National Development Agency on its Annual Report 2017/18

NCOP Health and Social Services

05 March 2019
Chairperson: Ms L Dlamini (Mpumalanga, ANC)
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Meeting Summary

Annual Reports 2017/18

The National Development Agency (NDA) spoke about its unqualified audit opinion with findings, governance, human resources, finances and its challenges and recommendations. It had an overall 85% achievement of targets. The Committee however felt NDA is underperforming due to underspending in the funds it distributes to civil society organisations. This is problematic if NDA is lobbying for more funds as this underperformance will do little to persuade National Treasury to give more money to NDA. It reported an accounting deficit of R3.5 million compared to a surplus of R16.6 million in the previous year.

The NDA received an unqualified audit opinion with findings for its annual financial statements. However, the audit opinion on its performance audit remained unchanged from 2016/17 with an adverse opinion. The Committee asked why the performance audit findings were repeated for a second year in a row. NDA must rectify this. The underspending by NDA concerned the Committee.

The NDA CEO mentioned a lack of participation from other departments, with the Department of Social Development being the only department that works with NDA. The Committee asked what NDA what plans are in place to get other departments on board.

The NDA CEO said the organisational structure was analysed and that some positions are necessary as full-time positions and some are not. The Committee suggested that the positions were needed when NDA is operating at maximum capacity.

The Department of Social Development emphasised the need for NDA, especially in building capacity in the civil society organisations (CSOs) and with the new CEO who came in three years ago, NDA is taking a different and better direction. The lack of an NDA board would be remedied shortly.

Meeting report

The Chairperson noted that in the previous 2018 meeting with NDA, it wanted a little bit more time to explain what they do so the Committee would have a better understanding of the NDA. This is a good idea and it is something the Committee will put in its legacy report for the next Committee who will take over in the Sixth Parliament. This meeting was an opportunity for NDA to explain to the Committee why it has been performing so badly. What is causing the challenges? She emphasised the importance of having something concrete to write in the legacy report. She noted that apologies were received from the Minister.

National Development Agency on its Annual Report 2017/18
Ms Thamo Mzobe, CEO of NDA, said the Auditor-General issues two audit opinions based on the annual financial statements (AFS) and the performance information. The Annual Financial Statements remained unchanged with an unqualified audit opinion with findings. The audit outcome on AFS determines the overall audit outcome for the organisation. NDA’s overall audit outcome was therefore an unqualified opinion with findings. However, the audit opinion on performance information remained unchanged from 2016/17 with an adverse opinion with findings.

Financial health remained good at the end of the 2017/18 financial year. An Audit Turnaround Strategy is in place to address all the audit findings. Irregular expenditure caused by supply chain non-compliance that resulted in new was drastically reduced in 2017/18 compared to prior years. This confirms success of the initiatives implemented by NDA.

NDA is a Schedule 3A Entity administratively reporting to DSD but operationally attached to all departments. Its primary mandate is to contribute towards the eradication of poverty by granting funds to civil society organisations to carrying out programmes and projects aimed at meeting development needs of the poor and strengthening the institutional capacity of other civil society organisations involved in direct service provision to poor communities. Its secondary mandate is to promote consultation, dialogue and sharing of development experience amongst CSOs and relevant organs of state through debating development policy and undertaking research. In terms of the primary mandate, NDA is not supposed to be doing small projects directly with communities. NDA is supposed to have a strong relationship with CSOs which are granted funding to mentor and engage with these small projects. NDA has not delivered on this fully. On the secondary mandate, particularly on debating policy, NDA was meant to be a key player in debating section 25 of the Constitution with the community. NDA was supposed to be leading civil society in engaging with stakeholders on this matter. Further, section 4 of the NDA Act states that it implements programmes that respond to the following areas of responsibilities: act as a key conduit for funding from RSA government, foreign governments and other national and international donors for development work to be carried out by CSOs; contribute towards building the capacity of CSOs to carry out development work effectively; and maintain a database of CSOs on the scope and subject matter of their work and their geographical distribution, and share the database information with relevant organs of state and other stakeholders.

Ms Mzobe acknowledged that NDA is labour intensive. In the NDA organisational structure the Minister of Social Development is similar to what a shareholder in a company would be. There is an NDA board and a CEO. There is also the internal audit which is partly independent as the size of NDA does not warrant a permanent internal audit. NDA does not have nor need an executive company secretary. There is legal and risk management units, as well as corporate performance planning and stakeholder relations unit.

Organisational performance in 2017/18 had 85% of targets achieved and 15% not achieved:
• Programme 1 Governance and Administration programme achieved 50% of its targets. Compliance to legislative/regulatory requirements including the PFMA, SCM and Treasury Regulations and NDA policy was 99% achieved. The implementation of the marketing and communication plan aimed at improving NDA brand awareness was fully achieved. The implementation of the rollout plan for establishing decentralised program delivery centres at districts was fully achieved.

• Programme 2 CSO Development had an achievement rate of 89% with 16 of the 18 indicators achieved. Three of the indicators were overachieved due to outreach programmes with Social Development. These include number of CSOs participating in CSO mobilisation engagements and consultation processes; number of CSOs assisted to formalise their structures and number of CSOs assessed to identify institutional needs and determine appropriate development support. The Rand value of financial and non-financial resources raised to fund CSOs was aimed at R80 million but only R61.7 million was achieved due to partnership agreements yielding too few financial resources.

• Programme 3 Research Programme achieved 100% of its targets.

The NDA board consisted of 10 members. NDA had 192 employees. Africans are the pre-dominant racial group, with females being in the majority at 66%. NDA has three employees living with a disability which translates to 2% of the staff complement. The vacancy rate is 19%, whilst the turnover rate is 4% following the departure of eight employees. Three employees attracted disciplinary action due to non-compliance with NDA policies and procedures. Training and development formed 0,63% of the personnel budget.

Mr Solomon Shingange, Acting CFO of NDA, gave the financial report. NDA received R200 913000 from National Treasury and R18 542 321 from third party funds, totalling R219 455 321. NDA also had other income of R7 177 388 which gave them total revenue of R226 632 709 for the year 2018. The total expenditure amounted to R230 091 278 which meant that NDA had a deficit of R3 458 569. NDA continued to operate under stringent financial constraints due to financial allocation increasing only 3.5% year on year while CPI averaged 6%. The resources are decreasing in real terms. Conditional grants received from other government departments also decreased significantly  by R16.9 million. NDA is reporting an accounting deficit of R3.5 million compared to an accounting surplus of R16.6 million in the prior year.

A total of R215.4 million was spent against an allocated budget of R241.9 million (89%). R99.5 million was spent on administration against a budget of R110.5 million (90%). R115.9 million was spent on mandate expenses against a budget of R131.4 million (88%).

The 10% underspending on administration expenses was due to underspending on consulting and professional fees due to planned due diligence of funded projects that was only concluded and awarded in April 2018; underspending on District Office establishment costs due to delays in procuring NDA office space in four provinces. Tenders were issued, and suitable office space could not be secured in the identified districts. Underspending on marketing costs for production of corporate stationery and promotional items for the district offices as these planned offices were not procured by year-end. Underspending on ITC as planned implementation of the ICT master system plans revamp did not materialise by year-end. Delay was due to late finalisation of the ICT strategy and master system plans - a prerequisite for the ICT system.

Programme 2, CSO Development programme, had R110 million spent against a budget of R123.7 million, (89%). Underspending was due to slower disbursement of grants to NDA funded projects such as:
- An underspending of R4.7 million due to delays in approving grants to projects approved in the current year, occasioned by a management decision to align the grant making policy to the new NDA service delivery model and the policy revision took longer than anticipated.
- An underspending of R12.9 million was due to delays in disbursement of funds to projects funded in previous financial years, occasioned by challenges faced by funded organisations.
- The underspending on grant funding projects was offset by overspending on Capacity Building due to more capacity building interventions conducted than anticipated.

Programme 3 - Development Management and Research, R5,8 million was spent against a budget of R7,8 million (75%). Underspending was partly attributable to delays in finalisation of the planned evaluation of the CSO development framework commissioned in the third quarter of the financial year. The evaluation was finalised in the first quarter of 2018/19. The underspend was also due to delays in the implementation of the pilot phase of the ECD study conducted in collaboration with the University of Fort Hare.

Key balance sheet indicator was the NDA assets exceeded its liabilities by R37.6m, representing a healthy financial state.

Ms Mzobe identified challenges and the remedial measures:
- Performance information risks and mitigation strategies are not undertaken timeously. The remedial action for this is that a risk management strategy has been put in place which includes quarterly monitoring of quality of information.
- Shortcoming in the reporting system and quality of the performance information. A robust and automated system for quarterly reporting of performance information has been put in place for 2018/19. Training and capacity building will be given to officials to ensure quality reporting and development of policies and procedures to govern performance information and the reporting on that.
- Fewer resources had been raised for funding of CSOs and the remedial action was to develop a focused and comprehensive strategy on resource mobilisation for grant funding.
- Lack of compliance to the Act by other government departments except for DSD since 2000. There is now a commitment by the Portfolio Committee to assist in addressing the matter through relevant structures..

The Chairperson thanked the NDA team and stated that she can see in a big improvement in their reporting. The report was transparent in both programmes and finances. However the performance indicators are not SMART enough and NDA needs to improve on this.

Ms T Mpambo-Sibhukwana (Western Cape, DA) commended NDA for their effort in ensuring gender equality and well as racial equality in their employment demographics. However, of the 66% female majority, how many are in top level positions? She would also like this analysis to be extended to the 2% staff complement made up of disabled persons. How many of them are in top level positions? How many of the disabled persons have visible disabilities, and how many have invisible disabilities (such as bipolar and epilepsy). She asks if there are assistive devices in the workplace for those with disabilities. She asked how NDA accommodates the youth because this was not mentioned in the report, and unemployment amongst the youth is high. She asked how NDA plans to combat the 19% vacancy rate. She asked if exit interviews were conducted for those who left NDA employment and what was the outcome of those interviews. Lastly, she asks if disabled people are included in training and development.

Mr C Hattingh (North West, DA) noted that this is the second consecutive adverse report on performance information. What is NDA continually doing wrong? He would like to see the performance audit as it was not included in the report. He asked about the repeat audit findings and why these had not been rectified yet. He noted that performance bonuses were given out and asked how that was possible when NDA did not perform well enough. There was R88 million in irregular expenditure and more than R16 million of it was for 2017/18, mostly due to procurement problems, which is also a repeat audit finding. He asked what NDA are going to do about this. Disciplinary action was taken against three NDA employees, but NDA failed to mention criminal charges for one of those three people, who is an account clerk. He asked for more information on this, including the total amount of money involved in these criminal charges. He asked if there were criminal charges against any of the other employees.

Ms L Zwane (KwaZulu-Natal, ANC) asked if there is a correlation between the targets in the Annual Performance Plan (APP) versus the Annual Report. If there is no correlation, why is that so? Although NDA received an unqualified audit report, there is still emphasis of matters and she asked what is being done about this. Does internal audit have the capacity to ensure that NDA decreases wasteful and fruitless expenditure? She asked if NDA focuses on towns when they locate district offices, or do they locate them in the rural areas. She asked because there is a tendency within departments to locate offices in towns and leave out the rural areas. She asked the criteria used for this. Did unutilised third party funds go back to the National Treasury or are they kept in NDA accounts. What criteria are used for the funding of the CSOs and how many are funded per province? She asked for an explanation for the sharp decline in net assets.

Ms Ngwenya (Gauteng, EFF) commended NDA for achieving 66% female employment. The CFO listed delays as one of the main reasons for not achieving targets and asked if these delays are caused by poor planning. Have they been dealt with so as to not receive the same report next time they present to the Select Committee. She commended NDA for assets exceeding liabilities but was concerned about the underspending. She noted that the Department of Social Development is the only department that works with NDA and asked what steps have been taken to get other departments to be involved. She also asked how the CSOs are identified and the programmes in place to ensure that they reach out to CSOs especially in rural areas. She asked about the assessment of the CSOs and how this has helped NDA. She asked how not having a permanent company secretary would impact on NDA and if a focus study has been done on the impact of such a decision. Had the same been done for the internal audit? NDA stated they have referred some CSOs to other agencies and asked if they have followed up on these referrals. She asked how the Committee could assist NDA to better assist CSOs and what what it would like to achieve as an agency.

In response to Ms P Samka-Mququ (Eastern Cape, ANC) who asked her questions in Xhosa, Ms Mzobe said that the women within NDA hold positions that are spread out across all levels. There are provincial mangers that are women. Eastern Cape, Limpopo, Gauteng and KwaZulu-Natal are all led by women at regional level. Women are found in all categories, from receptionists to regional managers. When she started in November 2016, there were one or two women in executive positions but now the CEO, the company secretary and the CFO are women.

NDA staff with disabilities include people in wheelchairs and partially blind. Sometimes it takes extra caution and sensitivity for workers themselves to admit that they have a disability. A more detailed report can be made available to the Committee in writing if it would like.

They did not want to categorise the youth independently in the report, but in terms of statistics, the youth is always funded, especially innovative projects like internet cafes. They are happy to break down the make-up of the youth within the various projects should the Committee wish this.

Touching on vacancies, there is a desired shift that needs to take place, from the “learned” to civil society driving their own development, with the support of NDA. NDA wants to see a shift from having a development manager who earns R500 000 per annum to translate that into a grant for various projects. They are not excitingly looking to fill vacancies at head office but rather looking at reducing the numbers, re-skilling, redeploying or reallocating to provinces because that is where work takes place. You will see that head office, in terms of policy making, has larger numbers than what the implementing factor requires.

Exit interviews are conducted. Most people leave because they have found greener pastures. Most get jobs within the departments or go independent. Sometimes people are not honest enough and will just tell you what you want to hear. What assists NDA is the performance assessment done by the supervisor and this provides a better picture. She has never seen a scenario where someone left because they are frustrated.

When she started as CEO, she had presented four pillars to this Committee: to address communication, organisational culture, efficiency and work ethic, which had been lacking. The lack of work ethic often leads to projects not being fully achieved.

The Chairperson asked why there is currently no board and why they have not been appointed. She asks how the previous board performed. She said it is a contradiction when NDA complains about money but it still underspends on the little money that it has. It then becomes difficult for the Committee to lobby for more funding when NDA cannot spend the little that they have. The location of NDA is something that will have to be part of the Committee legacy report where the Committee recommends that its location be looked at. On the organisational structure, when the organisation is operating at its maximum, the CEO will need those positions that she believes are unnecessary as full time positions. It must not work on downgrading itself. She suggests that the CEO look at restructuring the organisation. She noted that Grant Funding is placed under Development when it should be under Finance. NDA needs to have offices in the districts because some of the CSOs only become alive during funding time. These CSOs are not there during the year, but when funding is about to be allocated, they all of a sudden become alive. She asked the Department of Social Development why it has not increased funding after being asked to do so. She asks NDA to prepare a report in writing that outlines what is happening in the provinces. It does not have to be as detailed as the report they presented today.

Mr Peter Netshipale, DSD Deputy Director General: Community Development, replied that three years ago DSD did its own evaluation and found that is a need for NDA in the country. Since the arrival of the CEO and the change in direction, they met with Treasury and educated Treasury on what NDA is and what it does. There is a need for NDA to exist in the format in which it now exists.

On the appointment of the NDA board, Mr Netshipale replied that there were some challenges. They advertised the board positions in December and it closed on 8 January. The shortlisting was done but due to administrative issues, the process was delayed a little bit. The process is back on board and they are hoping to finalise this matter soon.

The Chairpersons requested that the NDA CEO give all other responses in writing by 8 March 2019.

The meeting was adjourned.

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