The meeting of the Portfolio Committee began with Members observing a moment of silence in memory of the late Minister of Environmental Affairs, Edna Molewa, who had been a Member of the Committee, and who died last month after a short illness.
The Office of the Accountant General provided clarification on what had come to be known to the Committee as the position paper, which required departments to submit their annual financial statements in accordance with set accounting standards. It warned that if there was improper classification in the standardised format, there was a likelihood that it might not show that a department had spent its allocated budget on meaningful programmes pertaining to service delivery and addressing unemployment. It stressed the importance of classification in a standardised format, and of ensuring transparency when accounting for the use of state funds. The Committee was told that the Office of the Accountant General issues the standards and assists the departments to comply with the standards, but the Auditor General (AG) had the responsibility to ensure compliance with the standards that were set by the National Treasury.
This was followed by a report from the AG on its findings from the annual 2017/18 audit conducted on the Department of Environmental Affairs (DEA). The Department had received an adverse audit opinion. This meant that the financial statements contained material misstatements that were not confined to specific amounts, or the misstatements represented a substantial portion of the financial statements. This was a regression from the previous financial year. According to the audit conducted on the annual performance report, material findings had been found in respect of the usefulness and reliability of the selected programmes.
The DEA responded by outlining the measures it had taken to identify the challenges identified in the audit report, and also highlighted a list of achievements by the Department during the year under review.
The Chairperson expressed her deepest condolences to the Committee for the loss of the Minister of Environmental Affairs, Ms Edna Molewa. The Committee observed a moment of silence in her memory.
The Chairperson thanked the Deputy Minister of Finance, Mr Monde Gungubele, for attending the Portfolio Committee meeting. An apology had been received from the Deputy Minister, Ms Barbara Thomson, who was on sick leave. The acting Minister of Environmental Affairs, Mr Derek Hanekom, was expected to attend the meeting, but he was running late as he had some clarifications to make to the Presidency. If he was unable to attend, the Chairperson would engage with him outside the Committee and report back, as his input was crucial when ensuring that officials were held accountable.
The Chairperson explained the previous meetings held in March/April which had led to what was currently known as the position paper, and how it had come into existence. As per the Committee practice, when there was a political principal in the house -- either a minister or a deputy minister – they were accorded an opportunity to give opening remarks or to address the Committee before the presentations commenced.
Deputy Minister Gungubele said that he was attending the Committee as an observer. What had attracted him to the meeting was the nature of the misunderstanding between the Department of Environmental Affairs and the Auditor General of South Africa (AGSA).
National Treasury report
Ms Zanele Mxunyelwa, Acting Accountant General: National Treasury (NT), apologised for not having a presentation document, unaware that the office of the National Treasury was meant to make a formal presentation. Their understanding was that they were invited to observe the outcome of the audit conducted by the AGSA for 2017/18, based on the advice and the meeting which the Office of the Accountant General, AGSA and the Department of Environmental Affairs (DEA) had had in attempt to resolve the confusion over reporting standards.
She said she was accompanied by Ms Lindy Bodewig, Chief Director, Technical Support Services, NT who dealt with International Accounting Standards, and was the key person who developed the standards for the Treasury. Ms Bodewig had been assisting both the DEA and the AG to understand the existing accounting standards. The standards had been in existence since 2009, and therefore were not new.
Ms Mxunyelwa explained that the NT had issued these standards to government departments to use for reporting purposes, yet some were still not complying with these standards. The NT had developed a position paper to act as a guideline which would assist both the government departments and AGSA to implement the set standards. The AGSA would be able to assist the Department on how to adjust their budget to ensure that the classification was correctly done.
Following the Portfolio Committee meeting held on 30 April 2018, the Office of the Accountant General (OAG) had visited the DEA in attempt to establish challenges that the Department faced with the reporting standards. The OAG had further engaged with the AG to discuss specific projects such as fire, water and waste, SANParks and various other entities that the Department was doing business with, which were a source of contention between the AG and the DEA. After much deliberation, the Accountant General and the Auditor General had reached consensus on how report on these projects. The OAG had assisted the Department to update their books for the financial year 2017/18, to ensure that the proper classification was there.
Ms Mxunyelwa explained that the NT was not saying that the Department had utilised the 2017/18 allocated budget properly, but that because of the improper classification in the standardised format there was a likelihood that it might not show that the Department had spent their allocated budget on meaningful programmes pertaining to service delivery and addressing unemployment. She stressed the importance of classification in a standardised format, and the importance of ensuring transparency when accounting for the use of state funds. She informed the Committee that the expenditure budget of the state could not be classified as subsidies and transfers throughout the balance sheet, and that there was a need to identify what exactly the money of the state was being spent on.
The Office of the Accountant General issues the standards and assists the departments to comply with the standards, but the Auditor General had the responsibility to ensure compliance to the standards that were set by the National Treasury. It was important to have an independent tool that ensures that the departments complied with the standards set by the NT. She expressed appreciation for the AGSA and said that if ever a disagreement or misunderstanding of the standards arose, the NT then stepped in -- not to discuss the opinion of the AG, but to clarify any confusion about the set standards that may exist to ensure that there was an understanding between the department and the audit team. There was thus consistency in the application of the standards.
Ms Mxunyelwa concluded her presentation by seeking the permission of the Chairperson to allow Ms Bodewig to present the projects that the NT looks at when giving the standards for classification. She would forward the classification of standards to the Minister’s office, as the NT had not been certain that this item would be on the agenda for this meeting.
Ms Bodewig said that the issue of reporting it has been a long time coming, as the NT had noticed that there was an anomaly of classification in most sectors in government.
The approach taken by the NT had begun from a technical perspective, and was then tested on various sectors such as education, agriculture and the environmental sector as well, to ensure that the classification would give a constant answer to the challenge of reporting. She shared specific details of scenarios relating to the DEA that the NT had explored. She explained that the classification was not only designed for the DEA, but it was a reporting tool for all government sectors with the public sector.
From a reporting perspective, it was important for the expenditure to be appropriately classified. In so doing, the departments could be held accountable about how they utilised state funding, and could also assist in assessing the impact that the government had on the economy and South Africa as a whole. When the NT was setting the accounting standards, they engaged a lot with the economists and looked at what was being issued by the IMF in terms of the statistical reporting requirements. This was done in attempt to create harmonisation from an accounting and economics point of view of how the expenditure was classified.
Ms Bodewig asked to Committee to bear with her as she gave more background than the actual response of how the NT had set these standards, saying that to understand the context of the standards one first had to understand the background.
She explained that the NT had initially looked at the how the transactions were classified, and found out that most of them were classified as subsidies and transfers in the financial statements which did not specify what exactly these subsidies and transfers were for. National Treasury wanted to know if these subsidies and transfers were for household assistance, labourers or jobs, and who the beneficiaries were. It had therefore decided from an economical reporting point of view that it might be more useful to use a more detailed financial statement to see where government was procuring services or assets, and ultimately whether the beneficiaries were the household or the labourers. Thus the expenditure classification had come into existence.
The Accountant General’s office had had a look at a couple of contracts to really understand whether the government department was building assets or was putting out fires themselves, to get to the nature of transactions. Therefore they had a look at some of the agreements to unpack what would be the most appropriate way of classifying the procurement or the utilisation of funds. They had found that in most instances, the department was procuring services through services providers to do the work for them. Specifically, putting out fires was the biggest service procured by the department. It made more accounting sense to reflect in the financial statements that the Department was buying firefighting services, rather than just stating transfers. She concluded by explaining that the Office of the Accountant General recognised that change could not happen overnight, which was why they had made themselves available to provide guidance to government departments on how the classifications should be accounted for.
The Chairperson thanked the NT delegates for their presentation, and explained to the Committee that the background was necessary, as the position paper might be confusing to Members who were new to this Committee. The position paper required a lot of detail, so it was better to understand the process that was followed to issue the position paper. He added that the accounting methodology used to formulate this paper stemmed from the modified accounting standards.
Auditor General of South Africa report
The Chairperson handed over to the business executive, Mr Andries Sekgetho from the Auditor General of South Africa, and welcomed him and his team.
Mr Andries Sekgetho, Business Executive: AGSA, responsible for the Department of Environmental Affairs portfolio, asked the Committee to bear with him for a few minutes as he discussed the three-year history that had led to what was currently known as the position paper. He echoed what the Accountant General had said earlier, saying that as part of their deliberation, when the standard was issued, it was an accounting framework that public sector departments had to comply with in all materialistic aspects that they used as part of their daily accounting routine.
He said that each and every portfolio of the state had to account for the amount spent for operational costs daily, using the standard that had been set by the NT. The use of the set standards ensured uniformity and consistency in all spheres of government. To measure performance from a financial framework point of view, the standard template issued in the 2013/14 financial year was a useful tool.
Mr Sekgetho discussed the accounting standards issued by NT and said that indeed all three parties had had a meeting to discuss the standards. A question had arisen that when one gave an entity an exemption from complying with a certain section of the standard, what were the implications and what did that mean in terms of the Auditor General’s report? He explained that when one looked at the AG’s audit report outcome, it would say that the financial statements of the entity had fairly presented all the material aspects, which meant that one had complied with the framework, so therefore exempted entities couldnot be said to be complacent, as they would not have met all the requirements of the audit.
The Chairperson asked the Director General of the DEA for her comments on what the Accountant General had said.
Ms Nosipho Ngcaba, Director General: DEA, said she was not the right person to respond, but she did understand the position paper. The Department had received guidance from the Accountant General on how to report the transfers made for the Expanded Public Works Programme (EPWP). She explained how the EPWP programmes came to existence within the department of environmental affairs.
The Chairperson interjected, and asked the where was she going with the background.
She responded that she was giving the background, as everyone who had reported before her had done.
The Chairperson the focus should be on understanding properly in terms of compliance.
Ms Ngcaba said that the Department complied with the standards, but the Minister had an outstanding meeting with the OAG and the Minister of Finance. When the OAG had concluded the position paper, the DEA had requested their assistance because their programmes were complex and therefore could not be uniformly accounted for.
The Chairperson said he had asked her for her comments because he would like to know the current position of the Department. He had nothing against the background, but would like to know the direction she was taking -- whether it was in support, or whether she was contesting the position paper at the level of Cabinet.
Ms Ngcaba responded that the Department had complied according to the set guidelines. However, they had not yet adhered to the outcomes, as there was a part of the discussion that was still an outstanding matter, although they had complied with the guidelines provided by the Accountant General.
The Chairperson her if she recalled her reaction in March when the three stakeholders had had a round table meeting, where she had expressed discontentment towards the end of the meeting. The Chairperson explained that the Accountant General set the standards, the Department implemented the standards, and the Auditor General checked for compliance to the standards.
He allowed the AGSA presentation to continue.
Mr Sekgetho referred to the presentation in front of the Committee Members, which comprised all the entities within the DEA portfolio. He said that AGSA conducts annual audits at all government entities. The accounting framework presented was in compliance with the national framework, and the feedback that was given to entities was guided by the Public Audit Act, which stipulates that after an audit was conducted, the AG was obliged to give feedback to the auditees. He further explained the accounting processes and how the audits were conducted.
At this stage, there was a problem with the projector showing the presentation slides.
The Chairperson asked if the Director General had a copy of the presentation.
Ms Ngcaba responded that they used to get the presentation of the AG beforehand, but this time around they had not received a copy.
The Chairperson responded that if that used to happen, it was wrong.
The DG disputed this, saying that it was not wrong.
The Chairperson asked if the DG was now arguing with him.
Ms Ngcaba responded, “Yes.”
The Chairperson informed the DG that her behavior was out of order, and reprimanded her for her behaviour.
The Chairperson explained that the AGSA was a Chapter Nine institution which reported to Parliament, as they were doing, and not to the departments. The AG gives a copy of the audit outcome only to the auditee, and does not present the findings to the Department.
Mr Sekgetho said that the presentation process was the Portfolio Committee process, and that the Chairperson was right in that regard. He clarified that no briefings that had taken place prior to this one. The purpose of this briefing document was for the AG to provide an overview of the audit outcomes and other findings in respect of the Department of Environmental Affairs.
He explained that a clean audit did not necessarily translate into visible service delivery, or vice versa, and in the case of the DEA, no entity had got a clean audit.
Department of Environmental Affairs: AGSA audit report
Mr Ritesh Ramnanthan, Audit Manager: AGSA, said that he would be looking at the implementing agents and the principal agents. He gave a background on the principal and implementing agents, and how they worked.
According to the AGSA audit opinion on the Department of Environmental Affairs for the 2017/18 financial year, the Department had received an adverse audit opinion. This meant that the financial statements contained material misstatements that were not confined to specific amounts, or the misstatements represented a substantial portion of the financial statements. This was a regression from the previous financial year.
The basis for the adverse opinion included:
Goods and Services
As a part of Expanded Public Works Programme (EPWP), the DEA had entered into contractual agreements with various implementing agencies, and did not identify and separately disclose the management fee of these implementing agents. Therefore, the AG was not able to determine the total amount of the management fee incurred, as it was impractical to do so.
Expenditure for capital assets
The department had classified certain items of capital expenditure incorrectly as goods and services, so the AG was unable to determine the amount of any adjustments that may be necessary to goods and services.
Immovable tangible capital assets
The department did not adequately separate capital expenditure and current expenditure, so the AG was unable to determine the fill extent of the misstatements, as it was impractical to do so.
Accrued departmental revenue
Certain contractual arrangements the Department entered into stipulated that revenue earned from third parties and interest earned on unspent projects should be accounted for in the project. The AG was unable to determine the amount of any adjustments that may be necessary to the accrued departmental revenue, disclosed at an amount of R50 000, as it was impractical to do so.
The Department did not classify loans to beneficiaries of the Green Fund separately as required by Chapter 9 of the Modified Cash Standards (MCS), therefore the receivables in the financial statements were over stated.
The Department did not correctly classify voted funds to be surrendered to the revenue fund, therefore payables in the financial statement were overstated.
The Department did not disclose the full extent of prepayments, so the AG did not include the omitted information in the report, as it was impractical to do so.
The Department did not implement appropriate systems and controls to properly account for commitments, stated at an amount of R9. 074 billion in the note for commitments. The remaining commitment on certain ongoing contracts did not include all payments during the year, which resulted in an overstatement of R165 477 000.
Prior period error
The Department did not follow a process that was informed by the transactional detail, as required by the accounting framework, therefore the AG did not include the omitted information in the audit report.
- The auditor general was not able to determine whether the awards made to the implementing agents were fair, transparent and equitable, in accordance with section 38(1)(a)(iii) of the PFMA.
- In contracts entered into as part of the implementing agents of the EPWP projects’ rollout, the Department did not identify and disclose any irregular expenditure resulting from non-compliance with these contractual prescripts by the implementing agents.
- As a result of the abovementioned, the AG could not determine the amount of the further adjustments that may be necessary for the irregular expenditure requiring to be disclosed in the financial statements.
- The Department did not include the required information on irregular expenditure notes in the financial statements, resulting in irregular expenditure of R77 585 000 which was not included in the financial statements.
Fruitless and wasteful expenditure.
According to section 40(3)(b)(i) of the PFMA, the Department had to include the particulars of fruitless and wasteful expenditure in the notes to the financial statement. During the 2017/18 review, the Department made payments that exceeded the amount contracted with implementing agents, thus resulting in an amount of R7 951 000 of fruitless and wasteful expenditure.
Report on audit of annual performance report
Mr Ramnanthan said that according to the audit conducted on the annual performance report, material findings in respect of the usefulness and reliability of the selected programmes were as follows:
Programme 3 (Oceans and Coasts) -- the ocean and coastal management strategies and plans developed and implemented.
The (AG) was unable to obtain sufficient audit evidence to support the reason for the variance between the planned target of the sub-regional management plan developed and the achievement of the sub-regional management plan.
Programme 4 (Climate change and air quality) -- The national air quality indicator.
The AG found that the planned target for this indicator did not clearly identify the required level of performance and did not define the period over which data would be collected to calculate the national air quality.
Programme 6 (Environmental programmes) -- The number of full time equivalent jobs created
The AG was unable to obtain sufficient audit evidence to support the reason for the variance between the planned target of the 38 140 full time equivalents (FTE) created and the achievement of 28 343 FTEs.
Department of Environmental Affairs: Overview of audit findings
Ms Limpho Makotoko, Chief Operating Officer: DEA presented an overview of the audit findings.
Programme 3 (Oceans and Coasts) -- The ocean and coastal management strategies and plans developed and implemented.
The sub-regional management plan was not developed
Challenges: There were delays in receiving the information from sector departments regarding the development of the sub-regional management plan.
Corrective measures: Meetings were held and continuous engagements with sector departments -- Navy and Defence, Department of Mineral Resources, Department of Tourism, Department of Transport and Department of Agriculture, Forestry and Fisheries -- contributing to the development of a sub-regional management plan to fast track the process in 2018/19 financial year.
Programme 4 (Climate change and air quality) -- The national air quality indicator.
The planned annual target was not achieved. Pollution Prevention Plans (PPPs) were received from 33 companies, but were not processed within the regulated timeframe.
Challenges: The received plans had been reviewed and a high number of them did not have complete information and required further follow-up/additional information by the DEA with the companies to ensure compliance with the regulations. The process resulted in a delay in achieving the planned annual target.
Corrective measures: Received PPPs to be prioritised and finalised in 2018/1.9
Programme 6 (Environmental programmes) -- The number of full time equivalent jobs created.
28 343 full time equivalents jobs were created.
Challenges: Delays in the appointment of implementing agents for new projects due to differences of interpretation and challenges with AGSA regarding implementation of National Treasury’s Modified Cash Standards (MCS) and correct financial reporting/accounting for the allocated EPWP budget.
Corrective measures: Implementation of programmes would continue in 2018/19
DEA performance highlights
Mr Jacob Kutu, Director: Strategic Management, DEA, presented the 2017/18 highlights of performance in Programme One:
- 182.5 out of 252 (72%) of administrative enforcement actions had resulted in compliance.
- 50 cases had been finalises and handed over to the NPA, 183 authorisations inspected for compliance had been undertaken, and 2 636 officials trained in environmental compliance and enforcement.
- Key interventions of the 2017/18 Rhino Implementation Plan had been implemented as per the Rhino Lab Outcomes.
- The Marine Spatial Bill (MSP) had been submitted to Parliament for approval.
- A National Air Quality Indicator of 1.04 had been achieved, against a target of 1.20.
- There was an increase in the size of land under conservation, to 15.8 million hectares (12.96%) from a baseline of 14.9 million hectares (12.2%) in 2016/17.
- 71 945 work opportunities had been created as part of the implementation of the EPWP environmental programmes, with 54% (38 670) women beneficiaries and 65% (47 052) of young people.
- 1 648 environmental monitors, mostly young people, were deployed in conservation areas.
In Programme 1 (Administration) there were seven areas where the Department did not meet their targets.
In Programme 2 (Legal, authorities, compliance and enforcement (LACE)), this unit achieved all of its targets.
In Programme 3 (Oceans and coasts), there were four areas where the Department did not meet their targets.
In Programme 4 (Climate change and air quality management), there were four areas that the Department did not meet their targets.
In Programme 5 (Biodiversity and conservation) there were six areas that were a work in progress.
In Programme 6 (Environmental programmes) there were three areas that were a work in progress.
In Programme 7 (Chemicals and waste management) there were four areas that the department did not meet their targets.
The meeting was adjourned.
- Annexure B: Naratives
- Annexure B: Travel
- Annexure A: Consultants Contractors & Agency Report
- Department of Environmental Affairs 2017/18 Annual Performance Report
- DEA: Vote 27: Environmental Affairs performance Quarter 3 and Quarter 4
- DEA on Final Position Paper issued by Office of the Accountant-General on EPWP and AFS for 2017/18
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