The National Biodiversity Institute Board reported that the Institute had received a qualified audit report for 2017-18 and that interventions were in place to address the matter. The Institute had achieved 36 out of 39 performance targets for the 2017-18 financial year, i.e. 90% of its performance targets.
This opinion was received on the basis that the entity had overstated operating expenditure by R13 362 012, and understated intangible assets and property plant and equipment. The issue was with operating expenditure. The Institute had taken the necessary corrective action pertaining to the 2017-18 financial statements.
The Auditor-General had raised a qualification on operating expenditure, intangible assets and property, plant and equipment. Findings on irregular expenditure in terms of the delegations of authority policy and the splitting of quotations had compromised the Board’s compliance with the Public Finance Management Act.
The total revenue had decreased by 2%, from R556 261 453 for the previous financial year to R545 701 602 in the 2017-18 financial year. Expenses had increased by 3% 2016-17. SANBI was in a healthy financial position at the financial year end and was able to meet all its short-term financial obligations. Sufficient funds were held to meet financial and contractual obligations arising from donor agreements.
During the presentation, Members made repeated requests to the SA National Biodiversity Institute to provide the specifics of the problems that the Auditor-General had found during the audit. Members were particularly frustrated that the responses were generalisations and lacked specific detail. The meeting had been adjourned until the Institute produced the management statement on the audit. Even once the report had been received, the Institute did not answer questions about why there was no evidence of correct tender processes.
Members expressed their unhappiness with the miscommunication and contestation with the Auditor-General during the engagement, as well as the decrease of 26% in visitor numbers. Members were also concerned about financial challenges ahead, since SANBI was now also in charge of the National Zoological Gardens of South Africa, and had additional staff. Members asked about the effectiveness of the risk and audit committee of the board, the internal audit function as well as the role of SANBI as secretariat for the Scientific Authority and the fact that an interim report had been used to revise policy on the lion bone trade to increase the quota from 800 to 1005.
iSimangaliso Wetland Park Authority reported that it was on target to attain 29 of the 31 deliverables for its programmes. Targets not achieved related to Park Operations and Corporate Governance. The entity was not able to meet its annual target for percentage completion of annual controlled burning. The park had suffered a drought therefore the burning had been stood over to the 2018-19 financial year. The burning programme had been revised in view of climate change. The job creation aspect had become critical for iSimangaliso, because approximately 80% of people around the park were unemployed.
Regarding financial performance, the accounting revenue decreased from R314,9 million in the previous financial year to R234,4 million in 2017-18 owing to a decrease in project-related grants. The Global Environment Facility grant it had run its course and there were no further funds. iSimangaliso had increase its drive to get more grant funding. Expenditure had increased by approximately 4% since the 2016-17 financial year. The major contributors were depreciation costs of R6.7m, and operating costs of R15.1m. Projects costs were reduced because the majority of the work was carried out in projects related to capital work that was in progress, particularly in the St Lucia area. The personnel budget had been increased to accommodate the settlement amounts for departing staff. In addition, vacant posts were not filled due to the on-going restructuring process.
The Auditor-General had given iSimangaliso an unqualified audit report, but there were material misstatements which had been corrected during the audit. The Auditor-General had noted that the entity was a defendant in a fire claim lawsuit that had been referred to legal counsel. The incorrect recognition of the reserves had been corrected.
In terms of the stakeholder element and challenges that could affect iSimangaliso and the world heritage site, one key factor was the notion of conservation versus mining. Much of the funding that was sought was aimed at dealing with the concerns in the north of the park.
The Committee emphasised the importance of consulting the community.
The Chairperson welcomed all present and noted apologies from the Deputy Minister of Environmental Affairs, Ms Barbara Thomson.
SANBI Annual Report 2017/18
The SA National Biodiversity Institute (SANBI) delegation comprised Ms Beryl Ferguson, Chairperson of the SANBI Board, Dr Moshibudi Rampedi, Chief Executive Officer, Ms Carmel Mbizvo, Head: Biodiversity Science and Policy Advice, Ms Lorato Sithole, Chief Financial Officer (CFO), Mr Moeketsi Khoahli, Chief Corporate Officer (CCO), Mr Alan Smith, Director: Financial Management.
Ms Ferguson, the new chairperson of the SANBI Board, informed the Committee that the new SANBI board had started its term on 1 October 2018.
The Chairperson, noting that SANBI had both a chief financial officer and a director of finance, requested more information about the entity’s organisational structure.
Ms Sithole explained that the finance unit comprised the CFO, the Director: Financial Management and the Director: Supply Chain Management and Assets Management.
Ms Ferguson said that the new board had started its tenure at the time when the organisation was dealing with its annual report, and that SANBI had received a qualified report. She had had many engagements with the CEO, the former chairperson and the executive about SANBI’s way forward. The new board would diligently look at what went wrong, why it had gone wrong, and how it could be sorted out. She was pleased that the executive had already put interventions into place. There had been a lapse and she gave the commitment that SANBI would sort it out.
Dr Rampedi referred to SANBI’s performance on predetermined objectives during the 2017-18 financial year.
Performance was measured in terms of six programmes: (1) Corporate services; (2) National Botanical Gardens network: (3) Foundational biodiversity science; (4) The state of biodiversity and climate change; (5) Biodiversity policy advice and access to biodiversity information; and (6) Human capital development. SANBI had achieved 36 out of 39 performance targets for the 2017-18 financial year.
In programme 1, SANBI had achieved the annual target of spending 1% of payroll on the development of staff and had a transformed Institute that reflected the demography of the South African population. SANBI had achieved a 43,8% female staff complement compared to the intended transformation target of 44% female staff members. There had been resignations, but by September 2018, after SANBI had recruited and appointed additional staff, the number was at 45,5%. Dr Rampedi reported that there was 50% female staff members in top and senior management compared to the target of 49%. SANBI had achieved its target of 86% for black staff on permanent and contract employment, as well as its 3% target for persons with disabilities on permanent and contract employment.
SANBI had received a qualified audit opinion for its annual financial statements and therefore did not achieve its target of producing unqualified annual financial statements in terms of its key performance indicator of producing PFMA and GRAP (Generally Recognised Accounting Practice) compliant annual financial statements. SANBI had achieved its target of a 2% increase of income generated on rental, admission sales and other income. Al
In Programme 2, SANBI had encountered challenges, and one of the performance indicators was not fully achieved as a follow-on to the audit that had been done. SANBI had achieved the target of 20 indigenous plant species added to the collections of the National Botanical Gardens and/or the Millennium Seed Bank Partnership (MSBP). A site had been identified for a new national botanical garden in the Eastern Cape.
SANBI had achieved its target of 45 maintenance/development projects and two SANBI capital infrastructure projects completed. Extensive work had been done for the two capital infrastructure projects: Kingfisher Lake at KwaZulu-Natal National Botanical Garden had been refurbished, and the tea room at Kirstenbosch had been extended.
The second target not achieved pertained to nature-based tourism and recreational activities being strengthened in all National Botanical Gardens in order to contribute to and support SANBI’s sustainability. SANBI had initially reported a 4% achievement; however, the Office of the Auditor-General (AG) reduced the numbers by 26% on the basis of the methodology that the AG’s Office utilised, which had differed from that of the preceding nine years. Thus what SANBI had reported as a combined number of 2 million visitors on the basis of the audit process was reduced to 1,45 million visitors.
In programme 3 SANBI had exceeded its targets. Information was compiled for 4 422 plant species, 222 over the set target of 4200 South African plant species. The compilation of animal species was 40 above the target of 1000. SANBI had achieved its target in programme 4 of 85 additional publications. Red List assessments for one additional taxonomic group were completed, and the national report on the status and trends of listed invasive species was to be released by the Office of the Minister of Environmental Affairs. That was a world first, as no other country had yet produced a report of that nature. Targets for baseline data for monitoring the impact of genetically modified organisms (GMOs) and a number of annual updates of nondetrimental findings for the Scientific Authority to support National Environmental Management: Biodiversity Act, Act 10 of 2004 (NEMBA) had been achieved.
All targets were achieved for Programme 5 which provided biodiversity policy advice and access to biodiversity information as well as support for climate change adaptation
SANBI had achieved the workforce-related targets for programme 6 but had failed to achieve its target for to promote national botanical gardens as platforms for biodiversity awareness, education and recreation. SANBI had exceeded its annual target of 52 000 beneficiaries of garden and school-based programmes. However, because of insufficient evidence, the number had been reduced by 10 517 during the external audit process.
Ms Sithole briefed the Committee on SANBI’s audited financial statements for the 2017/18 financial year. SANBI had received a qualified audit opinion on the basis that the entity incorrectly overstated operating expenditure by R13 362 012, and intangible assets and property plant and equipment were understated by R11 116 146 and R2 245 864 respectively. [The presenter erroneously stated that the R11 million amount had been overstated].
Ms Sithole said that it had been clarified in the discussion with the AG that the issue was operating expenditure. However, because of the relationship that operating expenditure would have with property plant and equipment and intangible assets, it was extrapolated that they had to have been understated as a result of the overstatement on operating expenses.
Ms Sithole pointed out that all the values were extrapolated figures and not actual figures, as was evident from the AG report. The figures relating to the actual findings had been amended in the financial statements, unfortunately these could not be accepted because of the audit methodology which the Auditor-General was using. SANBI had taken the necessary corrective action necessary pertaining to the 2017-18 financial statements’
The Chairperson requested that the presenter take the Committee through the specifics raised by Auditor-General. He remarked that SANBI had experienced the largest regression in performance of all the entities reporting to the Minister of Environmental Affairs.
Ms Sithole said that the Auditor-General had raised a qualification on operating expenditure. Items recognised on the statement of financial performance, e.g. an item of travel, was classified incorrectly as part of professional fees. In that example, SANBI believed the cost had related to the particular project where the travel would have formed part of managing the project and as such would have formed part of the consultations that would have been paid for on behalf of the consultant. The Auditor-General had not agreed, and had held that it had to be under travel and subsistence. SANBI had taken a resolution to review all the classifications for financial performance for 2017-18 and 2018-19 so that classification would be done in terms of Auditor-General requirements and not in the way that SANBI had organised and managed the activities of the organisation.
The second issue that the AG had raised was on intangible assets and property, plant and equipment. There was an issue where intangibles were expended on a project including a website and web portal. The Auditor-General had said that it should have been recognised as a SANBI asset, though SANBI’s position was that it was not a SANBI asset as the Department of Science and Technology had appointed SANBI to lead the project. The website would move with the project, should the project be moved. The Auditor-General had pointed out that the agreement with the Department of Science and Technology included physical and intangible assets.
Also within the 2016-17 financial year, SANBI had revisited the collection of property plant and equipment and created a new asset register. Subsequent verification showed new assets on the floor which were brought in by SANBI. The AG held that the assets had to have been reflected for the 2016-17 financial year. SANBI believed that the correct year would be 2017-18. SANBI had applied a 10% devaluation but the Auditor-General said the assets had to be recognised at full value, which had resulted in the adjustment.
Previously the Auditor-General had agreed with SANBI that some of the revenue was conditional grants from donors and projects, but in the current financial year the AG had adopted the view that some of the assets were unconditional, including the infrastructure received from the Department of Environmental Affairs. That had changed the accounting treatment and had resulted in SANBI having to amend financials for the 2017 financial year.
The AG also took the stance that SANBI was a service provider in donor projects, which changed the accounting treatment, and in some cases SANBI was deemed to be an agent. Subsequently those two items would no longer be part of their revenue, and SANBI would have to account for it and would have to account for it on its statement of financial position and adjust its operating expenses relating to those projects.
Other findings were on irregular expenditure. In previous years’ assessments the Auditor-General had accepted that the approvals that were in place were sufficient and properly done, but in the recent assessment, the Auditor General was of view there was an element missing in terms of the delegations of authority policy. There was also issue on irregular expenditure in that quotations had been split which was not permitted in the PFMA.
The Chairperson requested more specifics, especially on the noncompliance issues.
Ms Sithole indicated that PFMA regulations stipulated that entities should not split quotations. The Auditor-General had found a few transactions that SANBI should not have split. Those transactions amounted to R1.2 million. The other issues of irregular expenditure, in the amount of R28,3 million, dealt with the delegation of authority policy. Those were issues of internal controls and not PFMA-related.
Mr M Shelembe (NFP) requested that reference be made to the supply chain management, competitive bidding and adherence to regulations for local production and content.
Ms Sithole agreed that those issues were reported in the AG report, but said that SANBI did not agree with AG on those issues, especially on local content. SANBI had submitted the evidence that it had adhered to the regulations. However, the AG’s conclusion was that when some of the service providers had completed their local content indicators, they had not indicated all the matters.
The Chairperson emphasised that the presenter was in the realm of generalities, not specifics. He proposed that the Committee had to get a management report and speak to the management report with regard to the specific issues that had been picked up. The AG would speak to a specific contract on the issue that was picked up, and the response. When the AG raised issues, the issues referred to specific contracts. The Committee wanted to hear those specifics, not generalities.
The Chairperson proposed that the Committee adjourn for a few minutes to allow SANBI to get a management report.
Mr R Purdon (DA) said he agreed and was struggling to understand the reason for the breakdown in communication, since it had not occurred before.
The Chairperson said that the Committee could not allow the specifics of the AG outcome to be dealt with in a shady way. SANBI had just received a qualified opinion, and brought a two--pager saying it was the audit outcome from the AG. The Committee expected SANBI to deal with the specific issues saying what the AG had raised and how it would be corrected.
The Chairperson ruled that the Committee adjourn for 5 minutes, get a management report, and come back with how SANBI would deal with the specific issues.
The meeting resumed at 11:00
The Chairperson announced that the Committee had received the report from SANBI management and requested that Ms Sithole address the specific issues of competitive bidding and local content.
Ms Sithole said that the basis for the qualification was operating expenses, with an emphasis of matter dealing with the statement of corresponding figures. On procurement and contract management, for 12% of contracts selected for testing, sufficient appropriate audit evidence could not be obtained for the losing bidders to confirm that the contracts were awarded in terms of the Preferential Procurement Policy Framework Act, Act 5 of 2000, and its regulations.
The Chairperson inquired what the contracts were and why Ms Sithole could not be specific.
Ms Sithole responded that she would access the details of the contracts. It was about two bids that were conducted during the financial year and the documentation pertaining to the bids had not been submitted to AG. Both were for construction services in the organisation.
The Chairperson expressed frustration that the presenter did not provide specifics.
Ms Sithole requested to be allowed to present on the issue of the extension of the contract as SANBI had appointed a new service provider, and to deal with consequence management.
The Chairperson appealed to the CEO that the Committee was not being taken seriously, and asked what was happening, since a fair issue had been raised about competitive bidding. The AG had said competitive bidding was not invited and the official responded that SANBI had appointed a service provider. SANBI was supposed to tell the Committee what had happened, why and what the remedy would be. It was not complicated, since it was a simple issue of compliance.
Dr Rampedi addressed the matter of irregular expenditure and procurement of ICT technologies. The AG had found that the irregular expenditure related to procurement of goods and services where invoices were split owing to insufficient planning, and corrective action was to ensure a demand management plan was put in place. The second matter was a determination of R10,8 million on competitive bidding. Since 2008, year-by-year a service provider had simply received an extension of a contract. When that was discovered, management went into a competitive process which took 12 months, and appointed a new service provider. The amount questioned by the Auditor-General was for prior years.
The third item of irregular expenditure, R17,4 million, was a matter of noncompliance on authority delegation for the supply chain in 2017. In March 2017, a bid was awarded without following due delegation of authority. It was partly related to Kirstenbosch gate-takings. Because of the amount involved, the board had taken action, and an investigation was underway. There would be consequence management. The other matter was awarding a tender, without due process, for construction at Harold Porter. The other noncompliance with supply chain management procedures was by an official who had not complied with regulations on quotations. Based on amounts involved, the board had decided on disciplinary action.
The AG had determined that there had been a regression on financial matters. SANBI did have a detailed response which it could provide to the Committee.
The Chairperson thanked Dr Rampedi, and said there would still be a follow-up session where specifics would be discussed. She requested that the CFO to proceed with the rest of the financials.
Ms Sithole said total revenue had decreased by 2%, from R556 261 453 for the previous financial year to R545 701 602 in the 2017-18 financial year. Expenses had increased by 3%, from R 482 675 849 in 2016-17 to R496 555 677 in 2017-18.
The DEA grant had increased year-on-year by 16%. The increase shown was a result of the change in accounting treatment of the Infrastructure Grant, which was to be accounted for in full in the year that it was received as opposed to accounting over the term of the agreement.
Other grants, sponsorships and donations had decreased as a result of the change in accounting treatment of various grants and sponsorships received. Certain of the funds were reflected as Agency liabilities and not income. Rent received had decreased; challenges with operators in the various gardens had resulted in decreased year-on-year rental income. Higher investment income had enabled SANBI to realise higher investment returns. Fair value gains had resulted from the higher value of biological assets at the year end. Fair value and foreign exchange gain had increased to R2 798 075 because more plants were available for sale at year end, specifically in Lowveld gardens. Revenue from operating activities had increased to R119 616 233.
SANBI provided details of operating expenses for the year and had paid R1 million to institute online ticketing for Kirstenbosch Gardens. In the past SANBI had recognised the net amount of admissions paid, but the AG required it to be indicated separately.
SANBI was in a healthy financial position as at the financial year end and able to meet all its short-term financial obligations. Sufficient funds were held to meet financial and contractual obligations arising from donor agreements.
Ms Sithole proceeded to the internal control dashboard slide, SANBI’s internal control dashboard reflecting red indicators for financial statements, performance reporting and compliance with legislation. Red indicators for financial statements included the web ticket commission. SANBI had gone back to the beginning of April and had corrected the way in which it was being recorded. The second red indicator for financial statements was for reclassification of grants and sponsorships as conditional projects and the related interest to those funds. SANBI had reclassified them and was implementing all reclassifications. The preparation of regular, accurate and complete financial and performance reports, supported and evidenced by reliable information, was a key priority. On financial statements: The cause of the red indicator was material misstatements and noncompliance with GRAF accounting system.
SANBI maintained that all corrections implemented during the year had improved review processes of financial statements before finalisation. Operating expenditure had been overstated and SANBI had revisited the whole population of 2018-19, implemented the necessary changes and would implement a review of 2017-18 records by the end of January. Regarding the classification of assets that were purchased and recorded as operating expenses, SANBI would review all transactions going back to the previous financial year, and had implemented processes for thorough review of all new additions.
For year-on-year expenditure the Committee had been given a corrected graph. To resolve the qualified opinion SANBI was populating its findings register which would be completed in October 2018,and which would be submitted to the audit and risk Committee and monitored quarterly. SANBI had embarked on an exercise of reviewing all financial transactions. Implementation has been completed up to end of August and SANBI had implemented processes to ensure that in future all expenses would be classified correctly upon payment.
The board audit and risk committee had approved an asset management plan on which the entity reported quarterly. With reference to the reliability issue on reported performance, SANBI had already made the necessary amendments which had been implemented since August 2018.
Dr Rampedi briefed the Committee on SANBI’s major achievements for 2017-18, and alerted members to the transfer of the National Zoological Gardens of South Africa to SANBI, which meant that SANBI would report on seven programmes in future. The budget cut of R40m over the next three years could have a negative impact on delivering the SANBI mandate and SANBI would implement its financial sustainability plan to close the gaps.
Mr T Hadebe (DA) asked what had led to the accounting policy SANBI was applying.
Dr Z Luyenge (ANC) commented on the Chairperson’s discomfort with part of the presentation and the inability of the chief financial officer to give satisfactory replies on the Auditor-General issue. The CFO had remarked that SANBI did not agree with the Auditor-General. Where there was no agreement on the clarity the entity sought, it had to engage directly with the Auditor-General. if there had been any interaction between SANBI and the Auditor-General, the Committee had to know about it. No response had been given. He asked whether it was the CFO who was not in agreement, or whether it was a collective view of SANBI management that what Auditor-General had said was not correct.
Dr Luyenge continued. On the issue of administration, generally, there was no clarity about the filling of vacancies. He had heard mention of critical posts. How were critical and noncritical posts determined in an organisation like SANBI? Were there posts that were deemed not critical? How did SANBI determine that?
He asked what had guided the SANBI disposal policy. Was there was a suspense account? If so, how it was managed? Were the board and management working separately? He noted that the two had submitted a combined report. If they worked separately at their working level, it was not right and indicated that the organisation did not practice the dichotomy of a public organisation complementing each other.
Mr Purdon expressed disappointment and requested clarification of miscommunication and contestation with the Auditor General as it had not been there in the past. Slide 2 referred to the decrease by 26% in visitor numbers. That was a disturbing downward trend. Slide 35 had indicated that admission fees were up 11% R7. He asked how the fees could be up 11% when there had been a decrease in visitor numbers. Was it the increase in admission fees that had kept people away? Were there different price categories for foreigners and South African citizens?
Ms H Nyambi (ANC) inquired, with reference to slide 39, what the total number of targets was according to the the CEO.
Mr Z Makhubele (ANC) asked how SANBI and the Committee would work their way to a clean audit. He thanked the presenters for the way the annual performance results had been presented. Referring to the particular platforms and approaches utilised by SANBI for reaching out, he asked whether SANBI had a bias for targeting rural communities. Referring to the challenge experienced with the AG in terms of technology pertaining to visitor numbers, he requested clarification about the issue and the technology in question.
Mr Makhubele also asked for more information about the red list tool which was said to be a world first, and what it had taken to produce it, since South Africa would be the leader in the world in that field. He also asked for clarification and elaboration on the climate change assessment tool that SANBI had developed, even if it meant that there had to be a future engagement.
He also wanted clarification on the assistance that SANBI had received on the audit, both from the internal audit and the board audit Committee. Why had they not picked up the issues that the AG had raised? The CFO had indicated that there would be consequence management. However, one could not have an audit committee that was supposed to deal with such matters and did not. He noted that it had happened over a number of years without being picked up, and was not missed in the new accounting framework.
Mr Makhubele expressed concern about the financial challenges ahead, and that SANBI was now also in charge of the National Zoological Gardens of South Africa, which came with additional staff. He said that they were heading for a challenge in the light of budget cuts and rising costs. Problems would escalate and he inquired whether there was a strategy or mechanism to deal with the matter and to achieve normal levels of personnel expenditure. He asked how normal levels of personnel expenditure would be achieved in light of the challenges being experienced.
The Chairperson asked how effective the risk and audit committee of the board was, how frequently they met, how effective the internal audit function was, whether it existed and how confident SANBI was that it provided the necessary assurance to management and the board about the internal control environment. He also asked specific information about the green fund managed by SANBI; what the value was, what projects were funded, whether it was doing well, and what the issues were.
Scientific Authority Interim Report and the Lion Bone Trade
The Chairperson stated that SANBI provided for the Scientific Authority, and the Committee had received an interim report from the Scientific Authority at a colloquium on the captive breeding of lions, hunting of captive lions and the lion bone trade. The interim report had been used to revise policy for the lion bone trade to increase the quota from 800 to 1005. He asked what the role of SANBI was as secretariat for the Scientific Authority and what capacity it provided. He expressed concern that the Scientific Authority had used an interim report to take a major policy decision. He asked why there was such an interim report and why they had not waited to complete the study, or for a complete report for guiding the matter.
Dr Rampedi informed the Committee that the questions on the citizen’s platform, red listing, the alien invasive species report and climate change would be dealt with by Ms Mbizvo, and questions on financials would be dealt with by Ms Sithole.
Dr Rampedi replied to the question on the Scientific Authority. The full Committee consisted of representatives from the nine provinces and in addition SANBI provided secretarial services in terms of the National Environmental Management: Biodiversity Act, Act 10 of 2004. The Scientific Authority reported directly to the Minister, not to SANBI. Whatever decisions or recommendations it came up with were not submitted to SANBI. The chairperson was a SANBI official, appointed by the Minister, reporting directly to the Minister. SANBI provided secretarial services and expert input. Regarding accountability, the Scientific Authority was directly responsible to the Minister, and the CEO was unable to comment on the quota decision.
Green Climate Fund
SANBI had only just received financial confirmation of the For the Green Climate adaptation fund. Three years previously, SANBI had received R10 million. R7.5 million was being utilised to implement climate responsive projects in the KwaZulu-Natal, in the uMngeni Municipality. The remaining R2.5 million was being used to assist smallholder farmers in Vhembe district and the Northern Cape.
Administration and filling of vacancies
Due to the financial constraints, any decision to fill a position was subject to review by management, for instance, the filling of a position for a conservation worker in a garden. If a vacancy was classified as an important post but not critical, it would not be filled. SANBI had increased the area of responsibility for a conservation worker in a garden in order to avoid filling posts as a cost saving measure. However, positions for research or scientific input were treated as critical and filled, as far as possible without deviating from budget.
On the relationship between the board and the organisation, the CEO assured the Committee that SANBI worked with the leadership of the board. Whatever SANBI did, and presented, was endorsed by the board. Management was working with the guidance of the board.
On Mr Purdon’s concern about disappointing communication between SANBI and the AG, officially SANBI did not contest what the AG was saying. SANBI had followed the guidance of the AG. Whatever had been raised with the Auditor-General was not a contestation, but rather seeking clarification. SANBI noted that, for this particular audit, the AG had opted to apply what SANBI saw as different accounting practice from what had been applied for the past nine years. Eventually SANBI had accepted that they would apply the accounting practice that AG had recommended for the financial year.
Similarly, the 26% decline in visitor numbers was not a decline; it was an adjustment applied by the Auditor-General’s Office as it seemed as if there was lack of correlation between cash sales and visitor numbers. The revenue and cash sales remained the same. It was gate takings and visitor numbers. The Auditor-General’s view was that there was insufficient evidence and SANBI could not provide the evidence required. Hence SANBI went to the current financial year to apply the evidence required by the AG. SANBI saw that visitor numbers had increased. Visitor numbers went over 2 million for the year for first time, but based on the Auditor General calculations that the number had gone down 26%. There was no differential pricing for South Africans and international visitors, but pricing to enter the gardens differed depending where they were.
Dr Rampedi shared Ms Nyambi’s concern that the lack of competitive bidding went back to 2008 and had only been picked up in the current financial year. She assured the Committee that SANBI would adhere to applicable prescripts. The competitive bidding issues at Kirstenbosch and at Harold Porter were prior year issues. SANBI was addressing them.
She agreed with Mr Makhubele’s concern about personnel costs and the inclusion of the National Zoological Gardens of South Africa. For the medium term, personnel costs were covered. For the zoological gardens, part of the cost of personnel was covered by gate takings and that was a potential problem.
Ms Sithole confirmed that that SANBI indeed had a policy, in terms of the PFMA, on disposal of assets, and did not have a suspense account on its general ledger. Further, SANBI’s accounting policy was aligned to GRAF and did not allow for assets to be recognised as operating expenses.
Ms Mbizvo informed the Committee that the Citizen Science Platform was very valuable to SANBI, because the information from the citizen scientists allows SANBI to monitor biodiversity. In the past it had been mainly retired people who were active in terms of citizen science, but recently SANBI had made an effort to reach out to other parts of the country and to rural areas to get young people and rural communities involved in citizen science monitoring. A SANBI pilot project, which had started a year before, focused on rural youth helping to monitor rural birds, for example. SANBI had good programmes and examples were included in the Annual Report.
The invasive species report and red-listing had global standing. SANBI had been one of the global leaders in red-listing, and SANBI would welcome the opportunity to present on the methodology and the progress they had made both in terms of the red-listing and the climate change adaptation tool.
Dr Rampedi addressed concerns about the effectiveness of the audit and risk committee. SANBI had a functional audit and risk committee which met as required. They followed the prescripts. SANBI did not have an in-house internal audit; the function was contracted out but was fully available for advising the audit and risk committee and the AG was privy to all meetings of the audit and risk committee.
Scientific Authority Governance
Ms Skumsa Mancojwa, Chief Director: Protected Areas Systems Management, Department of Environmental Affairs, added that the board had also raised concerns about governance in the Scientific Authority and had requested management to develop a discussion document that would look at reviewing the governance arrangement, including reporting of the scientific component, international best practice on issues relating to the chairing of the Authority and the secretariat that was to be provided, as well as issues of skills and capacity. It would also include issues of demographics. The report was being developed and the board had already sent the first draft back to management.
The focus on rural communities had been identified by the outgoing board as requiring further focus by the Institute that had requested a framework for participation by local communities.
Members asked for clarification on the classification of operating expenditure, and outsourcing of internal audit, and expressed concern about downplaying of the importance of rural areas.
Ms Sithole replied that internal auditors were appointed for five years and had been appointed in 2017. Before that an internal audit firm had been appointed for three years. An internal audit charter had been in place for three years. SANBI had assets that would have been deemed as operating expenses but that had been corrected. In future those items would be recognised as assets of SANBI.
The Chairperson said that it had taken longer for the first portion of the meeting as there had been a delay, particularly related to the chief financial officer responding. He was not sure what the problem had been.
The Chairperson added that SANBI would have to develop a strategy to deal with what the Auditor-General had raised, particularly a turnaround strategy to get back to a clean audit report. The Auditor-General had used a different accounting procedure and he had thought that the gentleman from the Auditor-General’s office would explain why the Auditor-General used different accounting all of a sudden.
An official from the Auditor-General’s office replied that the accounting standard had not changed. The issue was the way in which the transaction had been processed. The Auditor-General had made a statement on that in the previous financial year, but it was not materially sufficient to write a qualification on it. However, it had been identified as a material control issue, which had become a material matter for the 2017-18 financial year.
Committee meeting to hear more details about the irregular expenditure
The Chairperson said that there was clear indication of what had to be addressed and changed. He thought that, at each meeting of the board, there had to be discussion on the action plan, and on turning around the finances. It was not a simple matter as the chief financial officer had said. The Committee wanted a meeting to hear more details about the irregular expenditure, such as why SANBI had stuck with one supplier for so long, the matter of gate-takings, the matter of some construction somewhere, and so forth.
The Chairperson said that the organisation was doing well when one looked at its performance, but it was haunted by the financial performance which was the purview of the chief financial officer, and the CFO did not acquit herself well that day. He said that he would not give her one out of ten for performance. It was necessary to go back and evaluate and improve.
The Chief Executive Officer knew what the issues were. The Chairperson requested Dr Rampedi to attend to the issues that had been raised. Generally SANBI had performed well, except financially. Everything could be clouded by the Auditor-General’s report.
iSimangaliso Wetland Park Authority 2017/8 Annual Report
The Chairperson welcomed the representatives from iSimangaliso Wetland Park Authority: Mr B Zwane, Chairman of the Board, Ms S Nene, Member of the Board, and Ms A Kadir, Chief Financial Officer, iSimangaliso Wetland Park Authority
The Chairperson acknowledged the apologies for the absence of the Deputy Chairperson and the Chief Executive Officer of the iSimangaliso Board, Mr Sibusiso Bukhosini. He expressed disappointment that the Committee had not met the new CEO, who was missing the first meeting which was on a very important report - the Annual Report. He requested an explanation for the absence of the CEO.
Mr Zwane explained that the CEO had a commitment in Sudan for a project that had been scheduled by the interim CEO before his contract had ended.
The Chairperson asked members' guidance on how to proceed in light of the fact that senior managers were absent, and the Chief Financial Officer, chairman of the board and one board member were present. iSimangaliso only attended once a year to present the Annual Report, and to just allocate one senior management member did not augur well, though it was appreciated that the chairman of the board was there.
Mr Makhubela shared the Chairperson's concerns. The Committee needed answers from the presentation, and the Committee might find that they were unfair to people who had to answer on behalf of others. He proposed that the presentation be allowed to proceed even though the Committee would need another presentation. It should not set a precedent for the future.
Dr Luyenge agreed that annual reports could not just be sent without both the chairperson and the Chief Executive Officer attending meetings. It was the first time he was to hear a report from iSimangaliso, and he wanted to gain understanding about the entity. However, if the accounting officer and other senior managers were not there, and only the CFO, who was a specialist and had nothing to do with other areas of governance, it would not do justice to other matters. Even though they were there and there had been expense, they were not at full strength. Though it was a small entity, it had a broad mandate. The Committee needed the complementing members of the administration.
The Chairperson ruled that iSimangaliso would be allowed to present its performance and financial results for the 2017/18 financial year.
Mr Zwane said as a result of the changes iSimangaliso had been through, the entity had had an interim CEO from 9 September 2017 to the end of August 2018. In that process, the board had been involved much more with the activities of the enterprise. The new CEO had assumed the role on 1 September 2018.
He noted that it was their first presentation since the passing of the late Minister of Environmental Affairs and they were still in mourning. She had supported iSimangaliso and asked that they continue to serve in the community and the board when their term had ended on 31 August 2018. She had requested them to maintain the oversight and governance responsibility because there was much more to be done during the transition between the interim CEO and the new CEO that the board needed to provide continuity.
iSimangaliso’s report would contain information in a 50-50 split for the terms of the interim and the Chief Executive Officer. The CFO had had oversight and management responsibility over the financials for the full year and was well versed in what had transpired in the organisation.
iSimangaliso had gone through a restructuring process with the agent 21st Century appointed by Department of Environmental Affairs (DEA) to help them with job profiling and organisational redesign. iSimangaliso had improved their supply chain management process because procurement issues had been raised in the past and did not wish to incur adverse comments for the current financial year. The entity had also established bid Committees, thus ensuring separation of powers. National Treasury had helped iSimangaliso to review existing contracts to ensure that there no adverse matters would be raised.
The entity was on target to achieve 29 of the 31 deliverables. The targets for Park Operations and one in Corporate Governance had not been realised. The core strategic objective for Park Operations was that World Heritage values be conserved. iSimangaliso had met and exceeded set targets.
Number of park management meetings attended with day-to-day conservation manager under Programme 1 was a new indicator and all targets had been met. The entity had overachieved on the second performance indicator: Number of new environmental audits completed.
Seven new environmental audits were undertaken compared to the target of 6. Under the performance indicator: Number of environmental monitors deployed in iSimangaliso the entity obtained additional funding in the last quarter, so it became possible to get 86 additional monitors to provide appropriate monitor of what went in in the perimeter. Under performance indicator: Number of hectares of invasive alien plants treated
iSimangaliso had exceeded the target because they had obtained additional funding. The entity was not able to meet its annual target for Percentage completion of annual controlled burning. The burning programme had much to do with the condition of the grass in the area. The park had suffered a drought which would have fanned the burn further than was desired therefore the burning stood over to the 2018-19 financial year, so the burning programme had been revised in view of climate change.
For the percentage applications processed in respect of developments in the buffer zone iSimangaliso had achieved their target and wished to maintain that performance, however, they also wanted to look into how the buffer zone, also called the green development area, was being looked after. The entity had achieved everything they had intended for the performance indicators ''Percentage of identified unauthorised developments/ activities actioned legally'' and ''Percentage completion of annual infrastructure maintenance programme''. Despite the fact that the entity were thin in terms of staff on the ground they had managed to achieve all targets of the infrastructure maintenance programme. As a result of the departure of the business director a number of factors relating to supply chain management had to be revised. The chairman of the board was grateful that goals were achieved despite limited staff numbers, with the help of the acting director.
Programme 2: Transformation: The transformation programme was high on the National Development Plan 2013 and virtually all the entity does, because iSimangaliso sought optimise empowerment in all activities of the Park in order to support the transformation of tourism, conservation, and research through ownership, education, training and job creation.
The job creation aspect had become critical for iSimangaliso, because approximately 80% of people around the park were unemployed, therefore there was a need to do the things that attracted people to gain skills that they could apply and feed their families in the process.
Ms A Kadir (CFO) briefed the Committee about iSimangaliso's financial performance in the 2017-18 financial year, and referred members to the information provided for Programme 4:Finance and administration. The strategic objective for sub-programme 1: Planning and Development was to promote research that is innovative and relevant to the knowledge requirements and management objectives of the iSimangaliso Wetland Park. The PI ''Percentage of new approved research proposals that relate to management'' was new and the entity had exceeded the target of 50% by 1%.
The target for ''Implementation of effective monitoring programme for the Park which related to the monitoring of the impact of implementation on the ecological health of Lake St Lucia'' was achieved, reports had been received and the new report completed. Targets were also achieved for the performance indicators. The entity achieved only 20% of the target of 80% for ''Percentage completion of plans requested/required within the financial year''. Tourism development sites were identified and preliminary workshops with the stakeholders were held but the programme had been put on hold due to funding and prioritisation in terms of core budgets.
Sub-programme 2 dealt with corporate governance and the performance indicator ''Unqualified external audit opinion'' was achieved. However, the unqualified opinion was with material misstatements. The chairman of the board, with reference to iSimangaliso positioning itself as seeking to be employer of choice in the market, said that the intention was maintain excellence.
Summary of financial performance
The accounting revenue decreased from R314,9 million in the previous financial year to R234,4 million in 2017-18 owing to a decrease in project-related grants. The entity had received the Global Environment Facility grant in the past, but it had run its course. iSimangaliso had to ensure that it increased its drive to get more grant funding.
Expenditure had increased by approximately 4% since the 2016-17 financial year, from R169.4 million to R176.0 million in the current year. The major contributors were depreciation costs to the net increase of R6.7m, and operating costs of R15.1m. Projects costs reduced by R23.6 million because the majority of the work was carried out in projects related to capital work that was already in progress, particularly in the St Lucia area. The year’s surplus was R58.4 million compared to R145.4 million in the previous year. However, that was the result of the application of GRAP23. Two contingent liabilities had been disclosed. Those were in relation to SiyaQhubeka Forests (a subsidiary of Mondi Paper), in the amount of R35.1 million, and Sanyati, a construction company, in the amount of R12m. iSimangaliso had created those liabilities for itself so that it would be able to address them in case there were issues raised during the year.
iSimangaliso had an issue with SiyaQhubeka Forests (SQF), many years previously, to do with blue gum trees. The matter with SQF was likely to be contested and iSimangaliso wanted to make sure that it had reserves if the matter were to go to court. The same applied to Sanyati which had gone under. iSimangaliso wanted to be prudent by making provision. Total net assets had increased by R58.4 million.
2017-18 Performance against Budget
The final approved budget in grant funding was R195 million, and the actual budget was R253 million. The difference was the budget and financial statements. Additional funding was received during the course of the financial year. Fees recovered from projects was R16 296.
The target budget for Park revenue was R22,2 million and R22,5 million was achieved as a result of two gates that were taken over from Ezemvelo KZN. The budget for depreciation and amortisation was R 36.6 million and the actual was R31 million. The variance occurred because the budgeted depreciation was calculated using anticipated dates for the capitalisation of infrastructure. The infrastructure was completed, but handover did not take place until the snags were completed. The contract had not made provision for sectional completion and the progressive handover and capitalisation of the assets.
Personnel costs were budgeted at R22 million and the actual spend was R16,4 million. The budget was increased to accommodate settlement amounts for departing staff. In addition, vacant posts were not filled due to the on-going restructuring process.
Repairs and maintenance was budgeted at R21 million and the actual spend was R21,4 million.
The chairperson inquired about the accuracy of the figures. Ms Kadir informed him that the precise figures had been provided on an additional document.
In terms of professional fees, the budget was R7,6 million and the actual spent was R10 million. The variance was a result of fees related to environmental considerations on the St Lucia precinct development and extension to ICT systems. The Expanded Public Works Programme projects budget was R18,5 million and the actual was R24 million as a result of additional funding secured from the National Department of Environmental Affairs allocated for land care. R4.9 million had been spent on training from a budget of R5 million.
2017-18 Auditor-General's findings
iSimangaliso had received an unqualified audit, but there were material misstatements which had been corrected during the audit. The material misstatements related to reserves, grants, property, plant and equipment, project costs and other operating expenditure. The AG noted that the entity was a defendant in a fire claim lawsuit and had disclosed that in note 21 to the financial statements. The entity had referred the claim to legal counsel. The incorrect recognition of the reserves had been corrected.
The statement of financial performance included an item described as project costs amounting to R58 267 074, which was further referenced to note 16 and analysed as land rehabilitation infrastructure and product development. According to AG that disclosure was in contravention of GRAP 1. Management had advised the AG that the purpose of the note was to provide additional information that was not presented on the face and had been noted in a manner appropriate to the entirety. The AG had audited that before without raising objections. A high level review was done in the prior error and the classification was corrected as a note. Management had subsequently made the necessary correction.
Management reported that there had been irregular expenditure relating to a competitive bidding process not followed in terms of Section 65.1 (a) of the PFMA for a structural steel tender that was awarded in 2012. During the financial year under review constructional steel works had been procured from a contractor who was appointed in 2010, and who had had a new contract issued in 2016. Payments amounting to R2 128 043 were made to the contractor in the previous years and, in the current financial year, payments totalling R2 072 917 were made. The irregular expenditure was due to the noncompliance of the procurement processes in terms of National Treasury Regulations on the stipulated tender advertisement timeframes. The irregular expenditure was not the result of fraudulent, corrupt and/or criminal activities by the Authority's officials. Value for money had been derived from the construction services rendered that were essential for the Authority's operations. The Authority would seek condonement from National Treasury.
Mr Makhubele served as acting chairperson after the lunch break.
Ms Nyambi asked where the additional funding for appointing 86 additional environmental monitors had come from. She requested more information about plans related to the additional funding. Why did weather influence additional burnings if such burnings were meant to imitate natural fires? Who was being paid in terms of the professional fees classification, and were the contractors were black-owned companies?
Dr Luyenge said he appreciated the input of the chairperson of the iSimangaliso board and the CFO for the information they had given, which indicated that they were an organisation with a clear mission and vision. He could see that much had been done to ensure community involvement. He inquired whether the Park wanted to partner with progressive civil society organisations, i.e. not just any civic organisations, but organisations like the SA National Civic Organisation (Sanco). He also asked how they intended to expand on the progressive work that had already been done in the communities. Also, with reference to the decrease in grants, the board had said that it was a lack of planning. When one did not plan correctly one ran the risk of not meeting targets. He further asked how iSimangaliso had remedied the issue of surpluses. It was not acceptable to have surpluses, and the board would have to account for any surpluses.
Dr Luyenge was not pleased with the qualification of targets, and wanted actual figures, not percentages. If it is 4 out of 10, it was clear, but with percentages one had to fumble and try to explain. Quantification was important. He asked what the board wanted to do in order to achieve 100% of their mission and vision. How did they want to take the organisation to where it would be one to be reckoned with? There had to be time lines for that.
Dr Luyenge proposed a visit to one of iSimangaliso’s sites if it was possible so that the Committee could see what they had done, and to engage beneficiaries and to hear what they got from iSimangaliso.
The Acting Chairperson replied that the Committee had planned a visit to iSimangaliso which had not materialised because members of Parliament were called for a sitting of the National Assembly during the week that had been set aside for that visit, and the Committee still had to attend to the issue.
He added that iSimangaliso operated in a poverty stricken area; there were many expectations from them, and then there were also land claimants. He asked what challenges they faced that might ultimately affect iSimangaliso as a world heritage site. He knew the neighbouring communities might never be satisfied, despite transformative actions.
Mr Zwane thanked the Acting Chairperson and said that he was from the area and was interested that the organisation should really shine. He introduced Mrs D Nene, board member responsible for the social and ethics Committee. She would explain how iSimangaliso partnered with communities. The CFO would reply to the questions on grants.
On quantification and qualification, Mr Zwane said that that was what the board intended to address on Monday 22 October 2018, when it met to review the strategy and the Committee’s guidance would be incorporated. It was important for iSimangaliso to demonstrate real quantities and they would take it into account at the strategy session.
Ms Kadir replied that iSimangaliso had been in engagement with DEA on environmental monitors, although the funding came via SanParks, which was the actual implementing agent. iSimangaliso had had meetings with DEA about deploying more environmental monitors, and funding was for the 2018-19 financial year, but iSimangaliso was lucky to get money in the last quarter of 2017-18.
Ms Kadir said the variance for professional fees was the result of fees related to environmental considerations on the St Lucia precinct development, the extension to the information technology terms of reference and fees were also related to civil works and other works in progress. With regard to all of those contracts, although the BEE status would show as status of 4, 3 or 50% black-owned, the majority of those professional fees related to white-owned companies. The decrease in the grant in terms of revenue was related to infrastructure. There had been a hold up of infrastructure projects, mainly in the north, as well as Sodwana Bay, because there had been unrest related to those developments. This was being addressed with the current CEO who was meeting the land claimants and the inkosi, and it seemed positive.
Ms Kadir said iSimangaliso had requested an extension of the funding that they had received related to the project. That surplus was an accounting revenue, not cash money, and the surplus was a result of the capital expenditure, so whatever iSimangaliso had used as grant funding relating to capital expenditure was recognised as revenue in that financial year.
Ms Nene thanked the Committee for inviting iSimangaliso, and apologised for their mistakes. As chairperson of the Social and Ethics Committee (SEC), she informed Members that when the board was appointed they had been merely advisory, so many programmes had revolved around the Chief Executive Officer. The board’s position had changed since April in terms of its focus and role. An advisory committee had been established and their main focus was to attend to stakeholder interest. The profiling of the stakeholders was broad, from the trusts established, to addressing restitution and displacement, to amakosis, schools and universities, local entrepreneurs, municipalities and the youth.
Ms Nene said that since the beginning of the year there had been a positive shift from unhappiness about land, local business, and so on. There was a more positive stakeholder interface. They had also gone through a difficult period of moving from the previous Chief Executive Officer, to an interim CEO, and then a new Chief Executive Officer. iSimangaliso was an institution in transition and could report a positive shift and far more positive activity. There were still problems, but now the communities, led by amakosis, had accepted that a new positive wind was blowing. There was more trust.
With the recent presidential Biodiversity Conference, the board had met representatives from the north and they had experienced a change of attitude and an acceptance and that the issues and problems would be handled jointly in future. It was hoped that the CEO, who was from local government in the area and with understanding of the socio-economic situation and the biodiversity sphere, would do well.
Mr Zwane said that in terms of the stakeholder element and challenges that could affect iSimangaliso and the world heritage site, one key factor was the notion of conservation versus mining. Many voices were coming through, particularly in the southern part that had required iSimangaliso to engage even closer to the people. The issue had been raised by the former president at the Freedom Day activities in April 2017.
Mr Zwane said the other challenge had to do with a group that had initiated a case against the Authority in 2017, which iSimangaliso won. There was a landmark High Court ruling, but there could be challenges, and there was a possibility that iSimangaliso might have to defend a case brought against them. Sugar cane farming had affected the water level in the area and it was iSimangaliso’s duty to defend the environment.
In May 2017 a special meeting, chaired by the Director-General, had been held. It was important for iSimangaliso to meet with Sanco, the youth and a cross section of ward councillors and stakeholders and iSimangaliso had a follow-up on that in June, in the Hluhluwe area, which expanded the stakeholder groupings.
Mr Zwane said that iSimangaliso had achieved what it had intended, but did not want to rest on its laurels. Community engagement and meetings were held to identify new areas of engagement, even in the buffer area. With the CEO, the board had identified performance management as an area for improvement, and would define performance areas to improve regularly.
In terms of the postponed burning, iSimangaliso could not operate outside of what happened in nature, since it dealt with crucial resources. If iSimangaliso messed up with the grass, they interfered with the movement of the animals, birds, buck, or buffalo, etc., which were very sensitive to such things. iSimangaliso would be able to proceed with the burn programme because the rains were coming through.
Mr Zwane said much of the disquiet suffered during the past performance year was the result of having focused on the south of the park and not the north. Therefore much of the funding that had been sought was aimed at dealing with what concerned the north of the park. Three inkosi had approached iSimangaliso and said they were being neglected. iSimangaliso had addressed that and implementation was for the 2018-19 financial year.
The Acting Chair thanked the delegation. The Committee was happy with the responses. He said he had missed the challenges, but it was clear that, combined, they could do more. iSimangaliso had to have buy-in for communities so that they could sustain the park. If communities did not have a buy-in, they would not feel it was part of their inheritance and heritage. He emphasised the importance of consulting the community.
The precedent of presenting without a Chief Executive Officer would not be repeated. He requested the delegation to inform the CEO that the Committee was not pleased. CEOs had to take responsibility for the entity’s performance.
The Committee was happy that they had been able to address the issues that had been raised and hoped that the unity would be sustained.
The Acting Chair thanked members of the Committee for remaining until the end of the meeting.
The meeting was adjourned.
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