The Western Cape Department of Cultural Affairs and Sport said that all museums, and assets housed inside them, were not insured, and any loss or damage was managed in terms of state property policy. This was because museums held cultural and heritage assets that were unique, irreplaceable and priceless, so no financial valuation could replace them if they were damaged or stolen. Regarding the impact on the amortisation and depreciation of assets, all moveable assets that qualified for auditing as assets had to be measured at their cost, which was its cash price equivalent -- the actual amount paid for such an asset.
The Department of Economic Development and Tourism briefed the Committee on its investments and impairment of investments for the 2018/19 financial year. It indicated that it had just finished its financial statements for 2019/2020, and its impairment had significantly reversed and had decreased by R107 million to an impairment of only 592 000. This impairment, involving the Cape Town International Convention Centre (CTICC), was the result of a recoverable amount which was less than the carrying value. Because the Covid-19 pandemic had brought all tourism and business transactions to a halt, the Department was expecting a significant loss of revenue reflected in the 2021 financial statements of both the CTICC and the Department.
The Committee also discussed the desirability of holding a face-to-face meeting with community representatives to resolve the Doornbach settlement issue, although it seemed as if it would have to be a “virtual” meeting because the Parliamentary Chambers would not be made available. Members argued that this would set a bad example, as the community was already saying the politicians wanted them to go back to work, but the politicians themselves were shying away from possible exposure to the Covid-19 virus.
Briefing by Western Cape Department of Cultural Affairs and Sport (DCAS)
Ms B Rutgers, CFO, Western Cape DCAS, delivered the presentation
Heritage assets and insurance issues
- The outcomes on the investigations of capital assets (minor and major) identified as lost during the 2018-19 asset verification process;
- The self-insurance model for heritage assets;
- The preservation model for heritage assets and associated costs; and
- The impact on amortisation and depreciation of assets.
112 492 items valued at R7.854 million were under the investigation’s verification process on minor assets: library materials in public libraries. Confirmed item losses had been submitted to the accounting officer for write-off after the 12-month search period. Major and minor capital assets totaling 412, and valued at R1.125 million, were still under investigation.
Regarding the self insurance model for Department capital assets, the Department’s assets were not insured and any losses /damage was managed in terms of state property policy.
In situations where it was found that officials were negligent, they were held liable for the cost of the damage or loss, and in the case of municipalities, they were required to safeguard library books.
On the preservation model for heritage assets and associated costs, considering that museums hold cultural/heritage assets that are unique, irreplaceable, and priceless, these heritage assets were not insured. This was in consideration that the intrinsic curational value was high, and no financial valuation could replace them. In line with museological practices, it was encouraged to invest in security and preventative conservation of heritage assets, such as securing the venue where these cultural/heritage items are kept. As such, the museum project for securing such venues would spend approximately R2.705 million this financial year.
It was critical that heritage assets were properly conserved and secured for future generations. Such conservation required technical and scientific application of certain chemicals, manipulation of temperatures, and many other processes. Such processes require regular preventative conservation to avoid the deterioration of quality of heritage assets/museum artifacts, whose costs were determined by the extent to which preventative conservations were applied.
On the impact on amortisation and the depreciation of assets, all moveable assets that qualified for auditing as assets should be measured at their cost, which was its cash price equivalent -- the actual amount paid for such an asset.
Ms D Baartman (DA) asked what other moveable assets were determined by Treasury, considering the insurance premium may not exceed R250 000 a year. With items that could not be replaced, how did the government compensate for the money spent on security and maintenance, considering that the money used may not exceed R250 000?
Ms Rutgers said that moveable assets included all other moveable assets that were not included on the list of vehicles, such as tables, chairs, and all other capital assets that were used for the rendering of services. To insure movable assets, they had to be placed by the relevant treasury to determine whether they could be insured or not. As indicated, Departments were not insuring assets such as chairs, desks, etc.
Departments may have strategic assets that were of great value, but as of now, they were not insured and this had been confirmed by Mr Abdul Aziz Hardien, Accountant-General for the Western Cape.
Ms M Maseko (DA) asked if a cost was incurred in the investigation of assets that were not found. Did they have a record to know which assets were missing? What were the costs that were attached to those assets that were missing?
Mr Brent Walters, Head of Department: DCAS, said that the cost of conducting such investigations was absorbed in the internal costs. This was because the Department had internal members who were well able to do the investigation and make a recommendation to the accounting officer (AO). The other thing was that in situations where the missing asset was known, such as a laptop, its purchase value was known.
Ms Rutgers added to this by saying that all the assets were recorded in the asset register, and that formed the basis for asset verification. Investigators used such registers to identify an asset as recorded on the register. In situations where an asset was not found, it was recorded for further investigation by the internal control unit
Ms Maseko asked the Department to give examples of what happened when assets could not be located.
Ms Rutgers said that this usually happened with moveable assets. For example, the asset could be registered to be located in a particular place and during the investigation, the asset may not be in this designated place. Most of the time, through investigation, such assets were found. The other thing was that officials were responsible for the assets. For example, in a situation where an official was working outside their office and their car was broken into, and an asset such as a laptop belonging to the Department was stolen, it was the responsibility of the official to report such an incident by following proper channels through the police for an affidavit. Only in such situations was an asset written off from the list of moveable assets.
Ms Baartman asked why moveable assets such as tables, chairs, or books from the library, were not insured and yet they could be replaced by buying them back. This was in consideration that 20-30% of books were lost or stolen from the libraries every year.
Ms Rutgers said that the Department bought books and distributed them to libraries around the province. Safeguarding these books was the responsibility of the libraries, and not the Department.
Mr Walters said that one of the things about insurance was that they look potentially at the overall level of assets they have, and then consider what their risks are. This makes them decide not to ensure every asset they have, otherwise the cost would be astronomical. Apart from this, there could be other reasons that the people who work in the Treasury would know. Basically, however, the state was the only insurer, and it was so huge such that insuring every asset would be very expensive. Decisions were made to insure only assets that were of a higher value, with a potentially greater risk.
Ms Cecilia Sani, Director: Library Services, said that the library losses were below 2% annually. The cost of insuring the books was extremely expensive, so what municipalities did was to insure them only for natural disasters, such as the burning down of the library building.
The Chairperson said that the presentation and discussions were generally referring to the insurance at museums.
Ms Rutgers confirmed that all the assets that were housed there were not insured.
Mr Mxolisi Dlamuka, Director: Museums, Heritage, and Geographical Names Services, said that museum artifacts were not insured, but certain museums did insure the buildings that housed those artifacts, but not artifacts themselves.
Ms Baartman asked what the comparison was between the cost of insurance versus investment security, since they had been told that it was much cheaper to invest in the security of the museums rather than the artifacts, which would cost a lot. What would be the cost of securing the artifacts?
Dr Dlamuka said that the purpose of insuring the artifacts was that when they were stolen or damaged, they should be replaced. With a museum artifact, even if one could insure it with a lot of money, once it was lost, it was irreplaceable. If for example, it was a collection of bees that had been collected in 1910 or 1950, if they were lost, they were lost. One could not recover them. Therefore, in terms of museological practices, they did not even go to the point of insuring the cost of the artifacts. Even if it was cheap or comparable, the bottom line was that it was lost and could not be replaced, so there was no monetary value that could be attached to them.
Ms Baartman clarified that her question was about some moveable assets, such as books from the library. What was the exorbitant cost in comparison to how much was spent on security? As a Committee, they could make comparisons and decide on a solution of whether to secure the building or the assets.
Mr Walters said that even if they were to insure the assets, this would not remove the cost of security. This was because the insurance company would still insist that they insure the buildings, just as one did with one’s home.
Briefing by Western Cape Department of Economic Development and Tourism
Investments and impairment of investments
Ms Mymoena Abrahams, Chief Financial Officer (CFO): Department of Economic Development and Tourism (DEDAT), made a presentation on the Department’s investments and impairment of investments for the 2018/19 financial year.
She started by giving background information on the issue had arisen. The Cape Town International Convention Centre (CTICC) had been established as a municipal public entity in 1999 under the Convenco Act. The original shareholders were the City of Cape Town (CoCT), the Western Cape Government (WCG) and Sun West International. The CTICC was officially opened in June 2003. In 2002, a study had been commissioned by Professor Barry Standish, and was aimed at looking at the economic impact of the CITCC.
What the macroeconomic indicators showed was that there would be a significant increase in jobs, the gross domestic product (GDP), and increased tourism. This study also indicated an impact of contributing over R36.3 billion to the national GDP, and R32 billion to the Western Cape economy, with over 16 million visitor days and almost 7 000 events. Two new studies were commissioned in 2010 and 2012 to look at the impact of the CTICC expansion. It was found out that the impact would again increase the economic rationale if further investments were made. As a result of this, the Western Cape Government had increased its holding from 14 200 shares to 60 425 shares. This led to an investment growth from R142 million to R304 million.
Ms Abrahams said it was important to know how the impairment came about. The public sector was obliged to comply with the modified cash standard across the sector. An impairment was a loss in the future economic benefits or service potential of an asset. According to the CTICC accounting standard, an impairment was a loss in the future economic benefits or service potential of an asset, over and above depreciation considerations. Conditions for recognition included:
- When the recoverable amount was less than the carrying value;
- Negative future cash flows;
- Current economic conditions were unfavorable.
The CTICC Impairment had come about because, during the 2006 financial year, the convention centre had undergone its first evaluation for property, plant, and equipment. PricewaterhouseCoopers (PWC) had been consulted on the valuation of the impairment. As there was no active market for the asset as well as the building, the value-in-use method was the only option for the valuation. At that point, the company's current occupancy rate was at 42.18%, whilst an optimal occupancy rate needed to be at 60%. The value-in-use method was applied to determine if the asset should be impaired. This revaluation showed the recoverable amount to be R78 million for the building, which was less than the carrying result in an impairment charge of R308 million.
During the 2006/7 year-end audit, the Auditor General (AG) had noted the CTICC Impairment and requested the DEDAT to decrease this in the annual financial statements. As the modified cash standard was silent on the disclosure requirements, the Department had approached the Provincial Treasury who in-turn had approached the National Treasury (NT) for guidance. The NT had provided additional guidelines. The advice was that the Western Cape Government should look at its percentage shareholding and calculate the impairment as part of its bigger part of the CTICC impairment. Therefore, the first impairment was at R77 million. This equated to 25% of the shareholding.
Between 2006/07 and 2018/19, they had followed a similar exercise, and the CTICC Recognition of Impairment was that the carrying value for CTICC 1 & 2 was at R953.21 million at the date of impairment testing. The recoverable amount was calculated on the value in use of both the CTICC 1 & 2, amounting to R490.617 million. Significant delays in the construction of CTICC 2 had contributed to a reduction in expected cash flows. Therefore, the company had recognised an impairment loss of R462.599 million.
The Department had just completed its financial statements (FS) for 2019/20, and its impairment had been significantly reversed and had decreased by R107 million to only a 592 000 impairment. This impairment was the result of a recoverable amount which was less than the carrying value.
She said that given Covid-19 and the fact that all tourism had come to a stop, a significant loss of revenue for the 2021 financial year could be expected for both the CTICC’s and the Department’s financial statements.
Ms Baartman said she had no question, because everything had been explained clearly.
Mr D America (DA) echoed this comment, and said there was clarity on the impairment and how they had arrived at it. It was regrettable that due to Covid 19, there was going to be a significant impairment in the next balance sheet. As one did not know the impact on the impairment as the result of Covid -19, what would be an acceptable occupancy rate for the Committee to have the least impairment reflected in the balance sheet?
Mr Solly Fourie: Head of Department, DEDAT, said they were uncertain as to when the business tourism market was going to be able to start functioning. The initial projections were showing that this could be anything from February 2021 to July 2021.
Ms Abrahams said that within the CTICC’s business plan, they look at an optimal occupancy rate of at least 60%. However, this depended on what would happen in the post-Covid-19 period, and how quickly the tourism sector was going to recover.
Mr R Mackenzie (DA) asked what the Department’s advice would be to the current tour operator small businesses. When level two of the lockdown was reached, would there be space for people to start doing and building local tourism without waiting for January/ February next year?
Mr Fourie said that the Department was working hard on a submission which they hope to be completed by 26 May, in which they hoped to request the Departments of Trade and Industries and the National Department of Tourism and Cooperative Governance and Traditional Affairs (COGTA) to reduce the alert level, and allow tourism to come back on a domestic basis from level two to level three. The Department believed that this was critical for the economy of the Western Cape
Responding to Mr Mackenzie’s question, he said that the revival of tourism was going to be evolutionary. They would start with metro tourism, freeing up coffee shops and other related businesses. Then they would look at freeing week-end tourism, allowing for at least an hour or two driving outside of Cape Town to other places such as Ceres. This would eventually stimulate tourism in other non-metro towns. However, this was going to be an enormously difficult task.
The Department, together with the tourism Industry, had developed a set of guidelines for the prevention and management of the spread of the Covid-19 virus within their particular environments. This was going to be a very fluid situation which they would have to monitor for three months as they slowly look into coming back into some form of domestic tourism. However, this would not be enough to ignite the fortunes of the CTICC in the short to medium term.
Mr Mackenzie asked how the Department would encourage the small businesses that were operating from the pavements of their houses, selling foodstuffs such as fruit and vegetables, koeksusters, etc, to stimulate the economy and encourage others to do so.
Mr Fourie said they were promoting the expansion of the formal and informal economies very aggressively. The Department believed that this was going to be one of the vehicles they were going to use during the economic recovery phase, where people were going to generate income from such small businesses..
He said that between the start of the lockdown and 19 May, the municipality had issued 12 300 informal trading permits to enable businesses to trade within the alert levels. The only challenge was whether they were going to be able to exercise social distancing and the five golden rules of hygiene, to stop the spreading of the Covid-19 virus. The Department had also developed guidelines to help informal traders prevent the spread of the virus. This was being launched through what the Western Cape government called ‘the hot spots they are seeking to manage,” and this was also applicable in all other areas.
Adoption of minutes
The Committee went through the minutes of 8 May.
Ms Baartmam referred to the ‘Matters Arising’ section on the issue about the Committee inviting the Housing Development Agency (HDA) for a meeting, and asked if the Committee had considered inviting the entire Department that oversees the HDA, considering that this agency was an entity of the national government.
The Chairperson said that he did not have a problem with extending the invitation to the Department as well.
With Ms Baartman proposing and Ms Maseko seconding, the Committee adopted the minutes.
Solidarity Fund and food parcels
The Chairman said that at their last meeting, there had been a request made regarding expenditure, especially with regard to the Solidarity Fund. He asked the Procedural Officer about progress on that request.
Mr Dustin Davids, Procedural Officer, said that letters would go out soon after the meeting. He was waiting for the minutes to be approved for the office to attach the minutes to the letters that would be sent out. This was because most of the time, the Department would ask for the minutes of the meeting from which such requests were made. The office would also do the same with future meetings, should the Committee request that as well.
The Chairperson said that there were two specific requests that the Committee made -- the expenditure on the Solidarity Fund, and the request that the Committee be provided with the funding that was allocated to the NGOs for the provision of food parcels to vulnerable communities during the Covid-19 lockdown.
Ms Maseko said that it was good for the Committee to do a follow up on how such funds were being used in different constituencies. This was in consideration that there were a lot of reports in the media claiming that there was a lot of corruption involved in the process of food parcel distribution to vulnerable families, communities and constituencies.
Doornbach settlement issue
The Chairperson informed the Committee about the progress that had been made about the Doornbach settlement issue. It had been agreed at the last meeting that it would be advisable to deal with the matter and finalise it as soon as possible. The Committee had therefore agreed to schedule the meeting for 12 June. The reason for this was that the Committee had decided to have a person to person discussion, instead of a virtual meeting. Another reason was that the Committee needed to inform the Speaker of Parliament about this matter, and inform them about the use of the chambers.
The Committee had not yet received any response from the Speaker, amidst speculations that they were not going to be allowed to have this meeting physically in the Parliamentary Chambers, but rather through the virtual platform. This was to follow the Covid-19 social distancing practice. He assured the Committee that whatever the case, this meeting would take place on 12 June on a virtual platform, should the Speaker not allow them to use the Chambers.
One of the reasons why the Committee wanted to have this meeting in Chambers was that it did not want any disturbances that were associated with virtual platform meetings, such as poor network problems or lack of airtime or data bundles.
Ms Maseko said that she agreed with the Chairperson so that they could deal with the Doornbach issue once and for all. She cautioned the Committee, however, that society was complaining that the politicians wanted people to go back to work and businesses should operate as normal, while the politicians themselves were shying away from doing the same by going back and working physically in the Parliamentary chambers -- the Parliamentarians wanted people in communities to be exposed to the Covid-19 virus while they were shying away from it. They therefore needed to get a written response from the Speaker about this matter, because he was the custodian of the Parliamentary building.
Mr M Xego (ANC) said that he fully agreed with Ms Maseko on this issue, adding that it would be extremely questionable if the Parliamentarians were doing the opposite of what they preached to people about going back to business as usual, without setting an example to the community. They needed to get a written response from the Speaker of Parliament on this matter, and the rest of the collective should be consulted regarding the opening of the Parliament and holding of meetings in a physical manner as before. If anything, the Committee needed to sit together on this virtual platform to hear the response from the Speaker of Parliament concerning the dynamics of opening up of Parliament.
Mr Davids said that from an administrative point of view, the Scopa mandate on how they deal with these matters was via the financial statements, or through a report from the Auditor-General (AG). He reminded the Committee about the meeting that had been scheduled for 24 April and had been postponed. The procedural office had written a letter to the AG to investigate this matter, but they had not received any response from the AG’s office yet. He therefore asked the Chairperson through the Committee if the office could write another follow-up letter to the AG about this matter.
The Chairperson gave the Procedural Officer a go-ahead on this matter.
On another correspondence issue, the Chairperson asked the PO to inform the Committee about the Association of Public Accounts Committees (APAC) correspondence issue.
The PO said that the APAC had quarterly meetings, and the Procedural Office had received correspondence from them calling for a virtual meeting to be held on 28 May from 10 am to 12 noon, when the Auditor General was going to discuss the local government audit outcomes. The AG’s office had requested three representatives from the Standing Committee composed of the Chairperson, a Committee Member, and a staff member.
Mr America said he had initially thought the meeting was scheduled for 26 May, and had indicated his availability, but now that it would be held on 28 May, he would not be available as previously indicated. However, Ms Maseko had indicated her availability for the meeting.
The Chairperson asked the PO about the payment issue.
Mr Davids said that they normally paid an annual subscription fee of R138 000, which was normally paid from the Committee Section Budget. However, that function had been moved to the Office of the Speaker, which was going to pay for all affiliation fees for the different Standing Committees. He said there had been queries to APAC on payments where some legislatures had not been honoring their payments for several years now.
The other issue was that for the past two years, APAC was transitioning from the AG to the Legislative Support Service in the national Parliament under the Speaker’s domain.
Ms Lizette Cloete, Senior Committee Coordinator, said that the Speaker’s Forum was currently dealing with this matter, and would make a decision on this issue.
Mr Davids said the Procedural Office had not captured any resolutions simply because the Department’s delegation had answered all the questions that the Committee had asked them.
Ms Baartman asked whether the invitation to the national Department that oversees the HDA had been captured by the PO.
Mr Davids said that this was in their protocol when they invite all stakeholders, because the HDA fell under national competence. As such, they would have to inform the national Minister and Head of Department in Pretoria, and the national Head of Department as well as the regional HOD on this matter.
He added that two evaluators had been mentioned in the documents, but he did not trust one of them because the Procedural Office could not trace them and they did not respond to any sort of communication, whether it was phone calls or emails.
As for the other evaluator, he said that they had communicated with them and had indicated that they were waiting for instructions from the City of Cape Town to give them a go-ahead to brief the Standing Committee with the valuation documents on 12 June.
The Chairperson concluded that the Committee was going to take one resolution only that they were going to approach the national Department to inform and invite them to the Committee.
The PO said that there was a draft Committee programme that the Committee had to look at and confirm if the dates were acceptable for them.
The Chairperson said that he remembered that the reason the PO had asked the Committee to look at the programme was because of the changes that had been made because of the Covid 19 pandemic. The National Treasury had said that some of the activities that happened during certain times of the year would not take place as usual.
Mr Davids said a circular had been sent from the Provincial Treasury, saying that there was a national directive from the Minister indicating the annual report scheduled for October/November would not happen as usual due to the Covid-19 pandemic. As such, the Departments may be able to submit their reports only in December.
However, the PO still needed to have a virtual meeting with the Accountant General and the provincial Treasury for more details about this. This also meant that if the report submission was in December, then the Committee would meet either in January or February 2021, following the submission. If anything, the PO would give some feedback to the Committee once they had met with the provincial Treasury.
The resolutions that were captured during the previous meeting were for the 24 June meeting, at which the provincial Treasury would brief the Committee about forensic services. Another meeting was scheduled for 24 July, and would be followed by another meeting on 12 August. However, the Committee could change these dates if they deemed it necessary.
The meeting was adjourned.
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