Department of Small Business Development: Auditor-General input; with Deputy Minister

Meeting report

Department of Public Services and Administration (DPSA): Briefing

Mr Kenny Govender, Deputy Director General (DDG): DPSA, presented the briefing on the progress of the Department of Small Business Development’s (DSBD) and its impact on performance, based on the structure and progress as at 28 September 2017. He emphasised the structure review process leading up to 1 April 2018, highlighting that the DPSA was focusing on phase 3, which would then be written up as a formal structure.

He pointed out that the transfer of resources from the Department of Trade and Industry (DTI), originally meant to start in 2014 when the agreement was made, had been done only in 2015 and that this had remained a challenge, as some posts had yet to be transferred to the DSBD. He then went on to discuss the finalisation of the service delivery model in May 2017, and the ongoing process of job evaluation. A macro organisational structure was elaborated upon, which was meant to serve as a draft towards the approved structure, with core functions being served at the bottom of the structure. According to the structure, there would be three core functions: sector and policy research, integrated cooperative development and enterprise development and entrepreneurship. The main purpose of the structure was to define the functions of the second branch,

Mr Govender questioned whether there should be a separate policy unit, or if each branch should have a policy unit within it. He acknowledged that the decision lay with the DSBD, though the Minister played a consultative role.

He ended off by adding that no funds had been transferred from the Department of Trade and Industry (DTI), as per the agreement signed in 2014, and that the funds transferred by National Treasury were insufficient. This, along with the need for a clearer business case, would need to be clarified.

Discussion

Mr R Chance (DA) expressed his uncertainty about the service delivery model and enquired about what the job evaluation process would look like in practice. He also expressed concern over the fact that the process had taken four years, and was looking to be completed only in 2018. He asked why the monitoring and evaluation of staff had been excluded. With regard to the coordinating role of DPSA, he asked what the role of the Department was, since many other departments gave support -- and what guarantee was there that they would listen? He raised concerns about the viability of the Small Enterprise Finance Agency (SEFA), and asked how bankruptcy could be prevented if it was transferred out of the Industrial Development Corporation (IDC). He suggested a more comprehensive overview. Lastly, he asked what the purpose of the delivery support was, bearing in mind that this should be evident in communities, and local government should be capacitated to provide support services.  

Mr T Mulaudzi (EFF) expressed concern about linking the DSBD’s core business issues with its structure. He criticised the DPSA for their delayed response in dealing with the start-up problems four years after the agreement had been established. Referring to the structure review process, said to be set by 31 March 2018, he asked for clarity about the start-up structure and the way forward. He raised concerns about the DPSA’s ability to adhere to the National Development Plan (NDP) and export development, expressing the need for time frames, especially with regards to transfers from the DTI to the DSBD.

He went on to ask why the structure remained a draft, and sought clarity on the Chief Directorate: Governance and Executive Support function, as indicated by the DPSA. He enquired about how transferrals would be governed. He suggested that functions forming part of international cooperation and trade promotion be returned back to the DTI, and asked why the DTI had not transferred funds for incubation support programmes. He recommended that a new business case be developed, and that a business strategy be implemented to transfer SEFA to the DSBD from the IDC. Lastly, he raised questions about why the name change for the Department, to include ‘cooperatives,’ requested in 2014, had not been acted on.

Mr Chance commented that the Department was undergoing some type of “juniorising,” and asked for clarification on the role of the Director General and directorates.

Mr Govender said that the service delivery model was meant to determine how services were delivered, which would in turn dictate the structure. He clarified that ‘job evaluation’ referred to the system used to evaluate jobs in government, which was to be determined by the Minister of Public Service and Administration, to establish the salaries of jobs. This would ensure that there was a uniform system for all.

The Chairperson pointed out the perception that national departments were policy-making departments, but emphasised that their core businesses differed. The DSBD’s core business had to do more with human beings, rather than infrastructure, and that it had been mandated to coordinate the provision of services by other departments to small businesses. She added that projects and the strategic plan should be known at the local government level and that where it concerned monitoring, cooperatives and businesses operated differently. Therefore, a local economic development unit would be more relevant for the development of small, medium and micro enterprises (SMMEs) and cooperatives.

Mr H Kruger (DA) commented that he had never before seen a service delivery model such as the one presented by the DPSA, and requested a copy of it.

Mr Govender confirmed that such a model existed. He clarified that SMMEs were included in the structure and emphasised that the structure sought to provide functions instead of targets. He pointed out the need for empowering legislation or cabinet processes, such as those involving National Treasury and procurements.

The Chairperson interjected, commenting that procurement policies were not achievable if SMMEs and cooperatives were not at the level of supplying. She pointed out the theoretical success of the policy, but said that there was a lack of integrated planning and therefore no capacity. As district municipalities were mandated to integrate plans of departments, she maintained that access to the market was not the real issue, but the lack of adequate services were. The Chairperson asked the DPSA to indicate how targets would be met.

Mr Govender reiterated that the structure was about catering for functions. Referring to the various roles, he said these allowed for monitoring whether goals were being met on a regular basis. The structure captured different elements, including that of providing guides and toolkits. The Inter-Governmental Relations Act served as an instrument which created the opportunity for the three levels of government to come together.

Answering the question of why it took so long, Mr Govender said it was the DPSA which was meant to ensure that these functions were being served. The main beneficiary had been the DTI, though the agreement had been between the Ministers of the DSBD and DTI. When a new department was created, it became a functioning structure, and so the DSBD had an evolving nature.

The Chairperson commented that the performance of the DSBD could not be measured against the poor performance of other departments. All departments were established in response to the need for addressing challenges, such as the triple challenges of unemployment, poverty and inequality. Therefore, the DPSA needed to indicate the resources that were needed and the support required to achieve its goals.

Mr Govender admitted that perhaps a new approach was needed, as the organisational design followed the strategy. Perhaps the service delivery model was too mundane? However, the structure needed to ensure that the Department had support structures in place. He then referred to the slide that dealt with monitoring and evaluation (M&E) staff. The organisational design and structure only followed the strategy, so the strategy needed to be finalised first. The transfers made to M & E staff had been included in the 10% administration staff transfers, but development funding was required.

He highlighted the need for the DPSA to meet with the DTI, National Treasury and the DSBD. Despite development finance institutions forming part of the reform process of state-owned enterprises, local government played a huge role in supporting small businesses across the board.

The start-up structure between 2014 and 2017 had addressed a ‘large chunk of the work’. Though the DPSA did not measure performance, it had provided policies to assist. Subsequent to the agreement in 2014, 168 posts had been transferred to the DSBD. He clarified that no posts had been transferred and returned.

The Chairperson challenged this by referring to a previous acting Director General, and asked if this transfer was included in the five posts indicated. She emphasised the need for the DPSA to be accurate and for decisions to be informed by what had been agreed upon.

Mr Chance shared his understanding that the said Director General had come from the export desk at the DTI, but had been returned, though he was unsure about the position she had gone back to.

Mr Govender replied that that discussion should take place between the DTI and the DSBD to ensure that posts agreed to were followed through.

The Chairperson commented that information should be informed by agreements, and that information should be accurate. Negotiations between the DTI and the DSBD were not fair, and some services remained with the DTI. These included the functions of developing small businesses and cooperatives. Furthermore, the DPSA was responsible. She said duplication of functions was accompanied by duplication of funding, and caused confusion on the ground.

Mr Govender concurred, and agreed to address the matter. To clarify the structure regarding chief directorates and deputy director generals (DDGs), he said that there would be two chief directorates, and no DDGs at that level. Three branches, however, would have DDGs. Chief Financial Officers would report directly to the Director General of the Department. With regards to the coordinating role, which had been discussed in the transversal agreement, the matter of SEFA and transfers was being dealt with by the DSBD.

Concerning the name change to include the element of cooperatives, the Minister of DPSA was responsible for submitting a request for the amendment to the President. There had been a request in early 2014, but this had been delayed. The decision to change the name would go to the President, but the DPSA played a coordinating role.

The Chairperson said the Minister had confirmed a submission had been made and that the President would respond. However, it had been reported that it was not communicated that it was too early to change the name. The Chairperson mentioned meeting with two representatives from the South African National Apex Cooperative, who believed that there was more focus on SMMEs, and that the key role of the of cooperatives was misunderstood.

Mr Govender said that the DPSA would facilitate this, but that the onus was on the DSBD.

Mr Kruger commented that the Committee had asked about whether the outcomes of the strategic plan had been seen by the DPSA, and said that this strategic plan had been accompanied by a wish list.

The Chairperson added that the strategic plan was meant to be useful for the DPSA, but was more important to use as a tool to hold the DPSA accountable, especially for the budget review and recommendations report (BRRR). This would allow for the DSBD to influence the budget, to identify what had been omitted and what had been observed on the ground, in order to influence an amendment.

Mr Kruger agreed, but responded that the DPSA could not be held accountable for what they did not know. The DPSA should know the contents of such a document.

The Chairperson emphasised that all documents were adopted by the Committee, and the DPSA needed to know what the strategic plan entailed, as it would be used to hold them accountable. The Chairperson then highlighted the risk that the DPSA might run of the Committee not agreeing with them regarding their strategic plan. This would also facilitate conversation between the two departments.

Mr Chance commented that there had been no reference under Branch 2, to the Cooperative Development Agency (CDA) and the cooperatives’ bank. The Cooperatives Act made provision for these to be established, but this had not happened. He criticised the lack of implementation of programmes, perhaps due to problems with capacity. He asked if the DPSA and DSBD had made a case to Treasury, and with what degree of capacitation.

Mr Govender replied that he was unable to answer Mr Chance. He said that the DPSA would consult the Committee’s strategic plan, but was unsure about the request to National Treasury.

Mr Chance followed up by asking what the reporting chain of SEFA and the Small Enterprise Development Agency (SEDA) was, and whether they reported to the DG or the third branch.

Mr Govender responded that this was something that required attention.

The Chairperson returned to the subject of the BRRR, and emphasised the problem posed by the Committee’s strategic plan not being seen. She said that portfolio committees (PCs) looked at whether Parliament, through its departments, understood the needs of communities. The misalignment of programmes was pointed out, as well as the need for programmes to be reviewed so that they addressed failed needs. Furthermore, the PC expected the Department to address what had been identified as failed needs.

Mr Govender said that the DPSA tried as far as possible to make a decision. The interaction with the PC had helped to make decisions, but he highlighted that the DPSA’s role was to ensure that there was support and guidance around structure.

Mr Chance addressed the issue around the Cooperative Development Agency (CDA), and added that the structure had been developed in cooperation with the Department.

Ms Edith Vries, Director General: DSBD, said that the functions of the branch included providing establishment and oversight of government institutions, and referred to provisions made by the National Cooperatives Development Act.

Mr Chance was dissatisfied with the Director General’s response that the structure had been developed in cooperation with the DSBD. He said that surely there would be a reference to responses to corruption, and requested a reference to the Cooperatives Bank Act.

Ms Vries responded that there was no need for a Chief Director; and that where it concerned governance, the accounting officer advised the Minister. In terms of implementation, a substantial portion of the budget had been transferred to SEDA, which formed part of the Department’s responsibilities. Therefore, the structure did not state the targets but the targets made provision for the business functions of the business case.

The Chairperson said that this would be engaged with this when Department presented, and that the purpose for the units mentioned on slide 11 of the presentation would need to be clearly stipulated. She acknowledged the points raised by the DG, but highlighted that the Department was still responsible for holding the CDA accountable. With regards to corruption and fraud, she referred to the role of SEFA in uncovering corruption and fraud.

Mr Chance returned to his concern about the programme review, and emphasised that departments and agencies needed to understand their respective roles. These should not overlap, and Branch 2 should not fall into the trap of doing work that an agency should. Could this be included in the structure?

In response, Ms Vries referred to slide 11, quoting the function of “the establishment and governance of the institutional arrangements provided by the Cooperatives Development Act”. Therefore, agencies and tribunals had been included.

Ms Vries, differentiating between targets and functions, highlighted that the structure provided for functions, and that the established tribunal did not seem like a function. However, she agreed to include it in the structure.

Mr Govender noted all of the points raised during the meeting, and said the DPSA would ensure that the structure responded to what the PC was looking for. He also guaranteed that the strategic plan would be consulted.

Briefing on the 2016/2017 annual financial performance of the DSBD did not take place, as members of the Financial and Fiscal Commission (FFC) did not attend the meeting.

AGSA on DSBD 2016/2017 audit performance

Mr Ahmed Moolla, Senior Manager: Auditor-General South Africa (AGSA) said its findings showed that the DSBD’s audit outcome had regressed, and compliance with legislation had emerged as a problem. The audit had been beneficial in terms of usefulness and reliability. It had to do with usefulness, in that it dealt with targets and requirements. The audit had revealed no issues with reliability, as the misstatements mentioned in the presentation had been corrected.

In order to improve the audit outcome, attention needed to be given to key controls and performance report reviews. He emphasised the importance of direction, highlighting that effective audit plans required that the findings of the previous report were addressed and the need for leadership to follow up on action plans. He also raised concerns about the exclusion of mandatory documents, and the payment of suppliers without goods delivered. He pointed out the importance of compliance with regulation, but acknowledged the improvements made in the preparation of financial statements. There had also been over-spending on the approved budget.

Discussion

Mr Chance referred to irregularities, such as corruption and under-performance, and said that the PC needed to question the mandate of an audit, and hold the government accountable. He also suggested that funds be allocated to audit SEFA.

Mr Mulaudzi asked AGSA to elaborate on the slides pertaining to fraud and consequences management. He also asked for a report on the SEDA.

Mr Moolla responded by saying that a lot of the work done this year was not usually done. With regard to the issue of non-compliance, the Department had requested that an investigation take place. He mentioned the fraud activity in Mpumalanga, and expressed the priority of engaging the Minister and briefing on the audit. On the matter of SEFA, the audit had been performed by a private auditing firm, whereas SEDA’s audit was conducted by AGSA.

The Chairperson asked if the AGSA had read the report, especially the one about Mpumalanga. She asked why AGSA had agreed to assist the PC in its investigation of fraud, but was unable to provide funding. Why had the issue of the Cooperative Incentive Scheme (CIS), which started when the function of CIS was under the DTI, not been picked up sooner?

Mr Moolla responded by asserting that the AG had no responsibilities where it concerned fraud.

The Chairperson commented that fraud was committed as a result of weak systems, and that the Department paid for quotations, not for service delivery. As such, service providers and cooperatives had been excluded from the report. She added that the AGSA should be a custodian of the Public Finance Management Act (PFMA).

The Chairperson went on to point out that slides 10 and 13 of the report were contradictory, adding that risk management put systems in place that prevented fraud. Therefore, an internal audit committee needed systems in place -- checks and balances to show what was happening in other parts of the Department.

Mr Moolla responded that the internal audit committee served its purpose, despite concerns about incentive schemes and payments. Though it might be seen as too late, something could be done at this stage and there appeared to be a commitment from the DSBD’s side to address these issues. He recommended that these procedures be addressed.

Mr Chance pointed out that the AGSA had failed to identify potential irregularities, and commented that if the Department had done so, the AGSA would have been justified.

The Chairperson corrected Mr Chance, and said that the PC had picked it up and the DSBD had seen the need to address it. The PC’s oversight role was emphasised.

Ms Vries referred to slide 10, and reminded Members that the AG looked at the internal audit, audit functions and risk through a particular lens, and that internal functions were based on a risk register, which the audit committee received and called meetings to discuss findings of audits. She commented that perhaps those functions needed to change, and referred back to the issue of ministerial commitments.

The Chairperson asked whether, if the AGSA was not looking at impact, who was? Thus, if the AGSA did not look at the PC’s oversight reports and use them to determine the Department’s performance, how did the PC’s work, which focused more on impact, relate to the work that was done by the AG? She added that the government’s performance in the eyes of the public was determined by how well their needs were met.

AGSA responded by highlighting its mandate in respect of compliance and performance. AGSA brought information to people and existing oversight structures. This was achieved by engaging, sharing documentation and evidence, to hold people accountable. The accountability framework required that there should be a plan and controls in place.

With regard to the investigation discussed, AGSA was willing to assist with the requirement of a formal request and funding. Funding had been secured, but a formal request was still needed. Concerning the irregularity audit, a forensic investigation would need to take place. A regularity audit was a different process, with a different goal, which was more of a ‘fact finding’ process.

The Chairperson asked for clarity on what the request had been, and added that there had been no item on a forensic investigation of possible fraud. There was a need to investigate further, but the PC did not have the capacity. She asserted that the AGSA had been chosen because it was the office that was also responsible for auditing, and suggested that its mandate be reviewed.

Mr Chance pointed out that the process remained parallel, and said the PC had approached the House Chair. He suggested that the request come from the PC and the DSBD, reminding Members that checks and balances ensured that institutions fulfilled their duties. He then distinguished between conformance and performance, adding that the PC, in fulfilling its oversight role, should ensure performance, not only conformance.

The Chairperson referred to the PC conducting a further investigation, but held that if the DSBD had approached the AGSA to do the same work, the decision of the PC could not be changed. She suggested that there be a differentiation between the work of the PC and the Department.

The meeting was adjourned.