Attending the deliberations on the activities of the Ingonyama Trust Board and accounting procedures alongside the Committee was the Minister of Rural Development and Land Reform, Auditor-General of SA (AGSA), the Ingonyama Trust Board and Parliament’s legal representatives. Three documents were presented followed by in-depth discussion. Much of the meeting sought to establish legal opinions. Two distinct positions emerged – whether the Ingonyama Trust and Ingonyama Trust Board (ITB) should be seen as one entity or two, especially concerning matters of submitting financial statements and audit reports separately. This remained a key issue throughout the meeting. There was also rigorous discussion on where royalties’ revenues should go.
The KwaZulu-Natal Ingonyama Trust Act of 1994 and the Public Finance Management Act of 1999 were the two pieces of legislation consulted, and cited, throughout the meeting, along with the Constitution. The ITB also made reference to the Mineral and Petroleum Resources Development Act of 2008 in its presentation. The AGSA, who engaged with the ITB, National Treasury and Department of Rural Development and Land Reform, found that, based on the ITB’s position, one set of financial statements was inadequate reflection of financial performance.
The ITB’s presented its position on the matter where matters of royalties on IT land were touched on along with expropriation of land.
It was decided that another meeting would be held so that the Committee could establish its position. By the end of the deliberations, it was agreed that patience with the multilateral nature of the issues at hand would be needed and, therefore, further legal opinions would be sought, perhaps even consultations with the Department of Cooperative Governance and Traditional Affairs, after establishing whether there were one or two entities being dealt with. Deregistering the Board was also identified as a possible solution towards the end of the meeting; however, its effectiveness in solving actual issues was questioned.
The Chairperson welcomed the Minister of Rural Development and Land Reform, Mr Gugile Nkwinti. Apologies were noted from Deputy Minister C Mashego-Dlamini.
The Chairperson explained the purpose of the meeting was to deliberate on a date to be sent for getting stakeholders together as well as for the Committee to obtain legal advice to handle the matter of separate reports and financial statements of the Ingonyama Trust (IT) and Ingonyama Trust Board (ITB). In the previous report, the Auditor-General of SA (AGSA) suggested that the IT and ITB should present separate reports. The purpose of the meeting was also for the sharing of different legal opinions.
Briefing on the Ingonyama Trust and Ingonyama Trust Board by the Auditor General by Auditor General
Mr Indhren Perumal described the AGSA’s functions and mandate, as per section 188 (1) of the Constitution. The ITB was expected to comply with all provisions in the Public Management Finance Act (PFMA) relating to public entities and, therefore, should provide separate financial statements. These statements were to be audited by the AGSA, as per section 55 (c) of the PFMA.
During 2015-2016, the ITB submitted one set of financial statements on 31 March 2016. During discussions with management and the Board, the Board expressed dissatisfaction with the findings reported by the AGSA because it was under the impression that, according to the KwaZulu-Natal Ingonyama Trust Act (ITA) of 1994, it had established two separate entities.
Mr Perumal added that, based on the ITB’s position, one set of financial statements was an inadequate reflection of financial performance, cash flows and disclosures of the two separate entities. The ITB should have taken this position from the start of the financial year. In terms of the AGSA’s reporting process, the AGSA had to finalise the audit, bearing in mind material disclosure and resulting material disagreement. There was a discrepancy between the number of financial statements and the number of entities.
The AGSA had discussions with the ITB, Department of Rural Development and Land Reform (DRDLR) and sought clarity with National Treasury. The Department did not submit an official response but National Treasury submitted an official response.
Mr Perumal cited section 2(1) of the KwaZulu-Natal Ingonyama Trust Act No. 3KZ of 1994, which agreed with the ITB’s position that the Trust was a separate body. He also cited Financial Regulations 6(1) in GNR.1236 of 2 October 1998 and Regulation 6(2) (a) which stipulated requirements of the Trust’s annual financial statements.
The presentation highlighted the actors to whom audit outcomes need to be distributed, as per regulation 20(1). National Treasury was very general in the guidance it provided, as it referred the entities to Directive 12 and iGrap 11. It was added that National Treasury representatives were invited to the day’s meeting.
The AGSA was said to have received three sets of financial statements for audit - the Ingonyama Trust, Ingonyama Trust Board and the Ingonyama Trust Board consolidated financial statements. Outcomes were qualified for the first and third, but unqualified for the ITB. Therefore, the IT was qualified in matters concerning property, plant and equipment (adding that an assessment of the fair value was the Board’s responsibility) and royalties’ revenue. Royalties revenue received should go to the national fiscus and not the Trust.
Two recommendations were shared with the Committee - undertaking a process to fair value the land, in order to correct the value of land in records, and that revenue raised should be refunded to the National Revenue Fund. Importance of the PFMA was highlighted and the ITA in determining the roles between the two entities. The PFMA had authority and the ITA remained simple yet technical.
Mr P Mnguni (ANC) suggested the other role playersattending the meeting give their input before the Committee engaged in discussion.
Ms T Mbabama (DA) asked the Chairperson if questions could be taken for clarification’s sake, before the continuing with presentations.
The Chairperson permitted this.
Ms Mbabama asked who the ‘official’ referred to in the presentation, whether ‘consolidated financial statements’ referred to financial statements of the IT and ITB together and why monies need to be paid to the National Revenue Fund if the IT was the beneficiary.
Mr Perumal responded by reminding the Committee that legislation was complex and, therefore, no clear definition can be provided for who the ‘official’ was. The ITB was the accounting authority. Perhaps the official referred to the CEO? With consolidated financial statements, both results from the IT and ITB were consolidated.
Ms A Zuma, Senior Manager, AGSA, referred to the Mineral and Petroleum Resources Royalty Act, Number 28 of 2008, in response to the questions on paying monies to the National Revenue Fund - there was transitional provision for the exemption but the ITB did not undertake the five-year process and, therefore, was not granted exemption.
The legal advisor to the Committee confirmed that ‘official’ was defined in the PFMA.
Ms N Magadla (ANC) asked whether the royalties’ revenues should go to National Treasury or the South African Revenue Service (SARS).
Mr Perumal confirmed that, according to his understanding, it should go to the National Revenue Fund.
Constitutional mandate and reporting procedures of the Ingonyama Trust Board
Ms Jabu Bhengu, Deputy Chairperson of the ITB, apologised on behalf of the Chairperson for being absent. She highlighted that, as per the Committee Chairperson’s request, the presentation dealt with constitutional mandates of the IT and ITB, and provided a historical background on the IT and ITB.
The Minister of Finance listed the IT and ITB as public entities under Government Notice 402 in February 2001 and, in April 2003, the IT was delisted by Government Notice 1261. Before then, the IT had not received any money from government. Simultaneous listing of the two entities caused confusion among accounting authorities.
The IT was the registered owner of land, not the ITB. Affairs of the Trust were quasi-public. With mineral royalties, the ITB took a different position to the AGSA, as royalties on IT land had never been expropriated and the IT had never been compensated for loss of the minerals, as the minerals were administered by then KwaZulu Finance Corporation (KFC) and today’s Ithala. An agreement with KFC was reached in 1999 that the Department of Mineral Resources would take over agency of administering minerals on IT land free of charge. Therefore, there was no matter of expropriation.
Ms Bhengu cited Section 12 of Schedule II of the Mineral and Petroleum Resources Development Act (2008) (MPRDA) and Sections 25(2), 25(3) and 25(8) of the Constitution, when listing requirements for payment of compensation for royalties. Due process would need to be undertaken if there was intention of expropriating IT minerals. It was confirmed that discussions between the ITB and the Department of Mineral Resources have been taking place.
Ms F Madlopha, CEO of the ITB, referring to Annexure A, provided the background of the IT and ITB, in which beneficiary communities were listed. The IT was established in 1994 to create a Trust to take over land ownership of land, which was communally owned, and administered by the Amakhosi. She went on to discuss the transition period, before a board, the ITB, was established, and the King’s role as trustee. She highlighted that “land management by the IT is not one of the deliverables in terms of government stated goals [and] the state does not incur any expenditure for activities of the Trust”.
She went on to discuss the ITB, whose members were not trustees and, as per the IT Act, administered the affairs of the Trust and its land. Land in question was accessed in terms of indigenous customary law through Traditional Courts but urgent documentation was required. Furthermore, a shortcoming of this law was that rights to land were not registered nor documented. In 2016, King Zwelithini announced that the rights to housing need to be secured with title deeds.
Mr Mnguni asked the ITB, when there were opposing positions between the ITB, the AGSA or another Chapter Nine institution, which position prevailed. At Committee meetings, everyone present in the room comes to account to the Committee and parliamentary principles were the authority.
The legal advisor asked a question relating to mineral rights on the land, falling under jurisdiction of the Trust, specifically whether mineral rights on the land were owned by the Trust. Was the Trust exempt from the section of the MPRDA which stated these rights should be under custodianship of the Minister of Mineral Resources?
Mr M Filtane (UDM), referring to the IT and ITB presentation, asked whether this meant there should be no expectation that the Trust and King should account financially. Did this mean that government should not expect the IT to account for expenditure? This will impact the Committee’s approach to the audit.
Ms Mbabama, noting that the AGSA and IT presented its views, asked whether it was best to present Members’ views in the presence of the AGSA and IT. She suggested that another meeting be held so that the Committee can establish its position.
The Chairperson confirmed that this would happen.
Ms Bhengu responded that the ITB noted the AGSA’s opinion and was in discussions with the Director General of the Department of Mineral Resources. Treasury will be drawn into these discussions and then a final decision will be made. The ITB also sought legal advice, legal opinion of Treasury and elsewhere.
Ms Madlopha added that, when this issue arose, the ITB received a response from the AGSA on 26 July 2016. In response to the legal advisor’s question, the ITB engaged the MPRDA. Financials of the Trust and ITB were looked at separately and consolidated, therefore, the Trust was held accountable. She then cited section 12 of the MPRDA and said this was subject to debate to interpret provisions of the MPRDA.
Mr E Nchabeleng (ANC) asked whether the ITB had a legal official or representative in its staff, and, if not, why not.
Mr A Madella (ANC) asked what the AGSA’s take was on the current position on the ITB’s position, especially regarding royalties. SARS administered the Mineral and Petroleum Resources Royalty Act 28 of 2008.
Mr Mnguni highlighted that whenever there was difference of opinion between Chapter Nine Institutions of the state and other state organs, Chapter Nine Institutions prevail until further review.
The Chairperson highlighted that AGSA’s opinion of royalties was that monies must be paid back to the state - that the funds collected by the Trust must be refunded to the State. She also asked about a legal officer at the ITB.
Ms Madlopha responded that there was a legal officer but currently there was none.
Ms Bhengu added that the ITB outsourced legal advice and opinions.
The Chairperson sought clarity from the Department relating to matters of royalties, compensation and payment.
Legal Aspects Arising in Respect of the Ingonyama Trust and the Ingonyama Trust Board by the Minister
Minister Nkwinti said that, when this matter arose, the Department sought legal advice. He referred to the concluding section of the document highlighting legal advice received by the Department.
Mr Nathi Mjenxane, Legal Advisor, Parliament, presented his legal view, as requested by the Committee, stating that the legal team consulted Section 2 of the Ingonyama Trust Act, Section 55 and Schedule III PFMA and the Constitution. Section 56(b) of the Constitution stated that any actor may be invited to a meeting with the Committee. The legal team held that there were two separate entities and found that both needed to account to the Committee, as per the Trust’s Act and the PFMA, and found that the Trust, ITB and Minister must report to the Committee if requested, as the Committee had authority to call them to account. With the royalties’ matters, mineral resources were invested under custodianship of the state and the MPRDA trumped other legislation, therefore, the Minister of Finance must collect royalties.
Mr T Walters (DA) expressed concerns about the Committee being drawn into a refereeing role - he sought clarity on whether there were two opposing legal opinions and suggested that the Committee needed to meet and make recommendations.
The Chairperson said that the ITB aggressed that there were two different entities, as did the AGSA and Parliament. However, the Department differed.
Ms Mbabama sought clarity from the legal advisor on whether both entities must be audited by the AGSA and whether financial reporting was considered. Furthermore, she asked why, if the ITB was a separate entity from the IT, why the IT was not represented in Committee meetings.
Mr Filtane said the Committee did not have the technical capacity to address or resolve the matter. He asked whether, considering the AGSA’s opinion, this matter will consider legalities exclusively or whether political solutions will be sought.
Mr Mnguni listed a number of Chapter Nine Institutions, which were independent and subject only to the Constitution and law. He cited Section 181 of the Constitution - the ITB should note that the AGSA had the final say unless relevant and legal review had been carried out. He then sought clarification on hierarchy of the Trust and the Board as referred to in the presentation. The PFMA imposed all financial obligations. He expressed concern at the ITB chairperson’s absence and asked the AGSA how an entity could attend a meeting of this nature without legal opinion. Lastly, he suggested that a governance and administrative approach be maintained, not a political one. He reminded the ITB that minerals were governed in SA and administration and finances were governed by the PFMA – could the ITB and the Trustee recognise these democratic procedures?
The legal advisor pointed out that the IT Act, in section two, spoke of the Trust as a corporate body. Though the Trust had separate legal existence, for purposes of financial reporting, Section three and 55(c) of the PFMA held that both entities were to submit financial statements and report financially.
Mr R Grobler, Office of the AGSA, confirmed that a legal team did assist throughout the regularity audit process and that this presentation was based on such legal advice.
Ms Madlopha, in response to questions about the Trust accounting, added that two sets of financial reports were prepared by the two entities. This purpose of the documentation presentation by the ITB was to provide insights on the history and background of the IT and ITB. She added that the Committee’s comments and suggestions were noted.
Minister Nkwinti said that nothing in the Amendment Act conferred any jursidictory personality. The Act merely established the Board and therefore created only one legal entity (the Trust), thus the Board was an administrative body. He cited the PFMA and highlighted that the designated accounting authority was the Board. Financial regulations were prescribed by Minister. The Board was the Trust’s accounting authority. He confirmed the Department agreed with the legal opinion that there was only one entity.
Mr Perumal commented that the PFMA listed the ITB as a full public entity. There were complications around auditing the IT and the ITB, as the AGSA had to audit according to law. Furthermore, the PFMA trumped the IT Act. The two legislations have, therefore, created two entities. The Committee needed to bear this in mind going forward.
Mr Mnguni highlighted complexities around which funds went to the Trust and which went to the Board, and suggested patience with the multilateral nature of the matter. He suggested a follow-up meeting and requested that the AGSA obtain a legal opinion and brought it along to the follow-up meeting. The IT could do the same.
Mr Walters expressed concern about audit findings - this was not the first time this had happened with the fair value of land and royalties’ revenue, nor the first time the Committee was confronted with such a matter.
Mr Nchabeleng suggested that legal opinions from others be sought and that the Department of Cooperative Governance and Traditional Affairs (COGTA) be engaged on the matter.
The Chairperson suggested that the challenge of whether there were one or two entities and the royalties matter should be clarified before the Committee approached COGTA.
Mr Nchabeleng asked whether the King or the ITB took matters to court.
The Chairperson said that the ITB did not engage in municipalities.
Mr Mnguni referred to the matter of the National Revenue Fund and said that revenue was needed to resource programmes. He challenges the logic of retaining revenue from a function but expecting those functions to still be served. The purpose of the National Revenue Fund was to enable the country to serve functions.
Mr Filtane emphasised that a sober decision could only be made when it was established whether one or two entities were being dealt with.
Ms Mbabama highlighted that the problem was that the ITB was listed as a scheduled three entity.
Ms Leona Archary, Acting DG, DRDLR, responded that the AGSA audited the Board because it was a scheduled three entity, however, if one was deregistered, the problem will not necessarily go away. Detailed content would need to be discussed.
The Chairperson said that stakeholders need to be taken seriously.
Draft Committee Minutes dated 18 October 2017
Draft Committee Minutes dated 18 October 2017 were adopted.
The meeting was adjourned.
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