining the surplus. An application for an exemption for the 2001/2002 financial year was made and Treasury had accepted the application.
The Chairperson noted that due to time constraints the meeting had to be adjourned. However SCOPA would watch the progress made by THETA during the course of the year.
REPORT OF THE AUDITOR-GENERAL TO PARLIAMENT ON THE FINANCIAL STATEMENTS OF THE TOURISM, HOSPITALITY AND SPORT EDUCATION AND TRAINING AUTHORITY FOR THE YEAR ENDED 31 MARCH 2002
1. AUDIT ASSIGNMENT
The financial statements as set out on pages 12 to 19, for the year ended 31 March 2002, have been audited in terms of section 188 of the Constitution of The Republic of South Africa 1996 (Act No 108 of 1996), read with sections 3 and 5 of the Auditor-General Act 1995 (Act No 12 of 1995) and section 14(6)(a) of the Skills Development Act 1998 (Act No 97 of 1998). These financial statements, the maintenance of effective control measures and compliance with relevant laws and regulations are the responsibility of the accounting officer. My responsibility is to express an opinion on these financial statements, based on the audit.
2. NATURE AND SCOPE
The audit was conducted in accordance with Statements of South African Auditing Standards. Those standards require that I plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement.
An audit includes:
Â· examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
Â· assessing the accounting principles used and significant estimates made by management, and
Â· evaluating the overall financial statement presentation.
Furthermore, an audit includes an examination, on a test basis, of evidence supporting compliance in all material respects with the relevant laws and regulations which came to my attention and are applicable to financial matters.
I believe that the audit provides a reasonable basis for my opinion.
3.1 Non-compliance with Generally Accepted Accounting Practice (GAAP)
A provision of R34 156 000 made by THETA in the above regard, was contrary to the requirements of Accounting Standards 130 (GAAP). This provision could not be substantiated by actual claims lodged by employers as at year-end. The financial statements did not reflect a contingent liability regarding the potential claims by employers.
3.2 Unauthorised and irregular loans granted by THETA
Unauthorised and irregular loans amounting to R357 130 were granted to a THETA employee and a THETA consultant, contrary to approved policies and procedures.
3.3 Irregular payments made by THETA on behalf of THETA-related agencies
Payments amounting to P2 852 717 were made during the 2001/2 financial year on behalf of THETA-related agencies, contrary to the stipulations of the Skills Development Act 1998 (Act No 97 of 1998). These payments are regarded as irregular.
3.4 Exceeding of 10 percent administration cost threshold
THETA exceeded the administration threshold of 10 percent, as stipulated in the Skills Development Act 1998 (Act No 97 of 1998) by R2 629 133 (4,18 percent more than the prescribed threshold).
Qualified audit opinion
In my opinion, except for the effect on the financial statements of the matters referred to in paragraph 3, the financial statements fairly present, in all material respects, the financial position of THETA at 31 March 2002 and the results of its operations and cash flows for the year then ended, in accordance with generally accepted accounting practice.
EMPHASIS OF MATTER
Without further qualifying the audit opinion expressed above, attention is drawn to the following matters:
1 Matters not affecting the financial statements
5.1.1 Non-compliance with the Public Finance Management Act 1999 (Act No 1 of 1999) [PFMA]
Â· No risk assessment has been finalised as at year-end.
Â· No fraud prevention plan has been finalised as at year-end.
Â· The internal audit plan for the first year of listing (2001-2002) could not be submitted.
Â· The internal audit section did not compile a rolling three-year audit plan.
Â· THETA surplus monies were not deposited with the Corporation for Public Deposits from
1 ApriI 2002 as required.
5.1.2 Physical verification by THETA of compliance with criteria for grant disbursement to employers
Contrary to the requirements of section 8.4.1 of the regulations issued in terms of the PFMA, no inspections, visits or reviews of performances have been carried out by THETA in order to ensure that employers have complied with the criteria as set out for skills development grant disbursements. An amount of R13 460 000 was paid by THETA to employers during the course of the financial year.
5.1.3 Authorisation of annual salary increases for THETA personnel
The executive committee of THETA apparently approved the annual salary increase for the chief executive officer and other increases were to be approved by the chief executive officer in consultation with the executive committee. Sufficient and appropriate evidence of the approval of the salary increases was not provided
The assistance rendered by the staff of the Tourism, Hospitality and Sport Education and Training Authority during the audit is sincerely appreciated.
DORIS LT DONDUR
17 July 2002
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