Meeting report

Briefing on irregular expenditure: 2017/18 Annual Report

Ms Brenda Rutgers, CFO: Western Cape Government Cultural Affairs and Sports, briefed the Committee of the irregular expenses reported in the 2017/18 Annual Report.

These included CHUBB Security from George Museum, Lungisa Athandwa Projects, Trigon Travel, CHUBB Security for Cape Medical Museum, IsiXhosa Sethu, Steyn Signage and GIMTRAC. The total irregular expenditure amounted to approximately R2.3 million. The challenges experienced in causing those irregular expenditures for each were explained to the Committee.

In light of the challenges experienced, Ms Rutgers’s department developed the following mechanisms to avoid further reoccurrence of such incidents in future:

-Centralisation of the management of term contracts for Security Services within the affected directorate;

-Review of capacity constraints in the affected directorate;

-Ongoing awareness of SCM policies and procedures;

-Monthly SCM focus meetings attended by responsibility, sub-programme and programme managers as well as chief users responsible for SCM in line function;

-Internal Control circulated irregular expenditure framework; Ongoing awareness sessions are conducted with DCAS officials. The Irregular Expenditure has been communicated to all officials via the DCAS communication system

-New transversal tender came into effect in June 2018.  The new service provider allocated to the Department (Sedgars) was encouraged to obtain exemption for items that they cannot produce 100% compliant to Local Content. They subsequently received exemption.

Discussion

Mr D America (DA) asked the Department to explain about IsiXhosa Sethu language services that the Department provided to partners. He asked about the types of services the Department procured and more details of the local content that the Department would require in supplier chain management. On the CHUBB security, Mr America asked the Department to explain what type of capacity constraint it was. On the Lungisa Athandwa Project, he asked to what extent the obligation of the Department was to provide the services and pay for such events.

Ms D Baartman (DA) asked about the Steyn Signage. Given that the officials were not aware of the requirement, she asked whether a platform had been established to assist not only the officials involved in this project but other officials as well for their supposed responsibilities.

Ms M Maseko (DA) asked who the officials were responsible for the Steyn Signage. She further asked what does this tender entail as well as the specific requirements to have been awarded for the tender. On the issue of local content, Ms Maseko remarked that it needed more elaboration and commended the government’s champion role in it.

In response to the Lungisa Project, the Director of Cultural Affairs Department said that his Department received conditional grant from the National Department. The difficulty with his provincial department was that it would have to bear the consequence of the National Department’s mistake. In the National Department, he explained, that there was transversal tender which the National Department did not put in a specific requirement which resulted in what was included in the presented report.

Regarding the Member’s question on local content, Ms Rutgers explained that many companies used to hire local people to make attires but because of the lack of local manufacturing factories, those companies had no option but to import certain raw materials. On Steyn Signage, Ms Rutgers says that the structure of Signage was decentralised. The Department has tried to include their officials in all department’s programmes to be informed of all surrounding issues on procurement procedures.

For capacity constraints, an official explained that it was because of training and staff shortage. He said that in some museums, managers are supported by very few staff members.

The Chairperson enquired about the progressive steps on Steyn Signage and how the Department cancelled someone and if any disciplinary step had been taken.

The official said that it was just an HR term and if such person was found to be transgressed on the same misconduct, he/she would be disciplined.

The Chairperson asked if the material could be found in South Africa.

The official responded that there was no such material to be found in South Africa but proof would still need to be produced to state that.

Ms Rutgers explained the meaning of the 100% local content. She commented that technically it was 90 percent produced because local workers had made the content.

Ms Baartman asked what would the difference have been if we could source locally and asked if any legislative framework at national or provincial level could have prevented this.

Ms Rutgers replied that she suggested the Committee to look at establishing manufacturing plants locally. From legislative perspective, she suggested maybe the requirement on local content should not be too stringent.

Financial compliance (MFMA) MGRO processes for the 2017/18 financial year

Ms Melissa Van Niekerk, Director : Financial Governance, Western Cape Provincial Treasury, briefed the Committee on the MFMA MGRO processes for the 2017/18 financial year.

The Municipal Governance Review and Outlook (MGRO) was initiated by Provincial Treasury to drive a single-minded focus on clean governance. The Western Cape Integrated Work Plan (IWP) which was endorsed in 2016/17, aims to achieve greater alignment of provincial and local government policy, planning, budgeting, implementation and governance. Since late 2017, in a bid to implement integrated management, the department of Local Government and Environmental Affairs formed part of the process. The Technical Integrated Municipal Engagement (TIME) coordinated by PT (Normative Compliance Management) as part of the Western Cape IWP is focused on embedding good governance practices towards the achievement of objectives. The engagements had brought together provincial departments, municipalities and other relevant stakeholders. A key output is the implementation of a collective action plan per municipality to address key challenges and emerging risks. MGRO process was initiated by PT to adrive a single-minded focus on clean governance.

Ms Van Niekerk then explained the MGRO process implemented from 2012 to 2016. Since 2017 till now, the system was aligned with TIME and with PSG5 through integrated management engagements which resulted in better governance performance. An internal audit was performed on the MGRO process as part of the 2016/17 and 2017/18 audit plan, for which two reports were issued in February and July 2017. The total agreed actions were 15, the action plans implemented were 8 and action plans not implemented were 7. The outstanding matters are monitored by Provincial Treasury’s internal control unit, and feedback is provided to the audit committee on a quarterly basis. As the process of MGRO evolved into TIME, more departments were brought on board to give effect to the Western Cape Integrated Work Plan (IWP), therefore more stakeholders had to be included in process.

For the outstanding actions, Ms Van Niekerk pointed out that those were governance matters relating to how the process was documented within the departments to ensure institutionalisation of the process. The outstanding actions did not impact the deliverables to the municipalities and consequently, the outcome of the process. These included documenting SOPs and finalisation of draft documents. Her department had provided new implementation dates aligned to the evolved processes, which would be finalised by 31 December 2019. She also stated that internal control would follow up on the outstanding action points and provide feedback to the audit committee on a quarterly basis.

Discussion

Mr America asked if the department provided assistance to strengthen the control and close the gap in small municipalities that did not have capacity to exercise the extent of operational control.

Ms Maseko asked the link between the values and audit outcomes. She asked the Department whether there was compliance within those municipalities on service delivery. She asked how these municipalities reacted to that if audit recommendations in reports had been complied with.

The official explained the MGRO process. This included the cooperation with the Treasury and local governments. It could be divided into two processes: strategic governance and technical governance engagements. Part of this process included the evaluation of service delivery. Essentially it classified municipalities into those that performed well but also those whose financial audits were good but service delivery was not up to scratch. He said that in some cases, some municipalities may get perfect outcomes but service delivery may not be good in audit reports. The Department believed that good governance included good service delivery.

Ms Van Niekerk said the annual self-assessment’s criterion was devised by provincial treasury and other participating departments. It is a financial management capability and maturity criterion, so it takes a municipality from a start-up level to an optimising level. The provincial treasury conducts evaluation on the responses in terms of controls.

On the support for the assurance of small municipalities, Ms Van Niekerk assured the Committee that the risk management unit will fulfil their function in strengthening the system of internal control within municipalities. She said what came out of the time process also fed into different forums. At those forums, she said that challenges and solutions were discussed with the national and provincial treasuries.

Ms Van Niekerk’s colleague stated that the department had a single support plan for each and every single municipality and it covered all aspects including internal control, supplier chain, budget, etc.

The Committee asked to elaborate on this single support plan.

He explained that his department had constant follow up assessments with municipalities. Four or five units have been placed in the Treasury and depending on where the area was, his department would then identify the gap and the source from the Treasury.

Mr M Xego (EFF) enquired about the struggling municipalities.

Mr America said if the Treasury should come and address the single plan support system.

Ms Maseko agreed that wider stakeholders needed to be involved. She raised the issue that some people that had received title deeds but did not pay for services. In light of this, she asked if the Department had a system in place to recoup the money from these people.

In terms of the support provided for municipalities, he said that his department gave assistance to municipalities on compilation of revenue managing plan. The municipality would be asked to identify the areas of concerns and then his department would provide assistance and guidance accordingly.

The Chairperson suggested a working session with the Treasury to understand the cooperation of the municipalities. He commented on the distinction between outputs and outcomes in the quantitative and qualitative nature respectively, he then suggested the Department to adopt a combination of both to produce the best results.

The official commented that it had more to do with relationships with the municipalities. If a municipality does not have a cordial work relationship with his Department, the recommendation made might have been misinterpreted as punitive measures instead of actual assistance to improve the municipality’s financial performance.

Ms Maseko asked the Department what value their recommendations would do if the municipality did not enforce their recommendations.

Ms Van Niekerk responded that one of the key drivers of good local governance was capacity building. What her department was working on at least from the Treasury side was to ensure the proper training being received by officials. She said that her department’s initiative must be indicated. On local governance as pertain to financial management skill, she said that the important thing was working with the Western Cape as a point of departure and her department was also working on the compilation of database to monitor the financial information.

Local Content Commodities

Ms Nadia Ebrahim, Acting Head: Asset Management, Provincial Treasury, briefed the Committee on local content of commodities which related to all tenders within the departments of the Western Cape Government.

Ms Ebrahim explained the constitutional and legal framework that local content requirement was derived from. Section 217 (2) (b) of the Constitution speaks to a preferential procurement policy providing for the protection or advancement of persons disadvantaged by unfair discrimination:

The Preferential Procurement Policy Framework Act, 2000 (Act 5 of 2000) (“PPPFA”), Section 2 (1) provides for preferential procurement policy framework within which an organ of state may implement preferential procurement which includes: -

-a preference point system by establishing two point scoring systems i.e. 80/20 and 90/10 which provides for a reasonable balance between preference and what is permissible in terms of Section 217 (2) of the Constitution as well as cost effectiveness and competitiveness as required by Section 217 (1); and

-the allocation of specific goals per Section 2 (1) (d). within the 10 or 20 points for contracting with persons or categories of persons historically disadvantaged by unfair discrimination on the basis of race, gender and disability.

The Act further provides for the setting of specific goals through the Reconstruction and Development Programme as published in Government Gazette 16085 dated 23 November 1994 (RDP) which speaks to the development of a coherent socio economic framework which in context speaks to the building of the economy and developing the large domestic sector through utilisation of our domestic manufacturing sector and our own raw materials (i.e. the requirements for local content).

The PPPF regulations 2017 stipulate that an organ of state must in terms of regulation 3 determine whether the goods and services invited falls within the designated sectors as per regulation 8. Regulation 8 requires that the DTI in consultation with the National Treasury:

-may designate a sector, sub-sector industry or product for local production and content

-stipulate a minimum threshold for local content and production.

Organs of state must invite tenders as prescribed in terms of the designated categories. NT will issue circulars to inform organs of state of such designation. A tender that fails to meet the minimum stipulated threshold will be unacceptable. Organs of state may also indicate local content and the production for non-designated categories and specify a minimum threshold as determined by the standards of the DTI in consultation with the National Treasury; 25 designations have been made by DTI and Instruction Notes issued via National Treasury. The implementation guide and prescribed bid documentation have been issued by National Treasury since promulgation of the regulations. The process of issuing exemption letters has been issued.

The official commented that it was instrumental that companies must comply with the local content requirement. He said that the compliance from governmental departments was most vital.

During the implementation stage, Ms Ebrahim said that the LC requirements emanated from two pieces of legislation i.e. PPPFA and BBBEEA with two custodian departments resulting in numerous challenges from a process and implementation perspective. However, she stated that the legislative requirements were ambiguous and open to interpretation. According to market analysis, the designations were not freely available and more often than not suppliers were in the Gauteng region and not Western Cape based adding to the cost in procurement. Furthermore, she also identified the following challenged experienced

-Cost of certification (tender’s side) and the impact on cost (government side);

-A lack of readiness by the supplier market to tender;

-Certification required for each and every tender that the bidder engages in;

-The bidder does a preliminary submission on the extent to which it meets the requirements and confirmation of the requirements happens ex post facto the award.

-Deviation from requirements must be done by the bidder;

-Non-compliance findings and associated expenditure as irregular are for the procuring entities books of account;

-100% compliance to minimum threshold is required which is disabling e.g. For clothing and textile threshold is 100% and if a bidder is 99.5% compliant then the bidder is deemed non-compliant. No room for developmental initiatives or incentives;

-Training to procuring entities is limited and the SAB is not performing the function of certification hence the onus to verify has now become that of the procuring institution;

-The applicable threshold from R30 000 upward is problematic given the red tape in meeting compliance that adds to the total costs of the procurement.

In light of those challenges experienced, her department had worked on and adopted some measures to address them:

-WCG Position Paper on Local Content Implementation produced and made available to NT as well as issues raised at various NT fora (i.e. SCM Forum, TCF, PAG forum and in formal written comments to the commentary phases iro PPPF regulations);

-Discussions and workshops held with dti and SABS since the implementation of local content requirements, post 2012 as part of previous PPPFA regulation implementation;

-Training interventions, workshops which the Province facilitated and dti and NT presented;

-Support provided to departments by PT on interpretation issues in audit process;

-PT dealt with queries on local and provincial implementation challenges via the PT SCM helpdesk; and

-Formal communication provided to the National Treasury DG end August 2019 on policy and prescript challenges, conflicts and impracticalities or red tape on financial prescripts. Local content challenges also documented and flagged as an issue in this communication.

Discussion

Ms Maseko asked if there would be a loophole when a “deviation” on local content could be overlooked.

Mr America asked the Department to explain how the ANC government had disseminated South African manufacturing sector and then asked governments to comply with local content requirement. He commented that it would be a challenging task. Then he asked about the conflicts of judications between the local and the national one in terms of local content requirement. Mr America asked in matters of emergencies, how would the department deal with that and through what processes exemptions could be possible. Mr America commented on municipality’s desire to have a clean audit, he asked what legislation could be passed to promote to assistance to develop stronger case in terms of service delivery.

Mr Xego also commented on the possible scenario in which two legislations at different levels of government could be in conflict with each other and asked the Department to identify the conflicting areas. Then he commented that legislative requirements were open to interpretation. In light of that, he asked what measures were in place to prevent the abuse of discretions in some instances.

Ms Baartman asked the Department to explain why SAB not able to perform the function of certification.

Ms Ebrahim responded to Members’ question on the process of procurement. Since 2009, her department had embarked upon a process of auditing standardisation on the process of service. In terms of Section 18, the provincial Treasury set out instructions, norms and standards in procurement. This was done to strengthen governance in the Province. Her department then put in a new system called the Blueprint Accounting Officer System. In terms of Section 38, the accounting officer is responsible for procurement process. She said that a lot of other provinces come to Western Cape to benchmark. The challenge came in terms National Treasury’s instruction Section 36 was open to interpretation. The Western Cape’s relative better governance performance provided the province more leverage in exercising discretionary power. Therefore, local content requirement underlined the same logic.

She distinguished between the local content requirement and BEE Act. She said that the BEE Act was entrenched in the system and was much broader and not at all about procurement, however, the Preferential Procurement Act was specific to procurement. In conclusion, she reassured the Committee that there was a whole range of processes in terms of procurement.

In emergency cases, the Accounting Officer System would be in place. However, Ms Ebrahim pointed out that her department still had a lot to improve in disaster management. Her department was undergoing a draft framework and consultation session to improve it.

For the loophole issue, she explained that sometimes suppliers were not aware of those loopholes, but her department was working on closing these gaps.

The Chairperson asked if local content requirement was a constitutional matter.

Ms Ebrahim said that the Constitution did not directly speak about local content requirement. The key issue that was related to the Constitution was addressing the historical disadvantaged population and thus this was where the Preference Act applied. Local Content Requirement was thus derived from the Act.

Presentation by the Western Cape Gambling and Racing Board

An official member from the Western Cape Gabling and Racing Board briefed the Committee

Section 9(2) of the Western Cape Gambling and Racing Board (WCGRB) stipulates:

            “The staff of the Board shall-

            (a)  be appointed by the Board on such terms and conditions as it may determine and shall be remunerated by the Board, provided that such remuneration shall, at the establishment of the Board in terms of this Act, be fixed by the Board in consultation with the responsible Member acting in concurrence with the member of the Executive Council   responsible for finance,”

At inception, this was done with the then responsible member which was the same member of the Executive Council responsible for Finance. The WCGRB undertook a remuneration review to compare its remuneration structure with that of the other eight South African Provincial Gambling Boards and the national remuneration survey. On completion of the exercise and after the report was presented, the Western Cape Provincial Deputy Director serving on the Board directed the Board to have the Directorate: Organisational Development in the Office of the Premier rate the WCGRB employees in terms of the equate System. The Board agreed to this directive.

This process took approximately four years to complete. It resulted in the board’s employees being rated on the equate system with ratings between level 4 and level 14. The Minister for Finance signed off on the exercise and the remuneration structures equivalent to the DPSA levels were implemented.

For the appointment of the members of the Western Cape Gambling and Racing Board, he said that potential candidates were interviewed by the legislature and appointed by the responsible Minister. The terms of appointment were set by the responsible Minister and advised to the WCGRB who implements the terms as advised. He emphasised that the WCGRB had no input into the appointments or the terms of appointment

The remuneration package for board chairperson, vice chairperson and board members were outlined for the 2017/18 and 2018/19 financial years. The hourly rate and annual increases were provided to the Committee as well.

For board meetings, he said that in practice, the board had generally a one month notice of meeting except when an urgent matter needs resolution. An agenda for the meeting must be approved. Quorum of five members must be present. Binding resolution must be taken; and deliberations and resolution must be recorded and minuted. Matters deliberated at board meetings include approval of licence applications, punter hearings and oversight of WCGRB operational matters.

The actual committee meetings of the Board and actual remuneration packages of current board members were presented to the Committee.

Discussion

Mr America asked about hourly rate for members who travelled from outside the province.

Ms Baartman asked How long did it take to appoint members of the board.

The official said that members of the board were appointed by the Cabinet. The board had no part in the appointment of board members. Members of the Committee who resided in the Western Cape were remunerated less for eight hours but members from Gauteng were paid for eight hours for their time for travel etc. The interview process for the appointment of new members were under way. In 2020, one of the members resigned and the official thus stated that the vacancies still remained open as the board had no power in appointing them.

Ms Maseko asked if the preparation of the meetings were included in the remuneration.

The official said that when members attended a board meeting, they would be remunerated and this included their preparation time and the time that the meeting took. And any additional hours that exceeded eight hours would not be remunerated. The only additional payment that would not be included was the travel cost.

Ms Maseko asked what if a board member made numerous travels for preparation, attending actual meeting, would the times of travel exceed the limit?

The official explained that if a member had to travel from Somerset West to the meeting which would take 30 minutes, and a round trip would take an hour. The preparation and reading thru documents would take 2 hours. The duration of the meeting would be for two hours. He explained that it would take a member 5 hours in total.

Ms Maseko commented that the preparation and agenda time for members might differ. It might take some members 4 hours to prepare and thus the total time would exceed the agreed remuneration.

The official said that such situation could happen but his department looked at each single case to examine the reasonability of the time spent on meetings, preparation, etc.

Ms Maseko said that she did understand the Department’s view, however, her point was from the current issue on incentivised meeting attendance. She thus questioned the validity of excessively long preparation time.

The official said that the daily hour and actual work hours for members with strict instructions from the National Treasury. It was also added that these members were professional members and they were very difficult to find due to the remuneration which was below the market value.

The meeting was adjourned.