Department of Small Business Development 2017/18 Annual Report, with AGSA & Minister and Deputy Minister present

Meeting report

Briefing by the Auditor-General on the 2017/18 Annual Report of the Department of Small Business Development

Brief Comments on the Audit Outcome

Ms Connie Myburgh, Business Executive, Small Business Portfolio: Auditor General’s Office of South Africa (AGSA) said that Mr Kenny Mothlala, Manager, AGSA will be presenting the details of the outcome for the 2017/18 financial year for both the Department of Small Business Development and the Small Enterprise Development Agency (SEDA). She said that the AGSA audits so that the information is given to enable oversight and to build public confidence. She stated that there are three main areas that the Office reports on by either giving an opinion or concluding a matter based on the Public Audit Act, 2004 (Act No. 25 of 2004) namely:

• Fair Presentation and Reliability of Financial Statements;
• Reliable and Credible Performance Information for Predetermined Objectives and;
• Compliance with Key Legislation on Financial and Performance Management.

Regarding the audit outcome the Small Enterprise Development Agency (SEDA) is clean which means that it is unqualified with no findings but, for the Department of Small Business Development, there was material non-compliance found which means that the outcome was unqualified with findings.

She mentioned that the one last matter that was introduced last year was the Accountability Framework introduced to assert that “Accountability equals Plan, Do, Check and Work.”

Mr Kenny Mothlala, Manager, AGSA continued where Ms Myburgh had left off and stated that the accountability framework showed that there was little improvement with the Plan-Do-Check-Act cycle for the Department. Regarding the sub heading; Plan, he said SEDA is the reason for the status and action plans improving, other than that, there has been little improvement in this cycle. He said that on the Department’s side there was a slight improvement. Regarding the usefulness of performance indicators and targets, the status has been left unchanged because if one analyses the previous quarter’s findings, both SEDA and the Department did not have any findings.

Under the second subheading ‘Do’, and in terms of overall internal controls, SEDA has improved and the Department has improved slightly. He mentioned that again SEDA is responsible for the overall improved green status. The basic performance management controls have been deemed unchanged because in the quarter financial year the AGSA identified that the Department is still struggling to prepare an annual procurement report. This was also noted in SEDA.

He stated that the ICT controls from both SEDA and the Department have improved. On vacancies last year there were three vacancies, and this year the figure has improved to two. The AGSA noted this as a slight improvement.

The next heading in the cycle was ‘Check’ which dealt with the assurance provided. He said that the status of senior management and the accounting officer/authority assurance has remained unchanged as only some assurance was provided. This year the AGSA could not confirm whether the incentives have been changed and this is why the AGSA marked this as unchanged. He moved to executive authority and stated that it has been marked as unchanged. The Executive Authority does what it is supposed to do. He mentioned that the internal audit and audit committees reflected a slight regression. The reason for the slight regression is the internal audit. He explained that during the internal audit there was a problem with the Department’s internal audit because the AGSA found that there was no review of the financial statements. The financial statements were meant to be reviewed before they were submitted to the AGSA for the audit and this was not done. Even though there were no material errors with the financial statements, they were still meant to be reviewed.

He moved to the heading ‘Portfolio Committee’, and stated that it remained unchanged as it is doing what it is supposed to be doing. He moved to the next heading ‘Act’ and stated that in the quarter financial year there were no compliance and consequence management legislation that the Department and SEDA needed to  apply and as a result it remained unchanged. Also, the investigation of the previous year UIF remains unchanged. This related to SEDA who was still waiting for the National Treasury to come up with a resolution for them. In the next financial year SEDA will have to investigate if it needs consequence management against the official of the Department. He then stated that the investigations into SCM findings reported in the previous year have remained unchanged because in the quarter financial year there were not any investigations consulted in the SCM findings as well as in the current financial year.

On slide 11 he referred to the Portfolio Snapshot for 2017/18 and said that the clean audit for 2017/18 is 50% and he marked this as an improvement compared to last year.

She said that in the current financial year, SEDA received an unqualified audit opinion with no material findings but in the current quarter financial year both SEDA and the Department received an unqualified opinion with material findings on compliance.

The AGSA is happy with the quality financial statements and the quality performance reports for both the Department and SEDA. On no findings on compliance with legislation he said that in the current financial year only SEDA did not have findings on compliance but the Department did have findings on compliance. This was based on the fact that the AGSA found that the Department did not use funds for their intended purposes. The AGSA selected samples to investigate and on all the samples it selected, proof that this was done by the Department was never found. He mentioned that what the AGSA additionally did  as auditors was to select a site where it went to confirm that the Department did in fact give funds to the small or medium enterprise or cooperative. He said that in the instances where he spoke to a beneficiary, the AGSA found that there has only been one intervention, but when the AGSA checked the Department’s findings, it recorded two or three interventions which marked a contradiction to the AGSA’s findings. The other finding noted was that when the AGSA tried to contact some of the beneficiaries; it found that the contact details were not working.

Mr Mothlala moved to irregular expenditure and stated that it mainly related to SEDA as the Department did not have any irregular expenditure in the current quarter financial year. He stated that in 2016-17, the irregular expenditure related to the National Gazelle Program. The AGSA found that the National Gazelle Program was responsible for R6 million in the findings and it only related to the management fee. He said that the R17 million was overspending of the budget by SEDA. The reason why it changed to R41 million was because the Department went to the National Treasury for clarity on how to disclose the irregular expenditure on the National Gazelle Program. In the quarter financial year, it only disclosed the management fee of R6 million however, the National Treasury instructed them to disclose all payments made to the supplier and this is why the amount increased to R41 million.

The audit outcomes of portfolios over four years were:

• 2014/15 – only SEDA was the auditee and it received an unqualified opinion with findings on compliance;
• 2015/16 – SEDA received a clean audit and the Department received an unqualified opinion with findings on compliance;
• 2016/17 – both the Department and SEDA received an unqualified opinion with findings on the OPO respectfully; and
• 2017/18 – SEDA improved and received a clean audit and the Department received an unqualified opinion with a qualified finding on compliance.

Discussion

Mr N Xaba (ANC) welcomed the report and stated that he will be seeking clarity and more information on the areas that have not been clarified on slide 11. The Small and Medium Enterprises were given money but when sites were visited it was not clear whether they were given money at all. He asked what is expected especially with regard to the findings. The AGSA   found that there had been two or more interventions and the thing is perhaps that their perimeter to go and check was only based on one or two SMME’s visited. The Department on the other hand, assisted many.

Mr Xaba asked what the course of action going forward was because a report existed that stated that SMME’s were assisted but now it looked like they were not assisted at all.

He referred to the Gazelles and the issue of the overspending of R17 million by the Department which was supposed to be accounted for in full but instead, only Administration or Management fees were accounted for. He asked whether these instructions had to wait for the audit or if there was an omission of accounting from the Department. He said that surely if instructions are saying that everything had to be accounted for then that should be the case. However, only administration was accounted for. He asked whether this was a way of finding something.

He referred to slide 14 and asked what the material changes aligned to the yellow blocks were referring to.

Mr Xaba referred to slide 15 and asked what the capacity of the internal audit being increased meant, whether this function will rely on the Department’s accountability or will it be the Portfolio Committee’s role to fulfil.

Mr Xaba referring to slide 18 mentioned that three quotations were being weighted on R280 million. It was mentioned that some must pay 50% to acquire their funding. He asked whether non-performing SMME’s were hand-picked or whether they were those that were not trained by the Department hence they did not perform. He asked why such a matter was not resolved and questioned whether this was because the SMME’s were not trained. He asked again why the SMME’s could not understand that they had to submit 50% or three quotations.

Referring to the State Attorney assisting with the letters Mr Xaba stated that this might relate to the AGSA. He asked about the duration for which the letters were supposed to be submitted or collected, and whether one month duration was acceptable as a fair time.

Mr Xaba referred to slide 20 where it was stated that there was  no approval of the SEDA building lease and asked what the legal division had said or whether it simply did not exist in the Department. Perhaps the Department could have realised that it was just taking the building but the lease matters were not considered.

Rev K Meshoe (ACDP) thanked the Chairperson and referred to slide 10 where the AGSA identifies problems with internal audits and asked if AGSA recommended solutions or did they identify problems and leave the problems for the Department to solve.

Rev Meshoe referred to Consequence Management and the AGSA stating that it did not have any investigations on the matter. He reminded the floor about the Portfolio Committee raising a matter for investigation to the AGSA concerning the Department. He asked what happened to that investigation and why there is now nothing to investigate.

Rev Meshoe referred to page 15 and stated that the AGSA highlighted the lack of monitoring and asked what the  of the Department does when there is lack of monitoring and accountability to ensure that these instances do not recur and the Department does not have to deal with the same issues over and over again.

Rev Meshoe moved to slide 19 and stated that when there is fruitless and wasteful expenditure this obviously results in overpayment of suppliers. He asked whether the Department seeks to retrieve what was overpaid and how does the AGSA assist in this matter to ensure that what was overpaid is recovered.

Rev Meshoe referred to slide 22 which spoke of previously unauthorised fruitless expenditure. He said that this links to the question he asked on monies spent and there being no accountability and no evidence where the money went to.

Rev Meshoe asked that if an investigation is dropped who determines that case.

Mr H Kruger (DA) said that his question was not so much about the report but if one looks at Cooperatives and the success rate of Cooperatives, the Portfolio Committee knows by now that 80% of all the Cooperatives that were assisted by government have failed. He asked whether the audit is looking at money spent by the government for Small Businesses before 2014, because one must remember that there is monitoring of the government on Small Businesses and Cooperatives so evaluation is on the government funding of small businesses. A lot of money was spent before 2014 and most of the businesses do not exist anymore.

Mr Kruger asked the Department if an evaluation on the money that was spent is ever going to happen and whether those businesses are going to be audited.

Mr R Chance (DA) said that the business of fruitless and wasteful expenditure is crucial because it is the business of the AGSA to uncover this. He asked how it defines fruitless and wasteful expenditure.

He gave an example of the Cooperative Incentive Scheme where he and the Chairperson were copied in on some correspondence in September by a company that was the supplier to the Co-operative Incentive Scheme (CIS).

This was a response to the request by the AGSA office:

Mr Chance stated that a Mr Rajiv Harishin sent an email to a Mr Suma

Dated the 12th of September the letter stated:

 “Good Day I am from the AGSA office, we are currently busy with an audit into the Small Business Cooperative Incentive Scheme. Your company has been selected as one of our samples. The recommended companies’ service providers are namely the Core Holdings Group. It is noted that these companies were the recommended service providers for 12 Cooperatives as listed below. Funding was provided in 2015. It has been indicated by the Department officials that the goods and services that the two above mentioned companies were to have provided, have not been provided even though payment was made to them. We would therefore like to gather further information in this regard as follows:

1. Can you kindly provide the reasons for the goods and services not being delivered as per the CIS funding agreement entered into?
2. Can you kindly indicate what portion/percentage of the value of goods and services  have been delivered and provided to Cooperatives, if any? Supporting invoices will be required in this regard which you can provide via email as well.
3. Can you kindly indicate any other information  relating to this funding scheme you may deem as relevant for our purposes?

The name of the Cooperatives which the CIS was approved for and for which the above-mentioned two service providers are…” Mr Chance stated that the email listed the Cooperatives.

Mr Chance then continued and read the response to the email. It stated:

“Dear Rajiv,

If your email is initiated by the Portfolio Committee’s request for you to probe the Department on Small Business Development CIS program or on request from the DSBD please send me a detailed list of exactly what the Departments officials say was paid for but not delivered by Core Holdings Group.   

Their statement is false, misleading and seeks to blame us for their poor performance which seemed calculated and deliberate to sabotage The Abilene project. For transparency, I have copied the Small Business Development Portfolio Committee Chairperson, Honorable Ruth Bhengu and shadow Minister Honorable Toby Chance, who have both been to The Abilene Project several times for oversight visits and who  both had detailed knowledge of the unscrupulous, and counterproductive conduct of the Department which destroyed the project and prejudiced Core Holdings Group.  

I will send you several emails from my Gmail account that will explain the history of this project.

Kindly confirm receipt of this email.”

Mr Chance then stated that he will read out more emails relevant to this.

Dated the 12th of September

“Dear Mr Rajiv,

Kindly find attached the summary and timeline of the challenges on the Abilene Project. You will see from all the correspondence sent to you that the deliberate and consistent lack of response or support of the project by the Department of Small Business Development (DSBD). There was more sabotage and consistent delays, as well as frustrations and negative conduct from the Department.

I hope the Department will provide you with written evidence of their allegations as well as supporting proof thereof. Some of the officials who worked on this project seem keener to promote their own personal interests than those of the CIS agenda.

If you run a lifestyle audit, CIPC and research, you will find the names of these officials, some of them have resigned from the Department to avoid being called out.

Yours and Kind Regards”

Mr Chance then read the response to Mr Rajiv,

“Good Day Mr Rajiv

13th September –

Mr Chance began to read another email dated the 9th of September, stating; “Kindly find attached the delivery notes.”

The Chairperson interjected.

Mr Chance asked if he could finish reading.

Mr Xaba called a point of order and requested that rather than reading all other emails, Mr Chance could just state the essence of the emails. The Portfolio Committee does not have the emails that Mr Chance was reading and that with the essence being stated the AGSA could focus on that. 

Mr Chance stated that he was not finished yet but that he has completed the reading of the emails. He then questioned whether the AGSA has investigated the continued existence or otherwise of the Abilene Cooperatives, because if the AGSA has then it would have found that none of them are functioning at all as they have closed down. The Portfolio Committee was informed by the Department that the Agricultural Research Council was going to be appointed to run the Cooperatives in place of Core Holdings, however, this Council has not been appointed.

Mr Chance asked how deep did the AGSA dig when it was trying to find out what was really going on in a Department.

Mr Chance asked why  the information provided to the AGSA about Kowa Holdings  did not raise any alarm bells in the AGSA office. The AGSA talks about post-funding monitoring and evaluation, but had itself said that none of the information that was provided was found to exist. He asked again if this did not raise alarm bells.

Mr Chance stated that the next question is whether the Department approached the ASGA at any stage during the course of the last 18 months to ask it to investigate any of its internal operations including the Cooperative Incentive Scheme, the Enterprise Incubation Scheme and other operations functioning in that Department.

He asked that in the Corruption = Monopoly + Discretion + Accountability equation, where was accountability?

The Chairperson invited the AGSA to respond.

Ms Myburgh asked if she could give a bit of background on the investigation. She said that based on the audit that was done last year and the information that was received by the Portfolio Committee red flags were identified. This was to say that there were fraud indicators which the AGSA then shared with the previous Director-General. There were discussions with the AGSA and the Committee and there was a request given last year for the AGSA to investigate this. She said that eventually the AGSA received a formal request from the Department to ask the AGSA to conduct the investigation on incentives. She stated that this is when it was approved. The investigation started February/March 2018. The expected end date of the investigation was meant to be August 2018 when the AGSA office planned to issue the audit report.

Ms Myburgh stated that the investigation has not yet been included as the system that was used to conduct the investigation was down for more than a month and as a result of some of the findings the scope was also increased. She indicated that at this point the AGSA is not in a position to share the outcome of that report because work is still being done on the investigation and there is still an ongoing engagement with the Department, the Minister of the Department on Small Business Development as well as the Portfolio Committee.

She referred to the emails read out by Mr Chance and said that they formed part of the investigation. She mentioned that she tried to explain in the beginning of the meeting that the AGSA office has a mandate, a regulatory side as well as an investigative side. The investigative side carries its mandate over for years and they will zoom in on transactions and accuracies, whereas the regulatory audit side focuses on the specific year that it audits and within the mandate that has been issued. Ms Myburgh stated that she understands that there are high expectations and she can pick up on the frustration surrounding this issue. She gave assurance that the investigation is still ongoing and there are findings of concern. When the report is finalised the ASGA will be in a position to share the commentary. The accountability framework sits with the Accounting Officer and the Minister. She said that these are the leaders that sit with accountability and should drive the Department to do what is right.

Rev Meshoe interjected and said that he hears what the AGSA Office is saying but on page 10 of the presentation it states that the AGSA office does not have any investigations. However now there are investigations taking place right now. He asked why there is this contradiction.

Ms Myburgh clarified and stated that there is no investigation into the supply chain functions. The  audit is supposed to be on everything but the way that the presentation has been set out it only focuses on supply chain functions. She mentioned that there are instances in the presentation where the AGSA refers to on-going investigations. She stated that the AGSA would have also mentioned this in the audit report.

Rev Meshoe asked where it is stated that there is another investigation taking place.

Mr Mothlala responded that it was stated on page 25.

The Chairperson asked what source of information the AGSA used to assess the performance of the Department considering that the Portfolio Committee also provides oversight. She said that the Portfolio Committee does not only engage but it also goes out and does oversight work. She asked further if the AGSA office read the reports conducted by the Portfolio Committee.

The Chairperson stated that the AGSA office speaks of accountability (slide 9) which starts with Plan-Do-Check cycle and then refers to the consequences. The pie chart illustrated on page seven shows a percentage on the chart which refers to the real intention of government to deploy money. This can change the circumstances of the people and lead them to a better life. 

In a matter where the Portfolio Committee went to a Province and found that in terms of the Department there is money that was spent to provide a service to a cooperative, but when the Portfolio Committee went down on the ground, it found that the Cooperatives did not exist. The books of the Department will record that the money has been spent. She asked the AGSA what information it uses to verify that that money spent by the Department was used for what it was intended. She asked if the AGSA uses information from the Department which states for example that they provided financial assistance to three cooperatives in Mpumalanga. There are instances where the Portfolio Committee will go and check this information by going to Mpumalanga only to find that the cooperative has members or relatives of the members but that that cooperative does not actually exist. 

Mr Londoloza Songwevu, Senior Manager, AGSA introduced himself and stated that he will be responding to certain questions.

When he was about to answer the question on irregular expenditure

The Chairperson interjected and asked him to start by answering her question because her question was linked to the question about the investigation and it takes into account the presentation. She mentioned that she was referring to slide 7 and was asking what source of information the AGSA used when it investigated. She asked whether it also takes into consideration the Portfolio Committee’s report on the oversight visits it conducted or did it only deal with the information that was provided to it by the Department. She repeated that the Portfolio Committee paid visits to these cooperatives and found that the current members were relatives of members who had died. The he relative together with the official from the municipality have confirmed that the members working in the cooperatives are members who have since died and the current members were members who used to be employed by the members who have died.

She repeated that the question she wants an answer to is when the AGSA states that funds were used for what they were intended , was the source document given by the Department the only document it used to reach this conclusion.

Rev Meshoe asked when the AGSA audits, does it only rely on documentation or does it physically verify what is stated in the documents by having people go to the place and investigate the matter. 

Mr Songwevu replied that when the AGSA audits it does so to identify risks. There are a number of sources that it uses and the Portfolio Committee reports will form part of the sources used. The AGSA office also utilises the internal audit minutes from the accounting officer and based on those sources it will identify potential risk areas and then asses them.

Visits were conducted on some of the small or medium-sized enterprises and samples were received. Regarding the selection process, the AGSA office does not rely on what Management hands it, it integrates what is reported as performance information by the Department and what it has found as the AGSA office.  The process done depends on the cooperatives selected to form part of the samples chosen by the AGSA office.

In response to the Mpumalanga example referred to by the Chairperson, if that cooperative spoken of forms part of the samples chosen by the AGSA office then the AGSA office would take all the factors mentioned into account. If the AGSA conducts a visit and has findings that contradict what the Department has reported and given them then this will be marked by the AGSA office.

For Rev  Meshoe’s questions he said that  yes, the AGSA office does conduct visits and it integrates what it finds with what the Department or other sources of information have reported. In a situation where a small or medium-sized enterprise cannot be reached by the AGSA office, the office will refuse to conclude its existence and the enterprise will be considered non-existent.

 Mr Mothlala added to what Mr Songwevu said regarding assessment and added that media articles are also considered sources that the AGSA office looks at. Many different sources are consulted. 

Mr Chance asked four questions namely; whether the investigation conducted by the AGSA office includes lifestyle audits and an audit of former employees within the Department and DTI; how far back the investigation goes and whether the Enterprise Incubation Program is also included in the investigation and if not, why not; when will the report be presented to this Committee.

Rev Meshoe wanted to know how the sampling is done and he asked for the number of small and medium-sized enterprises that were visited on the ground.

Mr Mothlala stated that the AGSA informed the Accounting Officer of the Department on Small Business Development before she left that the investigation done by the AGSA does not include a lifestyle audit. The audit is limited by the budget received which is why it only concentrates on two financial years. If the budget had allowed, the AGSA office could go back further. Regarding the Incubation Program, only the CIS was included as a reference. Lastly, he indicated that the AGSA offices’ report is expected to be finalised at the end of the month. (October, 2018).

The Chairperson stated that she is eager to know whether the AGSA office read the report compiled by the Portfolio Committee on Mpumalanga and whether the recommendations in the report were read. She said this because what the Portfolio Committee unearthed on the ground leaves much to be desired because it is a very painful situation that corruption in this country will only be associated with the glorious movement that liberated this country, the African National Congress (ANC) which she happened to be a member of. The perception created is that the ANC is such a corrupt organisation.

Where corruption really takes place lies at the government official level of the service providers. Strangely enough no-one speaks about it. A  Portfolio Committee Member would highlight this and set it out clearly in a report it has conducted but it will be business as usual. It should ring a bell if so much money is invested by this government to promote cooperatives yet the failure of cooperatives is 88%. This should raise questions that something very wrong was happening. 

When the Portfolio Committee was in Mpumalanga it came across a cooperative and based on their experiences their made a specific recommendation in the report.  The recommendation stated that the Department and SEFA should conduct an investigation. SEFA immediately reported on what went wrong but the Department did not. The AGSA audit report made no mention of this. The painful aspect here is that the funding given to the cooperative in Mpumalanga was not an incentive, it was a loan.

The members of this cooperative were put in debt by an unscrupulous service provider. On face value, the program seemed very successful but when one digs deeper one will find that this is actually a scam. It is a way for the service provider to put these poor women and men into debt because the debt is in their name but the money was divided between that service provider and another supplier. The Department has never taken this up. She asked if this specific matter was one of the projects being investigated by the AGSA office and whether the Department had asked that an investigation on this matter be conducted. She appealed to the AGSA office to be clear and to indicate clearly when it responded to this question.

Mr Songwevu stated that he is not certain that the specific project she is referring to forms part of the investigation that is being conducted. That being said, as Mr Mothlala mentioned, the investigation should be finalised by the end of October and the AGSA office is also looking forward to the results of the report as this will affect how the AGSA office plans for the new report that will be conducted in the 18/19 year.

He said that just like the Portfolio Committee, the AGSA office is also eagerly awaiting the outcome because from a regulatory point of view the AGSA office is limited in what it can report on. The procedure is different for the investigative unit. The example here was that as much as the AGSA office found non-compliance regarding the incentives, it had to deliberate on whether this would impact on the  irregular expenditure of the Department, however the regulatory unit of the AGSA office could not conclude on the matter when the audit was done as this matter will need to be guided by the final investigation report regarding what it has identified.

Mr Chance said that if he is not mistaken, the CIS falls outside the scope of the audit anyway because it is a SEFA funded program and not a CIS funded program. Needless to say this should not mean that it should fall outside the scope of the investigation. He mentioned that the SEFA audit was outsourced which then means that this question should be directly asked to SEFA tomorrow.  Subject to the outcome of the investigation and what the Department presents this afternoon, the Portfolio Committee should call on the Public Protector of South Africa to investigate more broadly matters of potential maladministration and irregular activities involving this Department and its predecessor of at least five years.

The Chairperson stated that the point she was referring to was in the source documents from the AGSA office.  She made mention again of the fact that the Portfolio Committee made a recommendation in its report that SEFA must be investigated and the Department must do the investigation. The reason that the Portfolio Committee was making the recommendation was to point out that the Department also plays an accountability role in this matter even though the money came from SEFA, the shareholder is the Department. The money that went to SEFA does not belong to SEFA it belongs to the government. This is why the Department also needs to know what happens in SEFA. Unfortunately, the Department did not follow this up and it was the Portfolio Committee that uncovered the depth of this matter. 

The matter is not about the CIS, the matter here is money intended to address issues of poverty, unemployment, and inequality to better the lives of the people. What the Portfolio Committee identifies with this matter is that the money allocated for these social and economic matters was spent but it was not used for its intended purpose. This should be enough to raise alarm bells within the AGSA office enough for it to investigate the matter further through the appropriate channels. She hears what Mr Chance is saying but holding people accountable does not only relate to the CIS, it relates to all the money spent by the government to achieve a particular goal. She is a member of the ANC and it pains her to hear every day that there is only one party that is identified as corrupt in South Africa and that is the ANC. It is never mentioned that an official within the Department is corrupt, service providers are never seen as being corrupt.

Mr Songwevu thanked the Chairperson and stated that to approach this matter one would have to ask whether the Department in itself reported on this matter. If the Department reported the matter then the AGSA office would need to sample from what the Department was reporting. The next question would be whether the AGSA office did pick it up in its samples. The AGSA office only conducts its audits as a response to what it identified.

The Chairperson interjected and said that the Portfolio Committee holds the Department accountable. She repeated that the report conducted by the Portfolio Committee should be a source that the AGSA identifies.  The AGSA was reminded that the Portfolio Committee reports on oversight for the Department. It is a pity that she does not intend to come back because if she was coming she would undertake an oversight visit with the AGSA office so that it  could see what the Portfolio Committee had to deal with.

Mr Mothlala responded that the AGSA office did read the Mpumalanga Report compiled by the Portfolio Committee. When the audit began the AGSA office identified the risk and that was why the Department received an unqualified opinion based on compliance. The AGSA did its research from the ground up. Certain small and medium-sized enterprises were contacted and it was found that they do not exist.

Mr Chance asked the AGSA office how the findings would reflect on Department the following year. ‘findings’ was  a very bland term. 

Mr Songwevu stated that it will be very difficult to predict the audit outcome for 2018/19. This was why  the investigation will perhaps have to be assessed and also be factored into the AGSA’s audit process. The AGSA office will also have to respond to the matters that have been identified.

Ms Myburgh explained that fruitless and wasteful meant money that was spent in vain that did not go out to its intended sources. After an audit is done it is up to the Department to investigate further. The report should then indicate where an error occurred and who was responsible.  The accountability lies with the Department on whether they will accept the opinion of the AGSA and take it further. If fraudulent activity is found it will not necessarily be recorded in the audit report because if it is an amount that has been reflected in the financial statement then it is considered a receivable and there are processes that can be undertaken to ensure that the funds are retrieved.

Rev Meshoe asked where the previous findings of the AGSA office ended up. He was sure that the AGSA office does have previous findings on the Department where  it was found that money was spent but  there was no evidence regarding how the money was spent.  He asked further for a previous account of what the AGSA office did after it had found this kind of irregularity. What did the AGSA do in the past to help the Department recover money?

Mr Mothlala stated that in the previous financial year the AGSA office noted cases where cooperatives and small or medium-sized enterprises were selected and it was found that the entities did not in fact exist. The AGSA office then took this information and handed it to Management. Management then needed to investigate further on this. It is expected of the Department to go further and investigate.

The Chairperson stated that she has a serious problem with the terminology that the AGSA office uses and  highlighted the word ‘non-compliance’ and stated that non-compliance does not quite  explain what really happened and what the AGSA unearthed. Whenever  it is about a member of the ANC the terms fraud and corruption are used, never is the term non-compliance used. The  correct terminology needs to be used. If it is found that a small and medium-sized enterprise does not exist it should be termed fraud and not non-compliance.

Rev Meshoe agreed.

Mr Chance agreed and stated that when disbursements are issued and  go to the service provider every penny is spent on goods and services that have to be procured. These service providers are appointed by the Department. The cooperatives do not hire or choose these service providers; it has been found by the Portfolio Committee that these service providers are also appointed by the Department. In many instances the service providers are chosen by the cooperatives who are sometimes rejected by the Department. The Department has favourites and this is the crux of the problem as  money is being transferred to different hands. This is what the Portfolio Committee has been investigating for the past three years. Consequences of this have not yet been seen and it is time that consequences are seen. The President has made it quite clear that he will not tolerate a whiff of corruption even if there has to be people ‘falling on the sword’. 

Mr Mothlala referred to the issue of terminology and the word ‘non-compliance’ and said that as auditors, they do not investigate. It  is not known whether a finding had an intention behind it so  findings needed to undergo further investigation  to figure out whether the ‘non-compliance’ found by the AGSA office included intention. This is why the AGDS office’s forensic investigation unit is not investigating the 2016/17 financial year. The AGSA cannot simply mark a matter as fraudulent, as many things occur. It may be a system issue meaning that it is a mistake.

The floor laughed.

The Chairperson stated that in 2016 the Portfolio Committee asked the Department for the number of cooperatives it had funded from the day that it was established in 2014 till 2016. The Department stated that 400 cooperatives had been funded. The Portfolio Committee then asked for a list of those cooperatives and the Department gave it the list. The Portfolio Committee then asked the Department to compile a report and this is when the Department informed the Portfolio Committee that it wanted to appoint a consultant to do the work of finding the cooperatives on the list and this consultant would also be funded by the Department. The report has not been presented by the Department yet slide 7 of the audit presentation showed a  pie chart which indicated improved conditions and a better life. How it is possible for improved conditions and a better a life to be recorded when those cooperatives do not even exist?

The Portfolio Committee’s worry is that 400 cooperatives multiplied by R350 000 = 140 million rand and this is a lot of money. The change effected by this amount needs to be evident.

The Chairperson stated that this was a very important Department. For this Department to carry out its mandate there are things that it had to stop doing. There has to be a change because based on how the Department has been acting and what they have been doing there has been an 88% failure rate.

Ms Myburgh stated that she thinks the lines are being blurred between the regulatory unit and the investigation. She did not think that ‘non-compliance’ should be underplayed. From a regulatory side the Portfolio Committee and the AGSA office are saying the same thing. When a red flag is raised it is a red flag. It was picked up last year and has been identified again this year. The management takes this seriously. In essence although the audit may seem like it is not supporting the concerns; it actually is supporting the concerns. From the management side of the Department there needs to be more urgency and certainty.

Chairperson said that all the Portfolio Committee wants here is for the Department to view this matter with the seriousness that it deserves. She stated that the money being spent on irregular activity is bigger than the money spent on upgrading Nkandla. This is a very important Department because without this Department issues of poverty will not be addressed and participation of the community who have been excluded from participating in mainstream activity will have a chance to do this with this Department. However, this Department needs to change the manner in which it has done things in the previous years. The way this Department has dealt with matters has resulted in an 88% failure rate.

The Chairperson told the Deputy Minister and stated that she is glad that he has all his foot soldiers and  the Portfolio Committee is looking up him to effect change. 

The Deputy Minister thanked the Chairperson, and greeted the floor. He stated that he thinks that the Portfolio Committee, the Department and the AGSA office is doing a very good job with fighting corruption. He has been seeing the frustration from the Members who were raising questions but were receiving no responses from the Department. The Chairperson’s frustration was noted. He felt that at some point he should answer a question directed to the AGSA office because of the tenseness. He thought that the Department was committed to address the issues that were raised today. He was a little embarrassed as the responses have not been weighted or sufficient when the questions were being addressed.

A proper response will come as the Department will just have to go back and focus on things that are problematic, not only to the Portfolio Committee but matters that are problematic to the Country. He referred to the CIS and stated that these are people who need help and they are in the majority. If one goes to meet them and sees their standard of living and how desperate they are to try and pull themselves out of their dire conditions, the interventions put in place to try and solve their situation will be appreciated. It  is very frustrating when procedures are put in place to assist these people but then are not followed up and not done correctly to actually help these people. He referred to the new Acting Director General and stated that these matters should be treated with a new element of urgency. Members should be able to look at the Department and know that it is led by people who care and who are committed. He would like to see this. The majority of the staff within the Department is committed to their work but there are those who frustrate the intentions of the government. He stated that the Department is committed.

This Department should not be viewed as one that does not want to implement consequence for wrongdoing; where there is a wrong, it should be effectively corrected.

Mr Songwevu stated that one of the issues he has noted is on irregular expenditure where R6 million was reported. As Mr Mothlala has stated, the R6 million was what was initially assessed to be in contravention and therefore led to irregular expenditure. When Management followed up with the National Treasury they instructed that the R6 million should not be the only figure noted but the entire R40 million should be noted as irregular expenditure.  He stated that the adjustment was done by management so it was not a matter that was picked up by the audit office. Management correctly disclosed this amount in the report it had submitted.

The Chairperson asked that the matter related to the National Gazelles be unpacked as she wanted to know made it be noted as irregular expenditure.

Mr Mothlala stated that the problem of the Gazelles was under the Department of Trade and Industry (DTI) before it moved to small businesses. The AGSA office found that when the Department created this program it did not follow the correct procedure and the AGSA office marked it as non-compliance. The Department is in a better position to give more information about the suppliers.

The Chairperson said that she just wanted to know what made it become an irregular expense and this has now been explained. She said added that she does not remember it coming from the DTI.

Mr Mothlala stated that maybe the Department can confirm this.

The Chairperson asked for answers to the other questions.

Mr Mothlala mentioned the matter of the R17 million where SEDA had overspent and did remain within the budget.  The RR17 million does not relate to the Department but to SEDA.

Mr Songwevu stated that the next question related to slide 14, on the performance reports that were submitted throughout the audit. Here it was found that material mistakes were picked up but management was able to adjust the material mistakes. Even though the performance report landed up with an unqualified outcome, there were material adjustments that were made subsequent to the submission on the 31st of May. This happened to both SEDA and the Department.

He asked whether this answered the question asked.

Mr Xapa stated that he wanted to understand those material mistakes because they have been mentioned very vaguely.

Mr Songwevu said that basically the AGSA received an audit report on performance management on the 31st of May to identify material mistakes set out in those numbers reported. Throughout the discussions, the statements were accepted and adjustments were made. In the presentation it has been marked with a zero which meant that the APR that was submitted on the performance report did have material mistakes but it was subsequently adjusted. This then meant that the final performance report would reflect the adjustments made.

The Chairperson asked about the capacity of the internal audit question.

Mr Songwevu stated that this meant that the Department would have to capacitate the internal audit so that it was able to perform all these activities.

Ms Myburgh stated that she will like to add that when the AGSA met with the previous Director-General there were limited resources to pay the internal audit and the Department could not necessarily do everything that was expected. Ms My burgh’s response to this was that if there are limited resources then those limited resources should be put where they mattered the most and to also make sure that all processes were utilised. The audit states that the capacity of the internal audit needs to be enhanced.

The Chairperson added that perhaps this question can be deferred to the Department and they should be asked where their priorities lay.

Mr Songwevu stated that this would be the AGSA’s recommendation.

Mr Xapa stated that the AGSA’s office made mention of three quotations and that there is 50% that has to be paid for by whoever is assisted. He asked if the three quotations came about because those who had been assisted were lacking in training and how long this has existed.  

Mr Mothlala stated that in this matter the applicants were given six months to come up with a quotation of how 60% of the amount would be covered. He stated that when an applicant applies, they are given time to find three different quotations on how to cover the 60% and if they cannot come up with a quotation then the application will be cancelled. If an applicant comes after six months with a quotation then they will be reinstated.

Mr Xapa stated that maybe the reason for those who may have not complied should have been dropped because the amount of time taken on the submissions of quotations is not desirable hence they could rather have been dropped. Others could have been assisted in that six months. He questioned whether this practice should even happen.

Mr Mothlala stated that the Department is in a better position to give more information on the matter.

The Chairperson asked about the legal question. 

Mr Mothlala asked for clarity on the question.

Mr Xapa repeated his question and stated that he wanted to know if the Department had maybe received assistance from the State Attorney regarding the letters. He asked why it started with the State Attorney and why the legal division in the Department did not see this because now it has escalated.

Mr Mothlala stated that he will explain but the Department is in a better position to give more information on the matter. What happened was that the Department was struggling to get supporting documentation from the DTI   and this was  why it took long for them to refer the matter to the State Attorney.

Mr Songwevu said regarding the question on whether the AGSA office makes recommendations when it identifies a problem, the office does make recommendations on all its findings to management. When the AGSA office identifies the issue and the root caused, it will make a recommendation so that the matter gets resolved.

The Chairperson stated that the AGSA office in their presentation refers to things as unchanged. What are the consequences if the same matter keeps coming back as unchanged?

Mr Songwevu replied that unfortunately in terms of the Audit Act this is all the AGSA office can do. 

The Chairperson thanked members of the AGSA as this gave the Portfolio Committee a fair understanding of the AGSA’s work in terms of its mandate. This is useful information that will be used in engaging with the Portfolio Committee, SEDA and SEFA. She understood that the AGSA office cannot go beyond its mandate to do verifications that are related to input regarding government expenditure but from where the Portfolio Committee sits it yearns for such information because at the end of the day, if there no instruments to check on the impact it will forever be in a situation where money is spent and there are no results. The Portfolio Committee holds the Department accountable.

Briefing by the Department of Small Business Development on their 2017/18 Annual Report

Mr Cassel Mothale, Deputy Minister, apologised on behalf of the Minister being absent because she was still in Cabinet but would be joining the meeting when she was done. He stated that when the AGSA reported, he felt like it was the Department who was reporting (here referring to the intensity of the questions asked). On a lighter note this was not a good feeling but he assured the floor that the Department will be taking these matters seriously and will be effecting change to the way they addressed matters. More needed to be done and at a quicker rate.

He introduced the new Acting DDDG: enterprise Development, Mr Mojalefa Mohoto, who would be making the presentation. He thanked the Minister for joining the meeting and gave her a quick summary of the meeting.

Minister Lindiwe Zulu thanked the Deputy Minister and greeted the floor. She started by thanking the former Director-General (DG) for listening to the Portfolio Committee and helping shift the Department to where it is now. Regarding new appointments to the Department maybe one does not need to start from scratch but instead build on what is already in place and strengthen what is already there. She added that change should be adopted when things that did not work very well. Today’s presentation is the 2017/18 Annual Report by the Department and in the four almost five years that the Department has existed, they have tried their best to stick to the timeline on addressing matters as well as the timetable of the institution of Parliament as well as their own timetable to make sure that it reaches its own deadlines and submitted the appropriate reports. When she thought back to the early times of this Department’s establishment and what it used to be to now, it has come a long way. The Department is also looking forward to the mid-term budget.

Mr  Mohoto said that this Report was for the period 1st April 2017 to the 31st of March 2018. Slide 2 indicated the presentation outline. Regarding slide 5, the Minister has covered the matter of the Department being able to meet deadlines as prescribed by the Act and these deadlines have been tabled. Slide 9 showed the organisational structure that the Department was operating under in the 2017 financial year. Regarding the structure, there were some matters and concerns that came from the formalisation of the Departmental organisational structure. However, the Department now has an approved start-up structure which was still in the finalisation stage. The revised budget structure has been approved by the National Treasury.

Mr Mohoto said that the concern with the lease alignment was the challenge of having the start-up structure still in the process of being finalised alongside the revised budget structure. This has resulted in the Department in some instances not being able to perform certain objectives. As of April 2018 the Department has migrated to the new funded structure which allows for the programs that included cooperative development. Slide 12 indicated the overall performance. The standards against which the Department was measured are as follows:

• 74% or below was regarded as target not achieved;
• 75% – 99% meant target was partially achieved;
• 100% meant that the target was achieved; and
• Beyond 100% meant target was exceeded.

The Department exceeded their targets by 11.1%. 58.1% of the targets were achieved which meant  that the total percentage of targets achieved was 62.9%. 16, 7% was partially achieved and 20, 4% was not achieved.

The  next slide dealt with  the Performance Pair Program  which is Administration and under administration the Department was not able to achieve 16.7% of the targets but the expenditure here was 96.7%. On  Police and Research Brand  29.4% of the targets were not achieved and in terms of the budget 96.7% was spent. 

On Program Design and Support this was where the bulk of the Department’s funding was located. Here  the Department was unable to achieve 16% of the target. The budget here was R1.3 billion and he indicated that the R1.3 billion was not only sitting with this Department. The majority of the money was with SEDA. Here, 99% of the budget was spent. The establishment of the Cooperatives Development Agency was a very sore point for the Department.

Mr Chance thanked Mr Mohoto for the presentation. He said that it is disappointing that only two Portfolio Committee Members are present as the Annual Report only happens once.

Discussion

Mr Chance said that what was said on the structure on page 10 was correct and this was very worrying because Treasury and the Department of Performance Monitoring and Evaluation (DPME) had put a halt on the Department’s plans to develop its own structure.

The Minister and Acting Director-General have been here from the beginning. He asked what they would have done differently over the four and a half years regarding expediting the development and finalisation of the structure. Normally it should take Department 18 months to set itself down and get going.

Mr Chance referred to slide 27 which was about the Functional Organisational Structure only being approved in 2018. He questioned whether there was surely an admission that this has been a problem. There was no consistent agreed upon structure to enable the Department to perform.

He asked what the annual review of small and medium-sized businesses was and what this meant. 

Regarding page 20 Mr Chance asked the Deputy Minister if he recalled when the Department presented a Bill he (Mr Chance) had asked when it would be tabled and the Minister in her remarks had stated that a new Act would be tabled in this new calendar year. He asked when the likelihood was of the new Act being tabled.

 He expressed uncertainty about the trend analysis and  asked what that was exactly.   

A year or two ago the Department said it was going to adopt a Life Cycle Approach to its mandate. He asked if the Department was looking at different approaches; how that was going and whether there have been developments in this area. 

He referred to page 33 and asked about the rand amount allocated to personal costs. It is misleading because one did not know whether it included personal costs that SEDA incurred.

Mr Chance then said that in terms of overall expenditure, the figure given would then not be the correct figure. In terms of the reporting, he advised the Department to include the total employee costs of all entities and not just the Department so that there was a clear idea of what was spent on personal costs as opposed to services delivered for beneficiaries.

The Chairperson allowed the Department to respond. 

Mr Mohoto responded and started with the Act, he said that the Department is still following the program. The overall amendment of legislation is the Act itself, and the Department will be finalising it at the end of the financial year. This meant that the Department would be implementing the Draft Bill. Parallel to this the Department is looking at gazetting the National Small Enterprise Definition in the next two days for further comments. The Department is also looking at Alternative Dispute Resolutions and by the end of December it will be able to be table this. The Department is still sticking to that particular program and  the Departmental colleagues are working hard to reach that milestone.

On  Policy and Regulation he addressed the area of an   annual report on small business and  said that the Department will be looking at the state of a small business in a particular year will be conducting a study by using  a dipstick  to review areas that need reviewing.

Mr Mohoto said that the Trend Analysis was looking at the performance of the sector. The Department looks at the trends of the sector and this includes the economic trends of a sector. The participation of other vulnerable groups in the previous and current performance was reviewed to see if the Department was making a change. It was narrowed down by looking at a comparative analysis because the Department looked at sectoral changes before and after Departmental interventions.  Furthermore the Department assessed if there was any particular uptake being implemented.

The Chairperson welcomed Ms Sempete Oosterwyk, Chief Financial Officer (CFO), Department of Small Business Development

Ms Oosterwyk thanked the Chairperson and stated that she would start with Personnel in the summary of Compensation of Employees (COE). The reporting standard used was that required by the National Treasury which required that as a national Department the amount that ultimately goes to SEDA forms part of the COE. This will be seen at the meeting taking place next. SEDA will present their portion from what was received from the R700 million

Seeing that the small and medium-sized enterprises as well as cooperatives are the primary vehicle that drives the economy, the Department is in a position to convince the National Treasury to increase the budget for the Department in order for the Department to access additional resources. This is a challenge as the Department has been told that the ceiling will not be increased. What will happen is that the ceiling that the Department already has will have to be evaluated in order to address what is a priority and what is not and this will also have to be determined after the re-organisation of the Department’s structure. The Department has proposed to the Treasury to increase the compensation of employees and this was rejected.

Mr Lindokuhle Mkhumane, Acting Director General (DDG), Department of Small Business Development, stated that there was a point on slide 17 beyond the annual review and the Portfolio Committee asked about the Comparative study done.

Mr Mohoto replied that this was called the benchmark study that the Department did as a comparative study where it compared the legislation of South Africa with what other countries were doing in terms of the Dispute Resolution Mechanism. The Department had made a presentation of various countries including the Americas, Europe; Asia and two African countries. The slide was meant to give a feel of how other countries are approaching dispute resolution. 

The Minister reminded the floor to respond to the municipal approach.

Mr Mzoxolo Maki, Acting Deputy-Director, Department of Small Business Development wanted to talk about the Life Cycle Approach. He said that the architecture still exists and the architecture is still being implemented. Additional funds are needed for the approach to be successful but that this will be difficult as the Department is unable to receive additional funds. The Department then needed to re-organise itself to what will currently work. If the Department’s service offerings are looked at, the different stages of business development are seen. One of the key principles of the service offerings is that the Department needs to integrate its services.

Mr Maki said that now the Department is also looking at a blended function model so that the available funds are correctly utilised, for example if SEDA provides loans then the Department will provide incentives. This is how working together will get a better impact. The Department stated that it will now start looking at the sector wide approach so that it sees the entire system of Government.

Mr Jeffrey Ndumo, Acting Deputy-Director, Department of Small Business Development, stated that the Department worked on the processing at the Municipality. Three municipalities were chosen to deal with the Department in assessing how it could be of assistance in the area of business licensing. The Department then combined the three municipalities within the value district and looked at their business licensing processes. The turnaround time was lengthy. The Department also developed a framework document that set out statistics. Government officials were trained to oversee this and were also taken to the Tshwane municipality to see how the processing is done to be able to reduce it and introduce it to the IT system. The municipality signed on those processes and they were approved by the mayor within the district and were now being implemented. The turnaround time has been reduced. The Department wants to create a model of this in order to apply it across the board in order to work with reducing the turnaround time of business licensing.

Mr Mkhumane said that he would deal with the question asked by Mr Chance on the structure. This is a real matter that has affected the stability and performance of the Department. The question was what would the Department have opted to do differently if the correct structure was in place. He answered that when the Department started it was given a structure there was a gap in the time it took to come up with a functioning structure to assist the deliverance on the mandate. The support was also lacking. There was a time when the Department found itself negotiating with the support structures such as the National Treasury. This was not meant to be the case, clear mandates and tasks were meant to be given. There were times when the Department had to beg these functions to come to the Small Business Development Department in order to start working to fulfill the Department’s mandate.

In the end the Department worked with what it was given and with the functionaries that wanted to provide assistance. There is also a report that was meant to be signed by the Minister on Small Business Development and the other Minister in terms of the functions that are supposed to be transferred from one Department to another during the establishment of this Department. He  knows that this process was delayed because the other Ministerial party delayed the signage but what had happened was not fully disclosed.

He said that the government department’s that were given a mandate to assist this Department in its inception should be held accountable and should be encourage to assist this Department in carrying out its mandate.

On the lifestyle audit, he is not sure but he requested the DTSA to ensure that a record of what everyone is doing is tabled. There was a challenge where certain colleagues were delaying but everyone is on board now and the financial status of employees has been disclosed. He was not sure where the process of the Lifestyle Audit was going.

The Minister said that she can report on this as the previous Director-General (DG) did brief her on this. She was able to comment on other Departments assisting this Department even to a level of involving intelligence as far as possible. The last report she received from the previous DG was that there was a challenge in terms of the declaration that was supposed to be made by other Departments. Before the previous DG left she did indicate that everybody has done so and a report was then expected from this and had to be presented. She wanted the Department to ensure that this process was done fairly. The Acting DG will have to do this report because what she was told by the Director was that the investigation had actually gone quite far even though the DG did not necessarily have the full capacity to do this investigation.

The Minister also indicated that the DG commented on the investigation which rattled some cages regarding the demands she made that everyone had to compile certain things. Save for the preliminary report, a final report was not given but she would coordinate this with the Acting DG.

The Minister stated that she would answer the question on what would she have done differently. Quite frankly, when this Department started, from the very beginning with the start-up structure the Department was not happy with the structure but it was told that for any structure that the Department wanted it would have to be approved. She was enthusiastic about developing what she felt would be better suited for the Department, but she was put in her place and told that this was not about her personally. She then decided to pull back and see it as a learning experience. This was a struggle for the Department. Even  the processes of trying to receive funds was a challenge because the Department would be given talks about the economy not doing well and that the Department would just have to adjust itself to what it is was allocated  financially. This impacted on the government. She even recalls informing the Portfolio Committee that the Department might not be coming back here over the next five years because the Department knows that due to the structural and financial constraints the mandate will be a challenge to achieve.

Her  view on what the Department has managed to achieve and what it seeks to achieve in terms of small and medium-sized businesses as well as cooperatives is that  the it was is not capacitated enough from a Human Resource point of view.

The Minister said that it was all good to say that there needs to be cutting here and there but the Department still needs to be conscious of the fact that there still needs to be delivery on the ground. Part  of the concerns included instances where the capacity at  local government level was not up to scratch.  These structures are meant to be the eyes and ears of the community. She concluded that to answer Mr Chance’s question, she was not happy about what has been achieved but she is conscious of the fact that people who are employed in the Department also need to bring value and make an effective contribution to seeing the mandate come to life.

In terms of the structure she could not say what will come of it as she is not the President, but in terms of fighting for Small and Medium-sized enterprises as well as cooperatives to ensure their success, she is one of the people who will support their plight.

On the question of what she would have done differently, in the five years of creating a new Department there are a few things that she would have wanted to do differently. The first one is a real understanding of the needs of the small and medium-sized enterprises, not just by this Department but throughout government. This should have been focused on from the onset. Her view was that upscaling the support of small businesses beyond just this Department would be of great benefit to the Department and government.

Secondly, once it was understood that there is the creation of a new Department, there were still certain things sitting with the Department of Trade and Industry as well as with the Department of Economic Development. The Department could have been forceful in stating that it cannot only be given people, it also needed the accompanying budget. In the process of moving from a startup structure to a formalised structure, the handover could have been handled better. She said that the Department should have been stronger in this transfer. This Department listened to too many opinions on how to do things. This is why there was a delay in the structure.

The Minister then addressed the question of what the Department can do in the future and stated that people should respond to the real needs of the small and medium-sized businesses. The Department has been a little bit slow in doing this. Government needs to ensure that legislation and regulation speaks to the needs of the people. The Department does not regret what it has done so far only that there are certain things that could have been done differently. The Minister also stated that she will request a closing report for the five years. This will be a proper report that will enable the next administration to not repeat the same mistakes.

She said that lastly the DG stressed certain areas on sequence management before she left. These included poor performance and that the government had a tendency of taking too long to respond. The Department admitted to being guilty of this too.

The Chairperson asked for an explanation of page 45.  She asked why the Department had a strategy objective.  The Committee knew that it was   not achieved so she would like to know why the Department had this.

Mr Cornelius Monama, Communications, Department of Small Business Development, stated that what was originally intended to be achieved was that the Department would go out in communities to inform them about the programs and policies offered to encourage them to seize this opportunity in order to improve their own lives. This also included setting up businesses. A plan was set up. There was a debate between the Department unit and the internal audit about the plan not being a framework but merely a plan so its implementation would be problematic. The debate was lost by the Department unit.

The Minister replied that while she appreciates the answer by Mr Monama, there was a concern about the budget as there was no money for the marketing of this plan.  The Department even asked SEDA and SEFA to include the Department in its branding. She has also informed the Department that part of what the problem was that reporting was done in blocks. The Department should look at how much communication it has managed do without the financial muscle that other Departments received. This   Department did not even have money for outreach programs. She has communicated to the Department that it should ‘ride’ on others with regard to branding whether it is SEDA or SEFA so that this Department can be include in their branding.  She also said that these should be seen as opportunities for the Department to speak to communities.

The Chairperson respectfully acknowledged the response and referred to page 51.

Mr Ndumo said that the target for that year was supposed to be four national business processes and procedures, but the budget for the program was not adequate. There were two components that were other processes. These were the engineering of business processes that were there and then to have a study on the engineering processes. This program had a budget of R900 000 for that financial year. It was communicated that this amount was too little as it will not be able to effect even one business process. One business process costs around R1.5 million. The Department then took one engineering process and spread it across three districts.

The Chairperson stated that she does not understand, she repeated the question referring to page 51 where it says:

“The Number of National business processes and procedures analysed and redesigned per annum and it reads under the actual achievement of 2017/18 that the annual target has not been achieved”. She wanted to understand the challenge that he was referring to.

Mr Ndumo replied that one of the challenges which forms part of the Minister’s target given by the President was to reduce the red tape on the small businesses, and therefore this target addresses the reduction of the red tape.

The Chairperson asked why this was not in the presentation, and why this was not a problem that the Department was addressing.

Mr Ndumo stated that the aim is for the reduction of the red tape.

The Deputy Minister said that it should be accepted that the presentation will be changed into a format where this kind of information will be included.

The Chairperson referred to slide 52 to the submission of the amendment of the Small Business Bill into the legislative process. This question is related to a question asked by Mr Chance. In the Department’s explanation the Annual target was not achieved as the Bill was not developed and submitted to the Minister for approval.

The Chairperson said that following what was said about the Department of Trade and Industry (DTI), the Department had said that it is amending the principle Act, meaning that the Department should not be amending the Bill but it should be drafting a new Bill. The Department had presented a response to the Portfolio Committee that said that work was being done. Also in this meeting it was stated that the Bill will be processed. She asked for clarity on what is being processed, was it a new Bill or an Amendment.

Mr Maki stated that it is an amendment; the Department thought that it would be tweaking the Bill here and there especially the designation of the Act but it was found out at a consultation that there are a number of insertions that stakeholders would like to include that went beyond what the Department had in mind. New things are being implemented so technically it becomes a new Act.

The Chairperson asked rhetorically if the Department understands how cooperatives operated and what they were there for. It is a concept that is applied to inform a particular way of doing things in businesses by communities who are the workers and owners of those businesses. Those businesses will be informed by a framework at community level and not by a framework developed by a Department.  A cooperative will notice an available resource within its community and it will utilise this to bring a product in to a market for the community and the people in the community will buy that product. The Department should then assist in the licensing process and force this cooperative to partner with an independent service provider. The awareness of the community needs to be raised.

The Chairperson said that she would like the Department to read the study tour report by the Portfolio Committee so that the Department can see the big opportunities it is missing with the cooperatives. There is no policy that would need to be done; all that would need to be done is to say if there are 1000 houses that are going to be built in a particular ward, 300 of those houses - which translated to 30% - would be the attempted target.

The Department should then move to mobilise 300 beneficiaries to facilitate the establishment of a cooperative to build the houses and a cooperative to form a bank to bank the money that they made instead of that money being used by a contractor. The Department should then analyse and compare between the 700 (70%) whose houses were built by a contractor and the 300 (30%) whose houses were built by the community. The 300 would have money and a bank because a government policy would be used as a catalyst to develop them. This is what a cooperative is for. She said that opportunity should be sought. She expressed uncertainty about where a lack of capacity comes into the equation. More cooperatives should be formed, it is a long term drive but government resources will be used. The first part that makes her sick is to always talk about small and medium-sized enterprises as well as cooperatives without separating the two. These two need to be separated because a small and medium-sized enterprise and a cooperative have different roles.

Mr Chance stated that he just wants to come back to the matter of the history of the amendment of the Act. He said the 1996 Act introduced the Small Business Council. It also laid out the schedule of the definition of small businesses in the various sectors.  The changing of the schedule on defining small businesses is well overdue. The economy has changed dramatically since 1996 and there should be new definitions which reflect those changes and also reflect the global trends or standards of what constitutes a small business. Obviously it is too late to influence those that have been gazetted. The cut between a small business and a medium business is 250 million euros. This issue is around a small business becomes a medium business. In terms of the current exchange this translates to roughly R4 billion. By this definition many big businesses in South Africa would actually be regarded as small businesses in Europe. He was very interested to see what this new schedule is going to look like. South Africa has an inward mindset where it is only focused on its own little world and it does not actually understand that it is operating in a global economy.

The next point is closer to his heart and this involves the decision of the Department to table the regulatory Amendment according to Section 20 of the Act. Section 20 of the Act gives power to the Minister to appoint alternative dispute resolution mechanisms. He asked why this was a priority compared to any other Act or changes to any other Act. In May there was already tabled and gazetted in Parliament the establishment of a Small Business Enterprise Ombud Bill. He asked the Minister what happened to the National Small Business Council. It was provided for the 1996 Bill and it does not even exist.

The Chairperson said that this Department needs to help each other. In 2016 the Portfolio Committee asked the Department how many cooperatives existed. The Department said there were 400 cooperatives. The target for training cooperatives for this financial year is 303. This cooperatives business should be left because there is no understanding of it.

Ms Sebina Hlapolosa, Special Advisor, Department of Small Business Development was asked to share her thoughts on the study tour that she went on with the Portfolio Committee. Ms Hlapolosa stated that what was experienced and what each individual left with from the trip is difficult to share. It will not easily be understood because South Africa has been socialised to have a different mindset.

The Chairperson asked if there is anyone in the Department who is trained on the concept of cooperatives community development and the political economy. The time for radical economic transformation as mandated by the ANC is now and the instruments that should be used to drive this are cooperatives.

The Deputy Minister said that common ground on this matter will not be found today. The Department is now aware that there will be no success if only money is dished out. What is also needed is entrepreneurial education and development skills for the community. The individuals who went abroad on the study tour have been in discussions with the Department as a follow-up to develop the skills and mindset to fulfill the mandate. He said that he has also led a team to Nigeria just now to attend a conference of the African International Alliance Cooperation where what other countries were doing was exposed.  All parties are not talking past each other here. The Minister has said that the Department will go back to the drawing board to address these matters. The contribution by the Portfolio Committee is appreciated and it is not falling on deaf ears. All interactions in this meeting - when the Department leaves - will contribute to having a better view on matters. It contributes to the development of the Department in order to reach the goals set out in the mandate and to fulfill its duties. As this meeting reaches a conclusion everyone present is wiser.

The Minister stated that part of the reason why the Department took the decision to only have the Portfolio Committee going alone was because the Department wanted to be beyond what just the Chairperson was addressing in terms of mindsets being changed. Even getting the Department to go was an obstacle on its own but ultimately the Department’s employees did go.

She has been listening to the Chairperson and Mr Chance saying that it is not just about politics but it is also about empowering the people. In listening to both expressions of the advantages if certain things were implemented and adopted into the government’s own mandate it would make a big difference in the Department. A   weakness within the Department was the fight about which structural model to use.  This is a lesson that advises that sometimes one should just listen without bringing in a personal interpretation.

Here there is an opportunity to correct that and to step up. A workshop is needed for those people who did not go on the study tour with the Portfolio Committee. This was also an independent conversation that she has had with the Special Advisor Ms Hlapolosa.

Ms Hlapolosa said a long time ago that the Minister should have gone on this study tour. The Minister added that she agreed because it is not just about informing the public about what the Department can do for the public, but it also about advising them on a ground level about the possibilities of the things that they can do for themselves. It is very different from the mindset that the Department currently has on communication. The responsibility lies with herself and the Deputy Minister because it is not about the time lost but it is about now and what the Department can do in the future for cooperatives.

The Chairperson said that she really appreciated this and it has been a very long journey. She would like to thank the Minister and Deputy Minister for allowing certain individuals from the Department to accompany the Portfolio Committee on the study tour. She said that it creates a different perspective. The   decision for her not to raise her hand in the nomination process was that she was informed that she is not adding any value. She has not only been talking but she has also been very practical. She has countless times provided a model that would be successful in developing and assisting the matters prevalent in the country for many years, and she has pleaded for their implementation not for the personal glory but for matters in this country to be addressed. Throughout   the various positions that she has held in Government, there has been no Department willing to implement those models. Her decision not to come back is based on preaching to deaf ears. It is better to go back to non-governmental organisations and maybe then the government will appreciate this. She was no longer young. What pains her is being punished for thinking differently. People thought she was fighting but she was just thinking differently. She was not presenting solutions to matters in order to be glorified as she knows that she would not have been glorified and praised in any of the solutions given. The entity that would have been praised is the entity that she was part of at the time.

The model she has recently created that had solutions to the development of cooperatives has been supported by various entities abroad but not by South Africa. Four international cooperative movements have supported her model and have said that it is a good model, but the Department who will inevitably be receiving a ready-made solution fights with her when she is contributing positively.

The Deputy Minister said that she should not leave then because the Department is not fighting with her and everyone wants to work together.

The Chairperson urged the Department to look at the model that has been developed.

The meeting was adjourned.