Department of Small Business Development 2018/19 Annual report

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Meeting Summary

Annual Reports 2018/2019

The Select Committee heard that the Department of Small Business Development (DSBD) received an unqualified audit opinion without material misstatements in its annual financial statements. However, there was an increase in irregular expenditure due to procurement maladministration. The Committee emphasised that the increase was unacceptable.

Of 34 annual targets, the DSBD achieved 21 (62%) of these. The Cooperative Incentive Scheme unit within the department had not achieved much of its targets. The Committee asked if consequence management was implemented. The Committee asked if officials received performance bonuses as the unit had not achieved its targets. The Committee heard that DSBD aligned its performance assessment of employees, especially senior managers, with the audit findings to avoid granting performance bonuses to officials working in underperforming units.

DSBD reported that it was able to deal with red tape reduction through the Red Tape Reduction Programme implemented in 30 municipalities. The Committee asked what the elements of this programme were.

Members questioned DSBD on its mandate to increase job creation as it appeared it was failing to achieve this mandate. The Committee heard that many businesses are on a very low scale and are contributing less to job creation due to the amount of support they require. Only a few businesses were contributing to the DSBD’s mandate to create job creation.

Meeting report

Mr Lindokuhle Mkhumane, Acting Director General of the DSBD, informed the Committee that DSBD’s organizational structure was still under review. Of 34 annual targets, the DSBD achieved 21 (62%) of these. He emphasised that what is not 100% is considered as not achieved. He spoke about DSBD achievements including an unqualified audit opinion from the Auditor General for the past three years and paying invoices on time.

Under sector policy and research, Mr Mkhumane said that the DSBD was able to deal with red tape reduction through the Red Tape Reduction Programme it implemented in 30 municipalities. In addition, DSBD initiated a process to develop the National Accord to drive the small business mandate by consulting with public and private sector. One of the key outcomes of the consultations was a proposal for South Africa to set aside a special day to buy from small businesses.

On Entrepreneurship Development and Enterprise Development, Mr Mkhumane said that the DSBD supported a total of 1922 informal businesses through the Informal Micro Enterprise Development Programme.

On areas of underperformance, Mr Mkhumane said that the two ICT system projects defined in the DSBD ICT plan were discontinued and deferred to 2019/20 for implementation. In addition, the Department’s compliance with MPAT standards was not yet determined. DSBD had conducted an annual assessment on the development impact of the co-operatives funded. However, DSBD could not implement the remedial actions during 2018/19.

On overall financial performance, DSBD had a budget of R1.488 billion and spent R1.419. The DSBD did not spend R68.9 million. Expenditure decreased by 3.5% compared to 2017/18. This was due to a decrease in expenditure in the Administration, Sector Policy and Research, Integrated Cooperative Development and Enterprise Development and Entrepreneurship programmes. He pointed out that much of the budget goes to transfers and subsidies.

DSBD received an unqualified audit opinion without material misstatements on the annual financial statements. However, the Department was concerned about fraud and irregular expenditure. Mr Mkhumane said DSBD was taking measures to address this.

Mr J Londt (DA) asked if consequence management was taken of officials who failed to achieve their targets. He asked if the officials responsible for the Cooperative Incentive Scheme received their bonuses and if they were still in office after failing to achieve their targets. He asked what the three worst performing departments were for paying small businesses within 30 days and how they applied consequence management. One of the main reasons for DSBD is to create employment. SMEs currently contribute 66% of total jobs in South Africa yet the target is 90%. He asked if this wide margin and the increasing employment rate indicated failure by DSBD to achieve one of its main objectives and beckoned that it formulate a different strategy to tackle unemployment. He asked how DSBD was coordinating the Small Business units across different government entities to ensure synchronisation takes place and there is maximum support for SMEs. He was fond of the idea of having a day set aside to buy from small businesses. However, he was concerned this was only one day and not a full week. He asked if DSBD and the Ministry were leading by example by buying from small businesses. He asked for a timeline on the finalisation of the small business ombudsman; what it was doing to reduce red tape and if it exercised oversight on the money transferred to its entities.

Ms H Boshoff (DA) asked what support DSBD offered to the 122 informal business beneficiaries of its Informal Micro Enterprises Development Programme (IMEDP) and what were the outcomes of the support offered. In the same vein, she asked if municipalities were involved in offering this support. She asked the delegation to account for the money budgeted for ICT that was subsequently deferred. The increase in irregular expenditure was concerning and unacceptable and she asked what consequence management had been taken for this.

Mr M Dangor (ANC) said a performance review does not entail merely check listing what had been achieved. He asked what the Auditor-General's performance review meant for DSBD going forward. He asked if small businesses were limited to companies involved in manufacturing or included informal traders.

Mr M Mmoiemang (ANC) asked what DSBD would do to achieve the objectives set at the establishment of the department in 2014. This was important to determine if DSBD has a solid foundation to achieve its targets in 2019/20. He asked if DSBD’s failure to achieve targets in sector policy research had to do with key unfilled vacancies. He asked about the MPAT standards that DSBD is required to comply with and which have not yet been determined. Was DSBD’s failure to develop draft standards for professionalisation of business advisory services due to unfilled vacancies?

The Chairperson asked for the elements of the red tape reduction programme. The Committee deals with other departments involved in small businesses development, such as the Department of Rural Development and Land Reform. He asked if DSBD played a role in coordinating the small business development efforts of all the relevant departments. He requested that the Committee get a detailed update on the proposed amendments to the National Small Business Act. What was DSBD doing to ensure that small businesses benefit from the African Continental Free Trade Area? He asked how many co-operatives are in the country since DSBD spent 50% of its budget in this area.

On the filling of key vacancies, the Acting Director General replied that this was handled at a political level and would be tackled by the Minister.

On the steps taken to deal with non-achievement of targets, Mr Mkhumane replied DSBD aligned the performance assessment of employees, especially senior managers, with the audit findings. This corrects the granting of performance bonuses to employees working in units that have performed unsatisfactorily such as the Co-operative Incentive Scheme unit.

On remedial actions not being implemented, Mr Mkhumane explained that a key challenge for CIS was to maintain immediate impact oversight on newly funded cooperatives. Non-cooperation by municipalities resulted in cooperatives being impacted negatively. DSBD now engages with the municipalities before funding co-operatives.

On the achievement of its mandate to create employment, Mr Mkhumane replied DSBD was aware of this. However, this mandate did not rest only with DSBD but other sectors too. The government spends R15 billion on small business intervention but DSBD only gets R1 billion which showed a lack of proper co-ordination between government and DSBD, as well as other government departments. DSBD has started working with other departments such as the Department of Agriculture to ensure co-ordination. DSBD was developing a small business funding policy which was applicable to all departments. This has to do with the fact that when different departments offer different types of funding through different means such as loans and grants, this creates a lack of co-ordination.

Mr Mkhumane replied the worst performing paying departments are the Department of Water and Sanitation, Department of Correctional Services and Department of Defence which pay after 30 days.

In reply to Mr Mmoiemang asking what it was doing about this, Mr Mkhumane said that DSBD proposed fining departments but this was not final.

The Chairperson commented that the department responsible for coming up with the 30 day regulation should also be responsible for monitoring.

Mr Mkhumane replied DSBD is looking at the initiative of buying from small business for one day as a start and will develop this over time. There will be an entrepreneurship month. DSBD is trying to lead by example, by buying from small businesses. This applies to DSBD events. It was also engaging National Treasury on the reduction of red tape in procurement to make it easier to buy from small businesses.

Mr Mkhumane replied about the small business ombudsman that the Amendment Bill is with Office of the State Law Advisor which is assisting with its drafting. DSBD is targeting to deliver the Bill to Parliament by March next year.

On the reduction of red tape, Mr Mkhumane replied that DSBD was in the process of formulating a portal that will assist small businesses to access support from Small Enterprise Development Agency (SEDA) and the Small Enterprise Finance Agency (SEFA). DSBD had developed a common template that harmonises the business plan requirements from SEDA and SEFA.

Mr Mkhumane replied that the Department has two structures in place for oversight on the funds transferred to its entities. One is responsible for monitoring governance within SEDA and SEFA. The second structure requires the two entities to provide quarterly expenditure reports. DSBD was providing strong guidance on what the entities should do.

On business support, Mr Mkhumane replied DSBD provides training to small businesses before provisioning them with equipment and capital. It is working with business chambers to monitor small business beneficiaries.

Mr Mkhumane replied that the unspent money for the two ICT systems that were deferred was paid back to National Treasury. He explained about the increased irregular expenditure. It was due to procurement maladministration in the Office of the Chief State Law Advisor which was responsible for procuring legal services for the Department. DSBD had not been actively involved in that.

On job creation, Mr Mkhumane replied that there are many businesses that are on a very low scale and are contributing less to job creation due to the amount of support they require. Some businesses need a little assistance and are then able to assist DSBD in its job creation mandate. DSBD is also facing financial constraints to support businesses. However, the Department was engaging commercial banks to partner in supporting small business.

Mr Mkhumane acknowledged that some performance failures can be attributed to failure by DSBD to fill key positions. During 2018/19, there was a lot of uncertainty how the government would be structured after the elections so all recruitment processes were stopped. This resulted in instability in the department.

He explained that DSBD is in the process of developing the standards of professionalistion which we not completed in 2018/19. The Department was advised by stakeholders not to rush the process but first develop a white paper.

Mr Mkhumane replied that compliance with Management Performance Assessment Tool (MPAT) standards applies to all government departments and this is determined by the Department of Planning, Monitoring and Evaluation (DPME). It looks at all management areas including governance and internal controls.

On the elements of red tape, Mr Mkhumane replied DSBD is focusing on municipalities. The focus is on how long the municipalities take to process licences and to reduce red tape causing delays.

Mr Mkhumane replied that the Department of Trade and Industry (DTI) handled the African Continental Free Trade Area and the role of small business development in trade.

The Chairperson commented on the presentation by the Acting Director General and said he wished the Committee had the powers to employ him permanently.

Meeting adjourned.

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