Heritage Assets (GRAP 103) challenges: Department of Arts and Culture, Treasury & AGSA briefing

Arts and Culture

14 February 2017
Chairperson: Mr X Tom (ANC)
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Meeting Summary

Documents handed out:
Briefing on GRAP 103 for Department of Arts and Culture entities
Recognised Accounting Practice 103 [available on the 17th February 2017]

The Department of Arts and Culture briefed the Committee on the impact of the GRAP 103 on public entities and the reality of many museums getting adverse audit opinions. The presentation addressed DAC support to entities; requests for exemptions; GRAP 103 impact on sector and the DAC implemented interventions. The entities largely affected by GRAP 103 were identified and presented.

The briefing by the Office of the Auditor General of South Africa addressed the Audit outcomes for 2015/16. There was an overall regression in the audit outcomes for the Arts and Culture entities for the 2015/16 financial year. The major contributor to this regression was the fact that the requirements of GRAP 103, Heritage Assets came into effect in 2014/15. The presentation covered the requirements of GRAP 103 and offered recommendations to overcome the challenges faced by both the entities and the Office of the Auditor Genera of SA.

National Treasury gave a short briefing that explained the reasoning behind the GRAP 103 and addressed the challenges of holding entities accountable for the protection of national heritage assets. The qualified audits situation was described and it was noted that although entities had been granted exemptions, National Treasury could not hinder AGSA to audit.

The presentation by the Pan South African Language Board (panSALB) was postponed because the entity was unavailable due to the Language Activism month: a function held in Pretoria until 28 February 2017. The campaign is aimed at encouraging South Africans to speak and live their languages and create more a multilingual society.

Members had questions and comments around the communication breakdown between entities and National Treasury. They were quite critical of the presentations, saying they did not address the questions they wished to have more clarity on. Members felt that two different pictures were presented to them; one from the entities and one from National Treasury. They asked whether the entities knew what GRAP 103 required from them, and whether there had been efforts on communicating exact instructions. Members expressed the concern that National Treasury had not dealt with the increased security costs and insurance premiums due to GRAP 103, this needed to be addressed to alleviate the cost burden on entities. Members also asked what had been done about the increased risk of theft by local or international syndicates and recommended that some heritage assets not be valued in terms of market price to reduce the risk. It was agreed that continued collaboration was needed to deal with the challenges of GRAP 103 faced by the entities.  

Meeting report

Opening remarks

The Chairperson reminded Members that this was a very important meeting since the Committee had decided to focus on entities as entities receive 80% of the budget of the Department of Arts and Culture (DAC). The DAC currently has 80% of the budget monitored by three members of staff while 460 staff members working on the rest of 20% of the budget. She expressed dissatisfaction with this but was aware that DAC is trying to meet them halfway which was a positive sign.

The Chairperson welcomed the Office of the Auditor General of South Africa (AGSA) and emphasised that the Committee takes its outcomes seriously as well as encouraging entities to follow AGSA’s recommendations. She stressed that the Committee realised that it is does not matter how hard the Committee worked if the audit report comes back with too much irregular and unauthorised expenditure it would give a negative perception of the Committee. It was therefore very important for DAC and the entities to operate in a way that will not bring about negative outcomes.

National Treasury was welcomed, and the Chairperson specifically requested that the meeting should aim to bring greater clarity of the GRAP 103 by the assistance of the Treasury.

The Chairperson acknowledged the hard work by the portfolio Committee last year and emphasised that the impact the Committee has on ordinary people’s lives is very important and had been demonstrated at the last oversight visit by an email from a employee at one of the museums.

The reason for the meeting was to find a solution to the issue of regression of entities’ performances since the implementation of the GRAP 103. Since it is the Committee’s constitutional mandate to oversee public entities, the recent qualified audit reports are of major concern. The Committee takes the AGSA’s report seriously and all oversight visits are decided based on AGSA’s performance reports. The adoption of GRAP 103 also had an effect on funding availability for entities. Entities which for ten years have performed well have received qualified audits and now struggle to secure donations from non-governmental donors.

Briefing on Generally Recognised Accounting Practice (GRAP) 103 by the Department of Arts and Culture

Mr Vusithemba Ndima, Acting Director-General of the Department of Art and Culture, covered the background to the adoption of GRAP 103. He addressed DAC support and interventions; the requests for exemption by entities and GRAP’s 103 impact on the entire sector.

Entities largely affected by GRAP 103 included the National English Literary Museum, William Humphreys Art Gallery, Die Afrikaanse Taalmuseum, Iziko Museums, War Museum, Msunduzi Museum, Nelson Mandela Museum, KwaZulu-Natal Museum, Ditsong Museums, Robben Island Museum, Luthuli Museum, National Museum Bloemfontein and Freedom Park.

On March 12, 2015, the DAC held a meeting with all stakeholders (National Treasury, AGSA, Office of the Accountant General and the Chief Financial Officers of Public Entities) where it was decided that public entities be exempted from full compliance with GRAP 103 for a period of three years (1 April 2015 - 21 March 2018). However, the AGSA indicated that its auditors will continue to perform audit on heritage assets but no opinion will be expressed should the Minister of Finance exempt public entities from complying with the standard.

Challenges faced by entities included restricted funding for valuation of the heritage assets; limited human resources and equipment to conduct physical verification of the heritage assets at their disposal; Measuring/Valuing items of library collections; and that entities were requested to obtain estimate costs from reputable companies to conduct valuations.

GRAP 103 is being dealt with at the level of CFOs under the leadership of DAC.

Briefing on GRAP 103 by the Office of the Auditor General

Ms Nelisiwe Mhlongo, Acting Senior Manager at Auditor General of South Africa (AGSA), presented on the audit outcomes for 2015/16. There was an overall regression in the audit outcomes for the Arts and Culture entities for the 201/16 financial year. The major contribution to this regression was the fact that the requirements of GRAP 103, heritage assets came into effect in 2014/15. This affected 38% of the entities in the portfolio.

Challenges faced by entities are the cost of complying with the standard outweighing the benefits; that funding from the National Treasury only becomes available from 1 April 2017; that different measurements techniques and experts are being used and the availability of sufficiently skilled valuators to determine reliable fair values are scarce; and also, the challenge of increased security and insurance costs.

The challenges faced by the AGSA are that entities were unable to prove impracticability to comply with the measurements criteria of the standard and that no evidence was provided by management to substantiate their claim that no active/open market existed for some of the heritage assets. It was also reported that there was no proper categorisation of assets and therefore a blanket approach was followed in valuation of assets.

Recommendations offered by AGSA included that the DAC should take the lead and do research to identify different heritage assets within the sector and investigate into whether there are active markets and if possible develop a White Paper on heritage assets in South Africa. It was also advised that National Treasury (NT) should support and guide entities on the procurement process and if possible compile a database of valuators that can be used; that ASB needs to provide clear guidance and possible alternative accounting where it is impractical to value heritage assets. It was highlighted that entities need to embrace the standard and demonstrate that all possible solutions had been considered when they disclose heritage assets.


The Chairperson asked how the Committee can move forward, past the new challenges that the entities faced, especially with people who were born before the advancement of technology and who are now required to shift from manual to technological approaches of documentation.

Dr P Mulder (FF+) expressed confusion over the presentation and was concerned at the cost of compliance which is not where it is supposed to be. The audit was unfair. From the entities’ perspectives, the audit requirements are unreasonable and caught them off guard. Some entities have for ten years had unqualified audits and are now receiving qualified audits due to GRAP 103. A lot of funding comes from outside the government, and is now difficult to secure due to the audit reports. Resources are scarce as it is for our public entities, and now the donations have stopped as well. The presentation stated that funding was only available from 1 April. This means that they are promised funding, but are already punished. It does not make sense. Increased insurance also comes when entities valuate assets aligned with the market price. The costs of GRAP 103 are adding up. 

Ms S Tsoleli (ANC) agreed with Dr Mulder that the presentation left her more confused than before. The presentation did not give answers to the questions she sought. For example, the statement: “Entities were unable to prove impracticability to comply with the measurement criteria of the standard” (Presentation by AGSA, page eight), could AGSA explain to the Committee in more detail what this means because the Committee is not part of the AGSA team and therefore lack the skills to understand technical jargon. Such statements do not give the sense of what was happening.

Ms Tsoleli referred to another challenge that was presented: “The exemption issued by the Minister of Finance for all DAC entities from complying with the measurements and recognition criteria of GRAP 103 was assessed by the AGSA’s technical division and the outcome was that it affected the fair presentation of financial statements and was therefore not accepted for audit purposes” (Presentation by AGSA, page nine). She wanted an understanding of what a ‘fair presentation’ is. National Treasury could help the Committee by answering some of these questions and provide explanations of the areas confusing for Members. Can the museums, in the next ten years, even be able to meet the financial standard set out by GRAP103? She thought it practically impossible.

Mr T Makondo (ANC) was critical of the presentation and expressed that the information also had left him confused. People do not like change. The portfolio has worked hard to make entities comply with the recommendations of the AGSA. When change happens, the Committee goes back to square one. The week before last, at the oversight visit, Members saw how big the problem is. GRAP 103 has made entities regress and this is unfortunate. The entities do not know what to do. It is even worse because resources do not arrive. You can see them trying to comply and do everything they can to meet the requirements. When you go to their books, all the money goes towards human resources and attempts to try and comply with GRAP 103. They have employed over 19 temporary staff to assist them. Has NT considered all the risks associated with GRAP 103? For example, regarding intellectual property. If I am an artist and I die today, my art which was valued at R6000 can rise to 5 million. Have these risks been taken into consideration when GRAP 103 was implemented? During the meeting reported by the DAC, between them and NT, AGSA and entities, what did you agree on? Because GRAP 103 is here to stay so, we must find a solution to these problems. At this stage, GRAP 103 is even demoralising for the Committee.

The Chairperson replied that hope is not a strategy. This meeting should come up with a clear understanding and clear strategies to improve the situation.

Mr G Grootboom (DA) highlighted issues mentioned by Mr Makondo and Dr Mulder concerning the GRAP 103’s effect on insurance cost and also additional security costs. It is important that certain assets are not valued with a price tag. For example, if there is a Mona Lisa in our possession, people will come from overseas to take it. 

The Chairperson offered the DAC and AGSA the opportunity to reply to questions raised by Members. It was requested that the discussion would cover how the GRAP 103 had an impact on the entities. There is an understanding from the Committee side. If we look at the National Library, for example, they do not know the number of assets, but they know the value is over a couple of million, how do they know that? Without the number of assets, how can they value their assets?  This is the reason why we called this meeting. We want to understand GRAP 103 and how it impacts the entities and therefore the Committee. 

Mr Ndima replied that he did not hear any direct question but that he would offer some clarity where Members said they were confused.
On the meeting mentioned by Mr Makondo, they were very tough. The entities that are directly affected were given a chance to raise their issues. An important point that came out from this discussion, is a heightened consciousness around the development of the inventory and registers. If we look internationally, registers are the most important thing to have. We must have inventories to manage our assets and to protect intellectual property. The issue of valuation is the tricky part.  

Mr Andries Sekgetho, Senior Manager at AGSA, said AGSA is responsible for determining if you comply with the standard that has been set, which is the challenge from AGSA’s point of view. AGSA cannot also then provide guidance and explanation of its measurements. He apologised if the presentation was confusing but AGSA did try to eliminate financial jargon, and tried to make it simple to understand and engage with. AGSA briefed the Committee last year, in October, which included technical discussions; and thought it was just building on that. A fair presentation is part of the AG’s requirements from international standards. When you give a conclusion, you must give a reasonable insurance that from what AGSA did and what the procedures are, that AGSA conducted a fair judgement. He gave reasonable assurance that these financial statements are presented fairly, aligned with the important framework that the entities say that they comply with. A fair presentation means that AGSA will assess entities by the standards that they say they comply with and that their financial statements fairly present, aligned with the requirements of the standards.

Mr Sekgetho addressed the issue of insurance and said that regarding risk assessment, it should fall part of the internal measurement processes. In the AGSA’s measurements, there is a particular section where AGSA includes ‘Emerging Risks’. This is where AGSA will tell entities that there is a bill coming in to effect next year and therefore we ask entities to consider the impact of such a Bill. Measurements allow for understanding how the GRAP 103 would impact the business.

Briefing by the National Treasury on the impact of GRAP 103 on entities

Ms Empie van Schoor, Chilelf Director, Legal Services, presented National Treasury's report on the impact of GRAP 103 on entities. She said all present have an oversight responsibility of these public entities. What has come out of this session are questions of how to go forward and what instruments to use.

It is important to understand why GRAP 103 came about. There are entities in the public sector that are responsible for preserving the heritage of South Africa. This is quite a broad requirement and the question that arose is how to hold these entities accountable. The GRAP 103 came in response to this question in terms of outlining what NT are going to ask them to put in their financial statements. Traditionally, NT ask entities to show their income statement, balance sheet, resources they control and what they are valued. With that information, NT can then make decisions around what resources NT should allocate to that entity. The key question is, how to hold these entities accountable?

We have tens of thousands of items, some of them are not accessible to the public, some of them are, some of them we do not know we have and some of them are heritage items of great importance. How do we ask the entities to show us confidently that they know what they are doing with these assets? This is where the challenge came with GRAP 103. We used the traditional method, of asking for the balance sheet.

What is interesting is that of all asset standards, the GRAP 103 is the easiest. I say that because, it has a relaxation in there, which the AGSA had on their slides, which says, these are the requirements regarding the standard for measurement and regulation and if you cannot do it, then disclose that. No other standard has this, neither infrastructure assets or military assets. There is an understanding that heritage items are very difficult regarding valuation. So, within the standard, there is an acknowledgement and recognition that to claim compliance, entities must tell the users that: I look after and I have stewardship responsibility for these types of categories of assets. The challenge came when entities disclosed that they could not follow the procedure because it was too difficult. Entities cannot say: I do not know where they are so I cannot say how many assets I have. That is where the attention came last year. We know it is difficult. But entities must be able to show where the cost outweighs the benefits so that we can do our job and help them. We understand that the costs are high and that insurance is an issue, but we have to go through a process to make sure that entities are accountable and that they can be held accountable. This is because we have a very high standard that we want to hold entities accountable for. So, that is the challenge, and NT told the entities that we should work together to try and find a solution to the problems they are facing.

In terms of requirements, the first step is to document what assets entities have. Which categories they have, which ones we think they can valuate, which ones are not possible to valuate? Let us put together a framework and be reasonable about how we are going to get through this process, and then go through it category by category without jumping in and saying we need to valuate certain items first.

The first step is to know what entities have, and for them to have a register. The second step is to have a look at it from a material point of view. If the entity only has one of these items, let us not bother with valuation, because it might not be too cost effective to go through the process of valuation. But if entities have several of these items, then go through the process of having them valuated.

NT acknowledged that disclosing certain information might be damaging to an entity. The standard acknowledges this as well. If there is a risk of theft, then that will justify not disclosing the information. The register will show what assets entities have and also tell us, that this entity is responsible for an asset but cannot give a value because it is damaging or too risky.

When the standards came into effect, it had a three-year mission of relief put in place, so entities would have three years to find measurements, to measure their assets. Unfortunately, there is a behaviour in the public sector that we only do things when AGSA comes and knocks on our door. NT can admit that we did not remind the entities.

Compliance with the standards means, I am going to give the users, taxpayers and the Treasury, a comfort that I am accountable for all my resources, that I recognise all my obligations and demonstrate how I have used my revenue. By saying that I comply with the standard set, I am giving you a fair presentation - a set of financial statements that fairly present what I utilised this year - by not putting something in there, I cannot say that. In 2015, at the meeting mentioned by Mr Ndima, the Minister said, “you have more time”, but that does not mean that you are complying with the standard. You can have more time, but you are still not showing the public a good amount of information and therefore you are not giving a fair presentation of your activities and actions. They were not given an exemption by the AGSA because the NT cannot tell AGSA not to audit. We do not have the mandate to do so.


Mr Grootboom stressed that he had not changed his opinion but wanted to ask the question that if the entities have been given the same kind of breakdown as NT now presented, that certain assets do not need a market price etc., then how do we go about ensuring that they have this information accessible to them?

Dr Mulder asked if anything could be done in regarding the lost donations that entities are experiencing.

The Chairperson emphasised the objective of the meeting. When the Committee visited the entities, it saw there was a problem with the GRAP 103. There seems to be a communication breakdown. It is important that AGSA and NT also anticipate what will happen when the GRAP 103 is complied with, and there is an increase in risks for the entities. There is also the issue with human resources. We need to bring in more people in to do what is required by the GRAP 103. We need to look at all of this and then discuss the audit outcome. The audit report is very important for the entities because they cannot raise funding with qualified audit reports. There was a need to work together to ensure that entities do what they are supposed to do, and to need to change the mindset of entities feeling threatened by this change.

Ms van Schoor agreed with the Chairperson on the noted miscommunication and replied that there is a lack of understanding of the requirements by the entities. NT admit that they sometimes think about what the standard must entail and not about how the entities are supposed to get there. She stressed that the level of understanding of the requirements and the level of communication is something they need to work on.

The Chairperson asked NT to meet with the portfolio Committee and explain what the plan and roadmap is for GRAP 103 to be implemented so that it brings positive results. The Committee wants specific actions, specific timeframes and specific outcomes that are positive. Not for any of us, but for the people we are serving, in this case, the entities.

It had been a fruitful meeting and she hoped that collaboration will continue. The Committee only wants to understand how to better serve the entities.

The delegation from DAC and the Treasury was excused.

Committee business
The Chairperson informed the Committee that the Department of Trade and Industry would hold public hearings next week on the Performance Protection Bill and therefore Members were asked to attend the hearings instead of the Committee meeting.

Mr Grootboom brought up the subject of an overseas visit. He proposed that countries that South Africa already have economic and other relations with, specifically the BRICS countries, are potential countries to visit. Many countries, including Brazil and Mexico have experienced discrimination of people of colour as well in the arts and culture. Since the Committee is trying to build a cohesive society, an overseas visit can teach us new lessons around the challenges that we face.

The Chairperson said an agreement needs to be made around an overseas visit by next week Tuesday so that the portfolio Committee can submit their application for a study tour immediately. Any further suggestions of destinations by Members should be brought forward in writing before next week.

The meeting was adjourned. 

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