WC Department of Economic Development and Tourism & entities 2018/19 Annual Report; with Provincial Minister

Public Accounts (SCOPA) (WCPP)

18 October 2019
Chairperson: Ms N Nkondlo (ANC)
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Meeting Summary

The Committee was briefed by Wesgro, the Department of Economic Development and the Saldanha Bay Industrial Development Zone on their respective 2018/19 Annual Reports. The Western Cape Provincial Minister of Finance and Economic Opportunities commended the Department and its entities on attaining clean audits and for their hard work throughout the year. The reports were not presented as Members had read them so Members proceeded straight into discussions on the Governance and Financial Information sections of the respective Annual Reports.

Members heard that Wesgro’s investment in Cape Town Film Studios was intended to expand and invest in the infrastructure of the studios with prime stakeholders in the film studios. The film studio has incurred an Impairment loss on investment which was determined by an independent evaluation company and it was based on the value of the shares. Members asked how the remuneration for board members was determined; for clarity regarding the Impairment loss of investment in Cape Town Film Studios; why the insurance as an operating expense was significantly less than last year; and to elaborate upon why the 50% bonus error and flight tickets not being utilised were documented as fruitless and wasteful expenditure. Members asked that progress be stipulated in the next annual report. Members were disappointed to hear that the liabilities of the Cape Town Film Studios were very high. The fruitless and wasteful expenditure was due to a recruitment error and flights that were double booked by a flight booker. In both cases Wesgro has tried to retrieve the money lost and where they could not, disciplinary action was taken.

The Saldanha Bay Industrial Development Zone stated that they found the National Treasury’s legislation on Departments obtaining BEE certification confusing and that it came at an enormous cost. Members asked how much does the additional expenditure for certification amounted to; does the Department and entities risk not complying with the National Treasury and potentially receiving an unclean audit if the funds were relocated to much needed service delivery’; and has the process been started to induct new auditors.

Members stated that compliance with the National Treasury should be prioritised and the focus should not only be on clean and unclean audits. The skills development mandate is dependent on grant allocation and is thus an unfunded mandate - the Committee warned that this was risky and concerning.

The Committee heard that the Department of Economic Development and Tourism reported an Impairment investment in the Cape Peninsula Convention Centre, which while it was not an investment made into the business, it was a method of securing business tourism in the Western Cape the value for which was thus not the value of the Centre but rather on the tourism it would bring later.

The Committee stated that the Department needs to acknowledge the risk to local economics as cases that arose would always be referred to the Committee especially now that the President has launched the District Delivery Model. Members asked about the outcomes of new cases related to fraud and corruption;  if the amount of R107 billion was an estimation of the amount that should have been spent to expand the Cape Peninsula National Convention Centre; could the Department provide a breakdown of this over the years and not only over one year; what was the reason for the 30%-point deviation of the consultant's salary; clarify what machinery and equipment it was that caused a deviation of 30% for  the Head of Department ;  what is the monetary value of the shares; how much has government spent to acquire those shares; does government plan to acquire more shares; and, given that an amount of R200 000 was owed to employees, why was that and how could it be recovered.

Meeting report

Opening remarks by the Minister

Mr David Maynier, Western Cape Provincial Minister of Finance and Economic Opportunities, stated that it is a pleasure to introduce the reports to Parliament. He acknowledges and attributes the success of the Department and its entities to the hard work they put in throughout the year.

Briefing on Wesgro

Mr Tim Harris, Chief Executive Officer, said that 2019 has been a difficult year for Wesgro for external factors such as the draught. It was a challenging audit but he gives credit to the relevant parties for their contributions towards Wesgro’s clean audit.

Discussion

Ms D Baartman (DA) asked if there were valid apologies from the board and if they were accepted. She also asked how the remuneration for board members was determined.

Mr D Mitchell (DA) stated that the board is determined by the Wesgro Act and consisted of two boards of directors that are nominated from local government. It was being looked into how these government representatives were remunerated, is there feedback regarding this? He requested that the progress be stipulated in the next annual report.

Mr D America (DA) highlighted that the representation of local government in the Wesgro Board comes from the same geographical area and does not include areas such as the Winelands, Garden Route and the Karoo. He asked for clarity regarding the Impairment loss of investment in Cape Town Film Studios.

Ms Baartman asked why the insurance as an operating expense was significantly less than last year. Furthermore, a 50% bonus error and flight tickets not being utilised are documented as fruitless and wasteful expenditure on page 129 in the Annual Report, she asked Wesgro to elaborate on this.

Responses

Mr Harris stated that all apologies were noted and accepted. He clarified that Local government representatives are remunerated for their travel costs only and do not have the same remuneration structure as other board members.

Ms Kholeka Zama, Chief Executive Officer, stated that board members’ remuneration is determined by the National Treasury.

Mr Harris stated that the Wesgro Act provides for two members to be nominated by South African Oil and Gas Alliance (SAOGA), one from the district municipalities and one from local municipalities. The previous entity had a review and request for SAOGA to nominate a member that can represent a non-metro view and could include a businessperson from outside of Cape Town. The current local government representatives on the board are from different districts.

The investment in Cape Town Film Studios was intended to expand and invest in the infrastructure of the studios. This mandate was established by the previous administration as a way of creating an incentive for the ongoing investment in the film studios. The investment target is around R427 million, up until the target is reached, Wesgro retains the equity it holds in the studios. The investment is aligned to the interests of the Western Cape Government through Wesgro with prime stakeholders in the film studios.

Ms Zama stated that Impairment loss on investment was determined by an independent evaluation company and is based on the value of the shares. When they reviewed it the liabilities of the Cape Town Film Studios was very high and that is why the investment is worth nil. The current investment target is R300 million and Wesgro is committed to an investment plan valid for the next two years, thus the question becomes will the target of R427 million be reached in the two years and if not, does Wesgro continue to invest further. This is what is being discussed at present.

The bonus error under fruitless and wasteful expenditure was a recruitment error with Pay as You Earn where an employee was overpaid. Wesgro tried to recover the funds from the employee however, the employee stated that she was unaware of this error and had used the funds. It was then agreed by the board that the employee would refund 50% of the payment. Four local flights were double booked by a flight booker who has since received a written warning. The cost of these redundant flights is what is listed under fruitless and wasteful expenditure. The reason the insurance is substantially cheaper needs to be looked into and a response will be given to the Committee.

Wesgro was commended for its clean audit.

Briefing on Saldanha Bay Industrial Development Zone

Discussion

Ms Baartman asked about board members that were absent from the meeting? She stated that the audit and probe of the Auditor General seems to have a disclosure issue and not a Departmental issue. The certificate that needs to be submitted to the Department of Trade and Industry (DTI) is another expenditure that needs to be paid by the Department and needs to be certified as an additional cost. ‘What is Saldanha Bay Industrial and Development Zone (IDZ) view regarding this’? ‘How much does the additional expenditure for certification amount to’?

Mr America stated that costs of obtaining a BEE certification are enormous. ‘Does the Department and entities risk not complying with the National Treasury and potentially receiving an unclean audit with the intention of relocating those funds to much needed service delivery’?

Mr M Xego (EFF) expressed that compliance with the National Treasury should be prioritised and the focus should not only be on clean and unclean audits.

The Chairperson stated that under the audit functions, the contract with the current Auditors is ended in a couple of days. ‘Has the process been started to induct new auditors’?

Mr Mitchell asked for clarity regarding “other salary payable” on page 108 of the Annual Report as well as clarity on “other allowances” on page 114, “Directors remuneration” on page 114, costs documented as “others” for the CFO and the CEO and the traveling costs for the short skills project on page 115? Furthermore, the auditor's remuneration is almost double, what is the reason for this?

Mr America stated that the communities which the Saldahna Bay IDZ operates in were in dire need of economic upliftment. However, there is a substantial amount of underspent grant allocations for training and skill development, is this a result of blockages with Sector Education and Training Authorities (SETAs)’? According to page 113 of the Annual Report, a study on Development and Disability was performed. ‘Is the study completed and may the Committee have a copy’?

Responses

Mr Sollie Martinez, Company Secretary, stated that apologies have been recorded for board members that are not present at the meeting and it has been documented in the minutes of the meeting. 

Mr Dale Paulse, Secretary, stated that there are two disclosure requirements, the annual report and the electronic systems that will be commissioned but there is just information regarding the annual BEE certificate that needs to be completed.  Saldanha Bay IDZ is in the process of finalising their BEE certificate and they currently have a draft. The cost estimate for accreditation was approximately R40 000 which is a substantial amount and this was a concern. The Provincial government relayed this concern to the National Treasury in a position paper stating that the Legislation disseminated to the Departments by Treasury was confusing and that it would be a costly exercise. 

Ms Baartman followed up this response by asking what Legislative restrictions on the Act existed.

Mr Doug Southgate, Chief Operating Officer, said that the restrictions were problematic as the Act made it required by departments to obtain certification which is an enormous cost of over R70 000. This cost would be greater for departments such as Education and Health. Furthermore, departments are owned by South Africa as it is a government department, but it requires certification.  The Provincial Treasury has taken this up with the National Treasury however; the Department is in the process of obtaining verification. He stated that the certification is a Statutory Act of South Africa, and thus willfully not complying would be an offense for which one can be prosecuted. The Saldanha Bay IDZ seeks to comply as far as possible.

Mr Paulse stated that the tender for new auditors closed on October 18, 2019 at 11:00. They will adjudicate this soon. The current contract does allow for a three-month extension period for the handover process.

Mr Herman Boneschans, Chief Financial Officer, stated that there was an increase in group life benefits due to timing differences made which was different to other years.

Ms Kaashifah Beukes, Chief Executive Officer, stated that there have been time management issues regarding the SETA and the turnaround time.  Skills development is an unfunded mandate. In the past two years, the SETAs have been performing a clause by clause discussion with their service providers for them to understand what is required of them by the SETAs.

The Innovation study has been completed and will be shared with the Committee with an invitation extended to the Committee to visit the area where the study was performed. A breakdown of the Directors remuneration can be found on page 120 of the Annual Report. Where the financials says “other allowances” this was a cellphone allowance across the company as well as for the COO and the CEO.  Travel costs for the short skills training programme was to transport community members to the site of learning.

The Chairperson stated that when grants are available, they must be utilised. She expressed concern that skills development and training remained unfunded. It can be realised through grant funding however; it is risky and speaks ill of the existing funding model.

Department of Economic Development and Tourism

Discussion

Ms Baartman asked if there were any valid apologies.

Mr America referenced page 146 of the Annual Report and asked about the outcomes of new cases related to fraud and corruption?  He asked if the amount of R107 billion was an estimation of the amount that should of been spent to expand the Cape Peninsula National Convention Centre.

The Chairperson stated that the Department needs to acknowledge the risk to local economics as cases that will arise will always be referred to the Committee especially now that the President has launched the District Delivery Model. Municipalities are struggling with increasing populations and the substance of service delivery is dependent on people tapping into their local economic opportunities. So, this needs to be a greater focus.

Ms Baartman stated that on page 250 of the Annual Report, payment of investments was part of the investment fee. ‘Can the Department provide a breakdown of this over the years and not only over one year’? ‘On page 102, there was a 30%-point deviation, what is the reason for deviation of the consultant's salary’? ‘On page 108, there is a deviation of 30% for machinery and equipment for the Head of Department, please clarify what equipment this was’? ‘On page 199, 20% of the Departmental agencies and accounts are referred to; does it refer to money coming in or money that has not been spent’?

Mr Xego stated that on page 250, there is a 20.24% increase in shares. ‘What is the monetary value of the shares’? ‘How much has Government spent to acquire those shares’? ‘Does it plan to acquire more shares’? ‘On page 254, an amount of R200 000 is owed to employees, why is that and how can it be recovered’?

Responses

Mr Solly Fourie, Head of Department, stated that all apologies were recorded and accepted. There were two reported cases of fraud and corruption. One case was closed and the other finalised as there was no basis for fraudulent investigation. However, it was referred to the internal controlling unit. A report on this has been issued.

The Impairment investment in Convention Centre was not made by the Western Cape Government into a business but rather, it was a method of securing business tourism in the Western Cape. The value is thus not the value of the centre but rather on the tourism it will bring. The Impairment says the cash invested by the City of Cape Town and the Province in The Cape Town International Convention Centre Company (Convenco) is valued and what it has on company and operation is less than the amount of money invested. The reason it is less is because the intended profitability has not been realised, however, it will in the future.

Ms Mymoena Abrahams, Chief Financial Officer, stated that she was not sure of the reductions but there has been an increase in consultants from 114 to over 400 consultants. The 74.3% deviation of expenditure refers to the budget versus actual differences.  The Department purchased new printers to reduce office costs.  The leave credits are the value of days which employees are entitled to and this is calculated across different leave categories.

Mr Xego followed this up by asking if leave days owed to the employee is recoverable or were they a loss. Ms Abrahams clarified that it is a liability and should any employee leave the company, the Department would have to pay the employee. 

The Meeting was adjourned

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