Working for Fire legal arrangements; Working for Programmes; BRRR; Committee Report on Captive Lion Breeding Colloquium

Environmental Affairs

23 October 2018
Chairperson: Mr P Mapulane (ANC)
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Meeting Summary

2018 Budget Review & Recommendations Reports – BRRR

The Working on Fire (WoF) programme reported that it had had a good financial year and had obtained an unqualified audit opinion. Those in full time positions in the organisation had exceeded their target by 107%. Its business model tackled three main elements, which were job creation (over three years 15 000 had been employed), skills development (a training academy existed) and a contribution to South Africa’s integrated fire management capacity. WoF targeted areas where poverty alleviation was needed.

An analysis of its programmes indicated a need to develop a phased approach or approaches to focus on infrastructure improvements, and to forecast capacity requirements and cost effectiveness in fleet stock replacement. The assessment of risk transfer included personnel costs, information systems, billing, protective personal equipment (PPE), training, ground fleet and aviation. Some of the actions that had been taken by the DEA to address the Auditor General’s (AG’s) recommendations included the establishment of a  standard Supply Chain Management (SCM) procurement and contracting process, implementation of a seven-year once off contract with the intention of incorporating the programme as a government entity at the end of the seven years, fleet management being implemented as full maintenance lease agreements, and the WoF having a communication department that was monitored and reported on at the oversight and executive committee meetings.

A key concern to the Portfolio Committee involved the implementing fees, and how they could not be offset and had to be paid back to the Department. WoF was currently working on rectifying this. Another concern was that the AG was stipulating that the WoF was a Public-Private Partnership (PPP), yet the National Treasury (NT) was saying that it was not. A meeting had been scheduled to seek clarity.

WoF has a legal mandate which would see the tabling of the Natural Resource Management Agency Bill in 2019/2020.

Meeting report

Working on Fire: DEA briefing

Ms Nosipho Ngcaba, Director-General, DEA, introduced the Working on Fire (WoF) programme team and outlined the presentation.

Dr Christo Marais, Chief Director: Natural Resource Management, DEA, outlined the six important areas that the presentation would address:

  • The legal arrangement between DEA and Working on Fire (WoF);
  • Working on Fire programme audit findings;
  • Working on Fire business model;
  • Agency fees and salaries paid to implementing entities;
  • The process followed to procure goods and services for 2017/18;
  • Environment programmes’ turnaround strategy.

Legal Arrangement

Dr Marais said that in 2012, Mahlako A Phahla Investments was appointed as transaction advisor to develop a feasibility study which covered the implementation of an integrated veld and forest fire management programme such as WoF. Some of the key goals included supporting fire protection associations, advocacy and awareness, ground operations, an incident command system, monitoring and evaluation, and research and development.

The overall analysis had reviewed and confirmed the DEA’s needs analysis of the WoF Programme’s nine key focus areas. In addition, fleet stock renewal and stock refurbishment requirements, key specifications and applicable standards were focused on. There was therefore a need to develop a phased approach or approaches to focus on the infrastructure improvements, forecast capacity requirements and cost effectiveness in fleet stock replacement. The assessment of risk transfer included personnel costs, information systems, billing, protective personal equipment (PPE), training, ground fleet and aviation.

Some of the actions that were taken by the DEA to address the recommendations included the establishment of a  standard Supply Chain Management (SCM) procurement and contracting process, implementation of a seven-year once off contract with the intention of incorporating the programme as a government entity at the end of the seven years, fleet management being implemented as a full maintenance lease agreement (FML’s), and the WoF having a communication department that was monitored and reported on at the oversight and executive committee meetings. Unlocking of third party resources was also scheduled, and this had been successful. Schedule 12 of the Memorandum of Agreement (MoA) had been negotiated to establish third party business to generate additional income for the programme. DEA’s representatives on the WoF had been exposed to the human resources (HR) policies of the programme.

The DEA had a legal mandate under the National Environmental Management Biodiversity Act (NEMBA) Act No. 10 of 2004 and the National Environmental Management Act, Act No. 107 of 1998, Chapter 5, which deals with the implementation of integrated environmental management.

WoF Programme Audit Findings

The 2016/17 audit findings wanted to establish why there was uncertainty around how the management/implementing fee was arrived at. WoF had responded by saying that the goal was to maximize the economic empowerment of project participants, and had worked on minimising such fees. Concerns had been raised around a possible duplication of operational costs in relation to directors and employees. After a detailed analysis by WoF, no duplication was found. Kishugu Clothing was said to have not been approved as a related party, as was the omission of fleet management. Draft addendums were being vetted by legal services before submission to the DG for approval. Concerns were raised regarding the poor quality of the protective equipment and the value for money. The concerns were addressed as part of the risk and management strategy. A review was done of the management fee claimed by WoF in relation to international engagements. The internal audit had concluded that the first deployment to Canada had been 9.6% and the second one was 7%, and the Indonesian deployment was 9.1%, so there was no discrepancy with the maximum allowed of 9.6%.

In the 2017/18 report, the Auditor General (AG) had reported that the reporting on implementing entity fees was a concern, but the WoF did not report on implementing entity fees. The Department was advised to develop an action plan to amend the financial statements. This was being worked on by the Standard Chart of Accounts (SCOA) system as per the National Treasury and the PFMA. The AG was concerned that research funded by the Department had not been represented sufficiently in the financial statements. He said that the WoF writes up all its research and it is presented to the oversight committee and the ExCo. Such research includes that of using fire to bring the tick load down in nature for animal health purposes.

The Chairperson interrupted and asked about the response on the issue pertaining to implementing entity fees.

The DG responded that the AG had said that the Department needed to reflect the figures in the financial statements, and this was being worked on. However, the entities do reflect these fees in their financial statements.

Dr Marais said that the AG had had an issue on the interest earned by implementing entities and how this could not be offset and had to be paid back to the Department. WoF was working on it.

The Chairperson asked for more clarity on this.

Dr Marais said that the contracts on implementing entities could not be used as offsetting of income. Administration of this would cost money.

Ms Ngcaba said that the money was going to be paid back to the revenue fund of government. In future, WoF would ensure that they would avoid the generation of interest.

Dr Marais said that there was a concern that WoF was a public-private partnership (PPP). He said that this was being investigated.

The Chairperson asked the WoF team to shed more light on this.

Ms Ngcaba responded that WoF was set to present its turnaround strategy to the AG as well as the National Treasury. The AG was currently saying that it was a PPP and the National Treasury was saying that it was not a PPP. More investigation was taking place and a meeting was set to take place on this.

Dr Marais said that project managers from implementing agencies were paid salaries that were higher than the normal Expanded Public Works Programme (EPWP) rate.

Ms Ngcaba said that there were project managers who oversee projects who were from both the Department and the implementing entities.

Dr Marais said that they used Deloittes, who were the oversight auditors for the environmental auditors. R1.788 billion was the total amount in the financial statements of the implementing entities, of which  just over R100 million (5.6%) was the claimed amount.

Referring to the process followed to procure goods and services, Dr Marais said that the DG signed off on all implementing agencies. Legal processes were also followed.

There were currently 62 contracts for environmental programmes that had been approved and signed, with addendums to the agreements. The implementing agencies would be approached with a request to report to comply with the findings of the AG. If they were not compliant, the contract would be cancelled. The implementer should comply with the requirements for the Unemployment Insurance Fund (UIF), the Compensation for Occupational Injuries and Diseases Act (COIDA) and training, in addition to what had been stipulated by the AG. If they did not comply, legal procedures will follow. There were 100 projects that would be executed through the goods and services quotation process. It would have terms of reference, and the lowest quotation would get the job.

The Chairperson wanted to know what form of contracts were being referred to.

Ms Ngcaba said that such contracts include fire management entities. There was a need to negotiate the new terms in the current 62 contracts.

Dr Guy Preston, Deputy Director General: DEA, said several of South Africa’s biomes were fire-adapted. WoF was working hard to manage fires. The WoF programme had been a partnership between the DEA, the Department of Agriculture, Forestry and Fisheries (DAFF), the Department of Water and Sanitation (DWS) and the National Disaster Management Centre in the Department of Cooperative Governance and Traditional Affairs (COGTA). They had contributed financially to the programme in the past, and a revival of this was in progress. Climate-change was making the management of fire more difficult. The establishment of a national WoF programme had been the single most significant activity that had led to the vast improvement in fire management. There was a plan to table the Natural Resource Management Agency Bill in 2019/2020.

WoF Business Model: Governance and Performance 2017/18

Mr Trevor Abrahams, Managing Director: WoF, looked at the three main WoF programmes. These included job creation, where over three years, 15 000 had been employed; skills development (a training academy existed); and its contribution to South Africa’s integrated fire management capacity. It targeted areas where poverty alleviation was needed. WoF needed partners on the ground. Partners did exist in the form of air support when it came to fires. He added that managing partners was very complicated.

WoF governance contained a board with both executive and non-executive members. They meet four times annually. They also have an executive committee that manages the day to day activities. WoF also has a provincial structure that focuses on elements such as operations, communications, marketing and fire awareness, employee services, and finance and administration clusters.

Referring to the Key Performance Indicators (KPIs), he said that those in full time positions had exceeded their target by 107%. Their achievements against specific targets had been training 98.73%, health and safety 169%, communication and fire awareness 112.2%, black economic empowerment (BEE) rating 120.9%, fleet (no seats available) 89.2%, bomber days available 100%, fires attended to 89.2%, and teams dispatched 119.4%.

The organisation had eight executive members, 20 senior managers, 70 middle managers and 120 junior managers. 93% of the firefighters were African, 7% were Coloured, and 3% were disabled. Fire awareness and education took place, and over seven years, 2 158 418 people had been impacted by this.

In terms of communication, 12 newsletters had been made available, R72 million had been spent on media coverage, 41 videos had been made and there were 19 500 users on of the website. WoF had 942 hours of flying for helicopters, 781 hours for spotters, and 287 hours for a bomber.

Audited Financial Statements for 2017/18

Mr Sandiso Ntsomi, Financial Executive: WoF, said that over 50% of the budget was spent on salaries, wages and other benefits, which included a funeral policy which paid out R20 000 in the event of the death of a firefighter, while pre- and post-medicals and compensation for injury on duty is also covered. For the 2017/18 the WoF and High Altitude Teams (HAT) combined expenditure was 58% on wages, salaries and other benefits, 3% on Personnel Protective Clothing (PPC) and Personnel Protective Equipment (PPE), 7% on training, 8% on transport, 7% for operational variable costs, 1% on the Fire Protection Association (FPA), 6% on aviation and 10% for the management fee. WoF had received an unqualified audit opinion. The value of non-current assets was R15 498 714, which included property, plant and equipment.

The Chairperson asked about the R15 million value of assets. He thought there would be a value for transport, and wanted to know why this was not reflected in the Balance Sheet. Were vehicles not part of the assets?

Mr Ntsomi said that WoF leased its vehicles under a five-year lease programme. The vehicles would be owned by WoF at the end of the lease period, which was in the next year or two. He said there were 230 vehicles.

The Chairperson asked about the aviation amount, and why it was not in the balance sheet.

Mr Ntsomi said that it was a service rendered by Kishugu Aviation.

Mr Ntsomi said that WoF had made a profit of R432 830 in the financial year.

The Chairperson asked Mr Ntsomi to explain more about the expenditure.

Mr Ntsomi explained the R25 799 322 opening stock of PPC and PPE, as well as the closing stock of R27 495 232.

The Chairperson asked about the R43 million spent in the financial year, and the R62 million spent on aviation.

Mr Ntsomi said that this was based on the DEA’s budget. Part of the aviation costs (40%) was funded by the DEA, while 60% came from third parties.

WoF had spent R331 million on salaries and wages, R42 million on training, and R131 million on transport. In terms of Broad-based Black Economic Empowerment (B-BBEE), it was a Level 1 value-adding supplier. The total value of procurement spending was R60 942 340.

Discussion

Dr Z Luyenge (ANC) said he was grateful for the job creation that was being done by WoF. He asked the DG if there was any mechanism to create jobs for those in the rural areas, and how it could assist those who had been previously disadvantaged. The WoF programme required partnerships with civil society organisations with similar objectives, and if these were in place, how did one locate them? He also asked about the practicality of not waiting for the AG to come and decide, and said WoF should engage the AG in between and familiarise themselves with the requirements.

Mr T Hadebe (DA) asked about the audited financial statements and how the combination of HAT and the WoF had taken place. Did this include other partners? He asked about the surplus income and if it went back to NT.

Ms J Steenkamp (DA) asked what WoF did with its firefighters when they were not working, besides training them. She also asked about the concerns of duplication in relation to directors and employee costs as per the AG’s report, and wanted more clarity on the response given by WoF.

Ms H Nyambi (ANC) asked about the vacancies within WoF and when they would be filled.

Mr S Makhubele (ANC) asked the DG why the WoF was not a PPP -- what did this mean? He asked about the response time for WoF and how effective it was. What was the hourly rate for flying a helicopter? How were third party funds accounted for? Were these entities approached to inform them how their funds had been spent?

The Chairperson asked about the international deployment and what the actual arrangements were? He asked about the protective clothing, and where it was procured? What process was followed? He also asked about the duplication amount, as requested by Ms Steenkamp. Were the directors of Kishugu paid from the salary figures reflected in the financial statements? What were the arrangements with aviation? Expenditure on small and medium enterprises (SMEs) was less than 30%, and he asked if WoF was happy with this.

WoF’s response

Mr Abrahams said that the entity would provide a report on the partnership locations. Some of the partners included municipalities, land owners etc. In terms of the aviation budget, part of the allocation from the DEA covered the aviation expenses. For the full service to be rendered, more funds were needed. The cost of the helicopter was R30 000 an hour. The third party revenue surplus allowed for the expansion of the WoF programme and its scope. The budget from the DEA had been increasing annually by 3% and salaries had been increasing by 6%. Excess funds had allowed the programme to stay afloat. When the fire-fighters were not working on the fires, they engaged in fire awareness, fire breaks, training, base maintenance, and gardening as well. There were no vacant posts -- it was just a structure that had been approved for operation. Posts were there to develop firefighters into them. In terms of response times, he said that fires were attended to more quickly, but this was dependent on local conditions. PPC and PPE go through a bidding process. In terms of related parties, WoF had a training firm that trained firefighters, aviation provided services, and it had relationships with other private firms.

The Chairperson asked about the holding company that received a management fee.

Ms Ngcaba said that each tender came with requirements. For the WoF programme, some of the partners had been through training -- aviation, HR etc. The issue of WoF being a PPP was still a vague case that needed to be clarified between NT and the AG. PPPs were those which reduced the financial burden for WoF programmes. Procurement could not exceed 9.6%, and it had been kept at that level. The duplication of management fees was because of workers resigning from one entity and going to another. This was still being worked on and would be presented to the AG. Regarding international deployment, there was a bilateral agreement with Canada that facilitates engagement and assistance. She said that directors of WoF receive payment from WoF and not from Kishugu -- there is no double payment.

Mr Abrahams said that in terms of procurement, the only substantial payments were those for PPE and PPC, which were obtained through a bidding process. There was a minimum requirement of level 4 procurement in terms of BEE.

Ms Ngcaba said the disclosure of management fees had not been done before, but due to changes, this was now being implemented. Surplus funds were paid back to the revenue fund. In terms of accounting for rural employment, a rural presence did exist across South Africa. There were bases which had greater coverage, such as in Mpumalanga and the Western Cape.

The Chairperson asked about the personal protective clothing.

Ms Ngcaba said that the PPC is procured under the assumption of the existence of a scheduled mandate. PPC is procured on the local market.

Dr Preston referred to the Table Mountain fire of 2000 and the more recent Knysna fire, and said the WoF programme had assisted massively in preventing more severe damage in these areas.

Mr Makhubele asked for more clarity on the response times of WoF. Was it within two or three hours after being informed? What did the 29% for SMEs mean? Does WoF engage with the DWS to explain how it has used their funds?

The Chairperson asked for more clarity about the asset and fleet management that was reported on by the AG as a key area of focus. The asset base was very low compared to the expenditure on the actual acquisition of the asset.

Mr Emile Grobbelaar, CFO: Kishugu , which manages WoF, said that the vehicles would become assets of the WoF after the end of the lease period. The vehicles were currently reflected on the balance sheet of ABSA Bank.

Mr Abraham said that response times were immediate.

Ms Ngcaba said that in the contract it would take 30 minutes within a 100km radius, and 60 minutes in a 200 km radius, for a response to occur.

Mr Abraham added that in the fire seasons, even on weekends, there would be people on standby to respond. He invited the Portfolio Committee to come to the base in Nelspruit to see how they operated, so that they got a better insight.

Ms Ngcaba said that there was a provision in the contact that stipulated that procurement of goods and services should be done through an agent with a higher BEE status.

The Chairperson asked about the fleet management and how it was not in line with Schedule 10 of the Memorandum of Agreement (MoA) of the WoF.

Mr Grobbelaar said that the ownership of vehicles should take place after the last payment upon settlement of the residual value. Clarity was going to be sought from ABSA on this.

The Chairperson thanked WoF for their presentation, and said that they should work on the AG’s recommendations.

The meeting was adjourned.

 

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