Preferential Procurement Process; Western Cape 2017/18 performance; Gambling regulations; with Minister

Finance, Economic Opportunities and Tourism (WCPP)

12 September 2018
Chairperson: Mr D Joseph (DA)
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Meeting Summary

The Committee was briefed on various issues by the Department of Finance, the Provincial Treasury, Department of Public Works and the Western Cape Gambling and Racing Board (WCGRB). The Minister spoke on the implementation of recommendations given by the National Council of Provinces (NCOP) Select Committee.

The WCGRB, in collaboration with the Departments of Public Works and Transport and the Provincial Treasury, had investigated a number of options to address the accommodation needs of the WCGRB. The 31 initial offers had eventually been streamlined down to two, based on the requirements of WCGRB, as well as safety measures and certification requirements. The property selected at N1 City had been inspected and found suitable for the WCGRB’s purposes.

The Provincial Treasury discussed the implementation of the provincial economic growth and development strategies; provincial own revenue; provincial expenditure; provincial fiscal position, as well as lessons learnt and future projects.

Members sought clarity on the R17.6 million collected from WCGRB licence holders. It was important to have specific data and the number of years over which the money had been collected. They asked why it took so long to seal the negotiations. It was resolved that the WCGRB should present a detailed report to the Committee on the matter at a later date.

Members also sought clarity on the disputes between the Auditor-General (AG) and the Departments of Agriculture and Environment Affairs and Economic Planning. What was the position of the Provincial Treasury on the matter, and were the Departments willing to implement the recommendations of the Auditor-General? The discrepancy between the AG and the Department of Agriculture was related to how transfer payments had been handled, whereas the dispute between the AG and the Department of Environment Affairs and Economic Planning was procurement-related.

Members expressed concern that the disputes, especially with the Department of Agriculture, may persist into the new financial year if the matter was not handled appropriately. The Committee urged the Provincial Treasury to bring all stakeholders before it to resolve the matter permanently.

Meeting report

Opening remarks

The Chairperson welcomed everyone to the meeting and outlined the agenda. This included a presentation by Dr Ivan Meyer, the Provincial Minister of Finance, a report on the accommodation issue involving the Western Cape Gambling and Racing Board (WCGRB), and the provincial performance for the 2017/18 financial year. He commended the presence of Minister Meyer, who had chosen to attend the meeting, despite ill-health.

Mr P Uys (ANC) urged the Minister to address matters arising from the minutes of the previous Portfolio Committee meeting, especially as it related to the R17.6 million spent on the WCGRB.

Minister of Finance

Dr Meyer said the Department had received a letter from the Chairperson of the Select Committee on Finance in the National Council of Provinces (NCOP) on May 10 2018, to discuss the state of affairs in the Department. The Minister had spoken about the importance of implementing the recommendations of the NCOP Select Committee. The Committee had also informed the Department to submit reports on its plans for economic growth and development strategies, debts, accruals, revenue collection, provincial expenditure on health and education, expenditure on economic and social infrastructure and economic classifications, especially in terms of employees’ compensation, goods and services.

The Minister said the Department was not ready to make a presentation on the provincial performance for the 2017/ 18 financial year, because it was still working with the Auditor-General (AG) to finalise the outcome as at March 31 2018. He emphasised the importance of the lessons learnt from particular experiences, and confirmed to the Standing Committee on Finance that the NCOP Select Committee was satisfied with the implementation of their recommendations. The Committee had also expressed satisfaction with the Department’s fiscal performance, which had subsequently been audited and was now up-to-date. The Department had also discussed its fiscal strategies, fiscal approach and the goals that underpinned the medium term expenditure.

Dr Meyer said that a copy of the updated report (the presentation to NCOP select Committee) had been given to the Standing Committee on Finance.

The Minister said the R17.6 million allocated to the WCGRB was related to the legislation guiding the WCGRB, and asked Mr Harry Malila, Deputy Director General (DDG): Fiscal and Economic Services, Provincial Treasury, to answer Mr Uys’ question regarding the fund.

Mr Uys said the question was linked to the matter arising from the minutes. Therefore, it was not a piece of subordinate legislation. He urged that the matter of R17.6 million should be addressed separately from the legislation guiding the WCGRB, and requested Dr Meyer to answer the question specifically before he left the meeting.

Mr Malila said the Department of Finance had consulted with the Legal Services and the WCGRB on how to deal with the matter surrounding the payment of R17.6 million to the WCGRB. The consensus had been the 19 amendments that had been recently advertised. He said the payment of annual fees collected from a license holder in 2015 and 2016 demonstrated a gap in legislation, and the legal service was involved to address the gap. The Department and the legal services were working to finalise the amendments, which would be submitted to the Committee. He also said that the Minister would pass a Bill to address the issue through Parliament via the Standing Committee on Finance.

Mr Uys asked if the amended bill had been taken to the Cabinet. Had the Cabinet approved it? Would the Bill be taken back to the Cabinet after public comments, or would it be processed by the Committee as part of amended legislation? The annual report on the adjusted budget would be due soon, and the Committee should not be rushed to approve the Bill.

Dr Meyer said the Bill had been taken to Cabinet and been subsequently approved. The Bill was therefore in the public domain for comments. The comments would be considered and worked into the Bill, where appropriate.

An official of the Provincial Treasury (PT) said that the PT was in consultation with all stakeholders and the public. All submitted public comments would be worked into the Bill, as appropriate, and it would be taken back to Cabinet for approval. The Bill would be passed directly to legislators if there were no significant public comments.

Ms C Beerwinkel (ANC) sought clarity on why annual fees were collected from a licence holder two years after the expiration of the exclusivity agreement. She urged the PT, the Department of Finance and WCGRB to be fair and transparent on the matter.

Mr Uys asked if the annual fees had been collected from the licence holder just in 2015 and 2016. Was R17.6 million the total amount of money collected? Did any of the licence holders collect portions of the payment back? Did any of them express displeasure with the money collected from them?

The Chairperson urged members to bring the matter to a closure, as there would be opportunity to deal with it exhaustively in the future.

Mr R Mackenzie (DA) said that the Committee had earlier made resolution that the WCGRB should come before the Committee to give clarity on the matter.

Mr Malila said that the payment had been made to the WCGRB, not to the PT. Therefore, the WCGRB was in a better position to address the matter. He said the PT, which had oversight of the Act governing the WCGRB would look critically into legislation, and address gaps where necessary.

Mr Uys expressed dissatisfaction with the way the matter had been handled. The Department and the PT could not run away from the matter as they have oversight over the WCGRB. He further urged the PT and Department of Finance (DoF) to be transparent on the matter, especially in terms of the R17.6 million and the years over which it had been collected.

The Chairperson urged Committee Members to exercise calm over the matter. The agenda of the meeting was focused on the explanation of the WCGRB, and not the PT or DoF. The PT and DoF had been co-opted due to their presence at the meeting.

Ms Beerwinkel said the Committee had not known that the PT and DoF would be at the meeting when it took resolution that the WCGRB should appear before it. She considered the availability of PT and DoF an opportunity to get precise clarity on the matter, since both entities have oversight of the WCGRB.

The Chairperson asked the PT and DoF to present facts to Committee, if they had the facts. Otherwise, they should be given time to gather the facts and present at a later date.

Mr Maila welcomed Members’ requests for facts in respect of the years and the amount collected. However, this was not part of the agenda. He promised to gather the relevant data. The PT would

Mr Uys argued that the matter had been raised on June 20 2018, and he had expected the PT and DoF to have answers to the questions by now.

WCGRB on accommodation

The Chairperson said that the PT was the client and the Department of Public Works (DPW) was the custodian and implementer.

Mr Zachariya Hoosain, Head of Department (HOD), Provincial Treasury, asked Adv Annamarie Smit, Chief Financial Officer, to update the Committee on the current status of accommodation from the PT’s perspective.

Adv Smit gave a brief rundown of events and the current situation of the accommodation at the WCGRB. The closing date for leases was May 31 2018. Thirty-one offers had been received on this date. Assessment of the office had done by the Department of Public Works and Transport, the PT and WCGRB. The report had been presented to the Committee on June 6 2018. Consent had been reached on two offices. The first office could not be used, because the owner said the property was no longer available for lease (Century City). The second property was a 2 000 m2 property in N1 City. The WCGRB had confirmed the suitability of the property and subsequently appointed a valuer to evaluate the structure and to ensure compliance with the Western Cape Land Administration Act. The evaluation report was received on July 12, and the provincial Property Committee had approved it on July 25. The provincial Minister of Finance had granted approval on August 29, noting that the lease extended beyond the 3-year cycle, and the provincial Cabinet had approved it on September 5. She said that all stakeholders would meet with the landlord later on September 12 to consider tenant instalments and work on the processes leading to the finalisation of the lease agreement.

The Chairperson said the Committee was determined to visit the property before the end of the term to ensure everything was in place.

Mr Mackenzie asked when the WCGRB would move into the building. He sought clarity on why it had taken so long to finalise the process.

The Chairperson said the delay might have resulted from the processes involved in the finalisation of the second offer.

Ms Beerwinkel questioned why some of the processes took so long. According to her, there were indications from all stakeholders that the processes could be done faster if there was a willingness on the part of all the role players. She asked Ms Smit to provide the facts and figures for the property secured for the WCGRB.

Adv Smit said the Committee could visit the site at any time. Two properties had been short-listed out of 31 offers, because they met the requirements of the WCGRB the most closely. The process had taken long because the property had to be physically assessed to ensure appropriate health and safety measures, as well as certification requirements. The assessment had taken approximately a month to conclude and this had helped to determine the appropriateness of the building. She spoke of the importance of the building configuration being incorporated within the lease agreement. This would help in the finalisation of the price for the building.

The PT had then gone ahead to appoint a valuer in order to get an understanding of the offers. Was the price market-related or was the WCGRB being overcharged? She said the meeting between the landlord and WCGRB, to be held later on September 12 2018, would determine when the WCGRB would move into the property. The landlord had already appointed contractors to configure the property to suit the purpose of the WCGRB. She promised to give details to the Committee.

According to an official of the WCGRB, the rental for the property in N1 City would amount to R3.2 million for a year, based on the information received from the landlord. This amounted to R19 million if inflation was considered over 2-3 yrs. In terms of tenant installations, R1 million would be spent.

Mr Mackenzie expressed satisfaction with the timeline, as the WCGRB was eager to occupy the property. He asked if there were additional costs that the WCGRB could incur.

Mr Uys asked if the WCGRB had actually inspected the property and if it was suitable for its purpose.

WCGRB Response

Mr Primo Abrahams, CEO: WCGRB said the WCGRB had visited the property and was satisfied with the facilities. It had then recommended that the DPW should secure the lease.

An official of DPW said that the property currently occupied by WCGRB was provincially-owned and no additional cost had been incurred, other than the cost associated with the utilisation of the property.

Mr Mackenzie asked if the interactions among the Committee and other role players had been documented for the past five months. This would prevent unnecessary waste of time in case similar matters arose in the future.

Adv Smit said that the Immovable Asset Management team had looked into all thr backlogs for about a year and had reported appropriately to her. The lesson learnt, as well as the procedure followed, had been well documented. She remarked that there was considerable improvement in how things were being done under her watch.

The Chairperson commended the efforts of the PT and WCGRB to speed up the processes.

Ms Beerwinkel maintained that the WCRGB should provide explanation on why it had taken so long to get approval for the property. The issue had been discussed at a previous meeting, and Adv Smit had promised to compile a detailed report of what had happened. She believed the role players had had the means to achieve results in a shorter time.

The Chairperson told Ms Beerwinkel that Adv Smit already addressed challenge she had with backlog prior to her term in office and how this had been dealt with.

Adv Smit accepted that she had promised to submit a detailed report to the Committee. However, her entity had been informed about the meeting only the day before. She asked the Committee to give her time to compile the report.

Provincial Treasury: Report on 2017/18 financial year

Ms Analiese Pick, Director: Provincial Government Finance (PGF): PT, presented the report for the 2017/2018 financial year. She spoke on the comparison between 2016/17 and 2017/18 annual financial report and how the Western Cape Government incorporated socio-economic indicators in planning and budgeting. This had been the rationale behind the report presented to the NCOP Celect Committee and the Committee on the Budget. She spoke on the preliminary provincial own receipts as at March 31 2018. The PT considered the risks and challenges when a putting budget together for revenue.

She said that there were significant changes to expenditure when preliminary data were compared to the final data. As of March 31 2018, journals were still opened within Departments. Therefore, accounts were not closed. The departments had spent R706 million, representing about 98.8% of the budget. The preliminary under-spending for the 2017/ 18 financial year amounted to R706.8 million, or 1.2% of the adjusted budget, and the under-spending had decreased to R527 million when the all-year transactions had been captured, making the overall spending to stand at 99.1%.

The overall under-spending of the province came mainly from the Departments of Health (R242.22 million for the preliminary report but reduced to R190 million in the final report) and the Department of Transport (net under-spending reduced from R185.25 million in the preliminary report, to R45 million in the final report). Other Departments with under-spending include Education (R160.14 million), the Office of the Premier (R38.10 million), Treasury (R10.45 million), and Local Government (R15.90 million). The total preliminary expenditure outcome for the Department of Education as at March 31 2018 amounted to R20.56 million, or 99.2%. This mainly resulted from the compensation of employees as a result of the delayed filling of posts and delays experienced in infrastructure and the built environment. The Department of Health managed to spend 98.9% of its adjusted budget. Under-spending was due to the revitalisation of health facilities and the compensation of employees.

Ms Pick also spoke on health payment trends in terms of claims against the state. The item, “claims against the state” (medico-legal claims) showed an over-spending of R48.49 million against the 2017 adjusted estimate. The main budget for the item had been reduced from R93.85 million to R38.49 million. The timing of the final resolution of cases remained difficult to predict, making precise budgeting challenging. Expenditure against the state had been recorded at R86.98 million, the highest expenditure recorded in the past seven years. Compared to other Provinces, the Western Cape Province paid fewer claims in the last financial year. In terms of the Provincial Revenue Fund (PRF) as at March 31 2018, the PT considered contractual obligations more important than the cash balances. The PRF investment stood at R5.69 billion, while the total deficit was R62.22 million.

The accumulated debt owed to departments as at March 31 2018 was R1.46 million, compared to R1.37 million as at March 31 2017. All this formed part of the annual report that would be submitted to the Standing Committee on Public Accounts (SCOPA). She said that no unauthorised expenditure had been reported for the 2017/18 financial year.

Lesson learnt from the annual report revealed enhanced alignment between planning, budgeting and implementation across departments, and between the province and municipalities, by applying an integrated management approach. Also, the utilisation of the compensation of employees (CoE) budget as a lever for fiscal consolidation had resulted in a changed outlook on CoE.

Further work would address the drought, improved governance, as well as improved debt prevention and collection by all departments.

Discussion

Mr Uys sought clarity on the discrepancy between the Auditor-General (AG) and the Department of Agriculture (DoA) in terms of the audit report. Had the case been finalised? He also asked about the communique issued by the Auditor-General to the Department of Environmental Affairs and Economic Planning. Had the case been resolved?

Mr Aziz Hardien, Chief Director: Financial Governance and Accounting, said that the audit opinion on the Department of Agriculture for the 2016/17 and 2017/18 financial years had been finalised on May 31 2018 and the end of July 2018, respectively. The Department of Agriculture had rejected the audit opinion and returned it to the National Treasury for final correspondence on the activities of the Department.

At the end of July, there had been a dispute between the Department of Environmental Affairs and Economic Planning and the Auditor-General on specific matters pertaining to procurement. The matter had been resolved and the audit was subsequently finalised. The Department should have an audit report by the end of September.

Mr Uys asked about the position of the Provincial Treasury in relation to the dispute between the Department of Agriculture and the Auditor-General. Had any lesson been learnt from the dispute and could this be deployed to prevent a future recurrence? What was the status of the audit opinion for the current financial year?

The Chairperson asked about the person with the final say to close the matter.

Mr Hossain said that the dispute between the AG and DoA emanated from a variation in perspective of how transfer payments were made. The National Treasury had issued a circular to the Department around May, which was three days before the submission of the annual financial statement. This did not give the Department enough time to address concerns raised by the AG. The PT had also issued a circular to the Department on how transfer payments should be made. He acknowledged that the dispute permeated into different financial years since it had started. The PT had consulted with legal services and all stakeholders on how to resolve the conflict, but all efforts had proved abortive so far. The Department had sought legal advice and it was the process of implementing the recommendations.

The Chairperson expressed concern about the persistent nature of the matter. How did the Department move into the new financial year without proper resolution of outstanding matters? Whose responsibility was it to ensure the Department did the right thing?

Ms Beerwinkel sought clarity on what the real matter was. She said that the issue had started in 2009. She pointed out that the rules guiding transfer payments were straightforward and there should not be problems if rules were adhered to.

Mr Mackenzie said all stakeholders must intervene to prevent the matter from the status of a legal opinion, which might be imminent. He expressed concern that the audit opinion for the current year may remain the same if appropriate steps were not taken. He sought the view of the Provincial Treasury on the matter.

Mr Hoosain acknowledged that the matter was related to transfer payments. The matter was technical in nature and PT had written to the Director-General of National Treasury to intervene in the matter. The Povincial Treasury had instructed the Department to comply with guidelines in the circular sent by the National Treasury on May 28 2018. Other Departments had also beenadvised to comply with the circular. All Departments were instructed to identify and manage risks to avoid a repeat of the matter in the 2018/19 audit.

Ms Beerwinkel sought clarity on money paid to consultants and transfer payments.

Mr Uys asked if the Provincial Treasury was in support of the DoA or the Auditor-General.

Mr Hoosain said that goods and services were classified as payments made to someone or an entity, who then ensured delivery to the Department. On the other hand, transfer payments were given to beneficiaries, and they were not expected to render any service to the Department.

Mr Uys sought clarity on how the PT consolidated the financial statements of departments at the end of the financial year.

Mr Hoosain said the PT did not understand the rationale behind the audit opinion on the Department of Agriculture.

On the consolidation of the financial statement, Mr Hardien said that the PT considered the financial statements of 14 departments. The dispute between the DoA and the AG was immaterial at the time of consolidation. The financial statement of a department may not have significant effects on the consolidated financial statement. He commented that the Department of Agriculture had got a qualified audit opinion.

Ms Beerwinkel further sought clarity on why consultants were classified under goods and services.

The Chairperson urged the PT to ensure due process was followed when handling transfer payments, as well as payment for goods and services.

Mr Uys expressed concern about the legal status of the dispute between the Department of Agriculture and the Auditor-General. He was concerned that the DoA took the case to the high court and that the matter may persist in the current financial year. He sought clarity on the dispute between the Department of Environmental Affairs and Economic Planning and the Auditor-General. Was the issue the same as that of the Department of Agriculture? wWas there clarity on how matter should be handled in the future?

Mr Hoosain said that consultants were classified under goods and services because the Provincial Treasury or departments benefited from the goods and services they rendered.

Mr Hardien said the dispute between the Auditor-General and Department of Environmental Affairs and Economic Planning was totally different from that of the Department of Agriculture. The dispute was procurement-related. The Auditor-General alleged that the Department was involved in irregular expenditure because Construction Industry Development Board  (CIDB) regulations had not been followed. However, less than 20% of the work was construction-related. The Department had sought expert opinion from the CIDB and the DPW on the matter. Expert opinion had revealed that the CIDB regulations did not apply as the work executed was not construction-related.

Mr Uys asked if the Department of Environmental Affairs and Economic Planning had considered the audit opinion issued by the Auditor-General. Did it agree with the view of the Auditor-General?

Mr Hoosain said it was difficult to answer the question because the audit opinion and financial report were not always released at the same time. He urged the Auditor-General and the Department to look critically into all relevant reports and try to reach a consensus on the matter.

Mr Malila said that the Provincial Treasury would facilitate a meeting between the Auditor-General, the Department of Agriculture, the Budget Committee as well as all other Standing Committees, to consider the audit outcomes and other relevant documents in order to finalise the matter.

The Chairperson welcomed Mr Malila’s suggestion. It was important that all role players come together in order to clarify the technicalities surrounding the matter. This would help to put an end to the dispute.

Mr Uys expressed dissatisfaction, as he suspected the various players were attempting to hide certain information from the public. He challenged the Provincial Treasury, which had oversight of the Department, to be transparent and honest on the matter.

The Chairperson urged the PT to consider the matter closely and update the committee accordingly.

WCGRB: Amended fees and costs

An official of the WCGRB spoke on the Western Cape Gambling and Racing Act, 1996 (Act 4 of 1996) and the Western Cape Gambling and Racing Regulations (Fees and Costs), 2016: Amendment, 2018. The amendment came into effect on April 1 2018, and had been gazetted on March 26 2018. The WCGRB had called for public comments on January 1 2018 and the commentary session had closed on February 23 2018. No comments had been received from holders of licences. The amendment to fees and costs was related to the recovery procedure associated with the granting and renewal of licences in terms of which deposits were payable. The amendment provided for the replacement of annexures relating to costs and fees that were provided for. It was an annual adjustment and was done by following relevant legislation. It represented an administrative adjustment to deal with inflation.

Mr Uys asked if Provincial Treasury supported the legislation.

Mr Malila said that the Treasury ensured that the WCGRB complied with regulations that fell under the mandate of the Treasury, especially the Public Finance Management Act (PFMA).

Mr Uys maintained that matters surrounding the R17.6 million payment should be addressed, since the WCGRB was present at the meeting.

Preferential Procurement

The Provincial Treasury called the attention of Members to the presentation on preferential procurement made at the previous meeting and urged them to table their questions. The Committee had asked the PT to provide details in the presentation.

The Chairperson commended the presentation as detailed and exhaustive.

Ms Beerwinkel asked Adv Smit of her understanding of procurement and the CIDB regulations in relation to the Department of Environmental Affairs and Economic Planning.

Adv. Smit said the WCGRB had consulted with the Department of Environmental Affairs and Economic Planning as well as the Departments of Transport and Public Works on compliance issues. CIDB regulations and approved practices had not been contravened in the project executed by the Department of Environmental Affairs and Economic Planning. The project was not construction-related as it involved only the diversion of contaminated water from an agricultural environment in order to maintain the safety and integrity of agricultural produce. The Auditor-General’s opinion could not be justified in terms of the PFMA and the requirements of the National Treasury. The Auditor-General had considered a finding associated with the project’s irregular expenditure, because he had felt that the CIDB requirements were not followed. She remarked that the power to declare a project an irregular expenditure lay with the provincial Accounting Officer.

An official of the Provincial Treasury said the Treasury supported the activities of the Department of Environmental Affairs and Economic Planning after consultation with all relevant role players. However, it had advised the Department to do everything necessary to avoid a discrepancy with the Auditor-General going forward. He also said that the matter was being investigated.

The Chairperson told the WCGRB to come back to update the Committee on outstanding matters.

The meeting was adjourned.

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