Audit outcomes: AGSA briefing; ARC & OBP 2019/20 Annual Reports

Agriculture, Land Reform and Rural Development

13 November 2020
Chairperson: Nkosi Z Mandela (ANC)
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Meeting Summary

2019/20 Annual Reports

The Portfolio Committee on Agriculture, Land Reform and Rural Development met via a virtual platform with the Office of the Auditor-General South Africa (AGSA) for its audit outcome briefing on the agriculture portfolio.

The 2019/20 audit outcomes of the portfolio were:

-Perishable Products Export Control Board (PPECB): Unqualified with no findings

-National Agriculture Marketing Council (NAMC): Unqualified with findings

 -Onderstepoort Biological Products (OBP): Unqualified with findings

-Department of Agriculture, Forestry and Fisheries: Qualified with findings

-Agriculture Research Council: Qualified with findings

The AGSA was encouraged by the PPECB audit outcome. Financial statement preparation remains a concern as material adjustments were effected to annual financial statements submitted for audit purposes at DAFF, ARC, NAMC, and OBP. The DAFF received a qualification on the accuracy of biological assets and ARC on property, plant and equipment, commitment and revenue from rendering of services.

The AGSA reported that fruitless and wasteful expenditure in the 2019/20 financial year stood at R46.3m in the portfolio – R31m was attributed to DAFF. The majoiryt was caused by non-delivery of mobile veterinary clinics, travel arrangements not honoured and none attendance of training.

Irregular expenditure stood at R124.2 million in 2019/20 – this was an increase from the previous financial year.

The AGSA recommended there should be the required urgency by management in responding to messages about addressing risks identified and improving internal controls. Performance management processes should be implemented and as such there should be consequences for transgressions. Disciplinary action should be taken against employees who are not performing at the required level, who have committed financial misconduct, are responsible for fraud and corruption, improper conduct in supply chain management as well as irregular and fruitless and wasteful expenditure within a reasonable time. Vacancies in key positions should be timeously filled. In relation to the merger of the two departments, the Executive Authority and Accounting Officers should ensure that proper risk assessment is performed and action plans to address risks identified are developed and implemented. This risk assessment should include the merger of ICT infrastructure, record keeping, legal implications of existing contracts and the processes for the preparation of financial statements and the annual performance report.

The Agricultural Research Council reported a 5.3% increase in parliamentary grants and a 1.5% decrease in revenue from rendering of services. Total expenditure of the Department amounted to R1.28 billion, with 1.6% savings year-on-year. Their operating surplus was R79.7 million, which exceeded the prior year by more than 400%. The Council received a qualified financial audit outcome again, continuing the pattern from 2016/17 financial year. The qualification areas included prior year land valuation, commitments and rendering of services.

The Members expressed concern about the Council’s irregular expenditure, to which the Council responded that despite audit findings, they had to follow the correct process in terms of labour relations by conducting investigation, making the consequence management process difficult. The Council also addressed concerns regarding their poor revenue income, citing their position as a public entity that prevents them from being competitive with farmers as well as regular parliamentary grant cuts.

The Onderstepoort Biological Products entity reported an achievement of only 46% of their planned targets and they cited the detrimental impact of the COVID-19 pandemic on their export sales. It also reported net sales of R177 million against a target of R234 million. The entity received an unqualified audit opinion. There was a reduction in irregular expenditures from R42.2m to R1.9m. The entity achieved an unqualified audit on performance information (all five strategic goals) and passes the going-concern evaluation.

Financially, the OBP reported assets increased by 34%, revenue increased by 6% and the company had a positive closing balance of R286m.

The Members commended the entity on having a decrease in irregular expenditure but said that they would appreciate it if the R1.9 million would be reduced to zero. Concern was raised amongst Members about OBPs vacancy rate of two percent and the entity indicated that this figure was not accurate and the vacancy rate was less than this. They stated that they have a successful programme within the entity aimed at training young scientists and that the entity’s employees, who were previously retired, who have skill sets unique to the entity, would be brought in to train these young scientists. They are also working with various organisations to train and empower disadvantaged communities particularly in rural areas.

Meeting report

Opening Remarks by the Chairperson

The Chairperson opened the virtual meeting by congratulating all the Committee Members on the work they have been doing, including ensuring that citizens have to access services in their communities. He further congratulated those who did well in the by-elections and those who have grown into other areas.

He then welcomed the Members of the Committee, the Department and its entities, the Auditor-General of South Africa (AGSA) and the media to the meeting.

He noted that that the Committee was meeting on a sad occasion having come to learn of the sad passing of the outgoing Auditor-General of South Africa, Mr Thembekile Kimi Makwetu, who had succumbed to lung cancer. He said that the Committee had had the opportunity to be served with distinction by the former Auditor-General (AG), who had been serving in the position from 2013 to his passing in 2020. The Chairperson conveyed his condolences to his family, friends and colleagues who, over the years, have been supporting him through the work that he championed. He thanked Mr Makwetu’s family profusely for supporting him throughout his entire career whilst he was serving the nation. He requested for Members to bow their heads in silence in honour of the late Mr Makwetu.

An apology was received from the Minister of Agriculture, Land Reform and Rural Development Minister, who was attending a joint ministerial committee meeting, as well as Deputy Minister Skwatsha who was attending ministerial duties in Eastern Cape trying to resolve issues of land claims.

Further apologies were issued from Committee Members

The Chairperson invited the AGSA to put their presentation to the Committee.

AGSA Briefing on the Agriculture, Forestry and Fisheries portfolio

Ms Kgabo Komape CA(SA), Business Executive, AGSA, reaffirmed that they were coming before the Committee with heavy hearts, but that they understand that they still need to continue with some of the responsibilities bestowed upon them.

The presentation is primarily segmenting into two sections: the audit outcome of the former Department of Agriculture and its entities; the contents of the special report on COVID-19 that was tabled on 02 September by the AG.

Ms Komape indicated that they are working on the second special report of the AGSA on COVID-19 interventions across all government sectors. She said that they intended on tabling the report by the end of November. She hoped they would have an opportunity to brief the Committee in particular with regards to the observations they have made on farmers’ support for COVID-19.

2019/20 audit outcomes

Mr Desmond Phungula, Senior Manager, AGSA, responsible for the Department of Agriculture, presented on the audit outcomes. During the 2019/20 period, there has been no improvement but rather stagnation in terms of the audit outcomes.

The 2019/20 audit outcomes of the portfolio were:

-Perishable Products Export Control Board (PPECB): Unqualified with no findings

-National Agriculture Marketing Council (NAMC): Unqualified with findings

 -Onderstepoort Biological Products (OBP): Unqualified with findings

-Department of Agriculture, Forestry and Fisheries: Qualified with findings

-Agriculture Research Council: Qualified with findings

The AGSA was encouraged by the PPECB audit outcome. Financial statement preparation remains a concern as material adjustments were effected to annual financial statements submitted for audit purposes at DAFF, ARC, NAMC, and OBP. The DAFF received a qualification on the accuracy of biological assets and ARC on property, plant and equipment, commitment and revenue from rendering of services.

In terms of the credibility of performance reporting, PPECB, ARC and OBP had performance reports submitted with no errors. DAFF had issues on the reliability of the performance report in terms of the achievements of certain indicators. NAMC had issues in terms of usefulness and some of the indicators were not well defined.

Top non-compliance with legislation areas:

  • Quality of financial statements (DAFF, ARC and OBP)
  • Management of procurement and contract (DAFF and NAMC)
  • Prevention of irregular, fruitless and wasteful expenditure (DAFF, OBP and NAMC)
  • Consequence Management (DAFF, ARC and NAMC)

Fruitless and wasteful expenditure increased over two years. During the 2019/20 financial year, this expenditure amounted to R46 million for the portfolio as a whole, the biggest contributors being DAFF, NAMC and OBP. Irregular expenditure also increased over two years, amounting to R124.2 million during the 2019-20 financial year, with the biggest contributors being DAFF, NAMC and ARC.

Covid-19 special audit report one

Ms Michelle Magerman, Accountant, AGSA, presented the highlights of the COVID-19 special audit report. The focus of special report one and two (which the AGSA is currently busy with) is to provide the Department with early warning signals in terms of any control weaknesses that they identify so that they have time to close those control weaknesses and to ensure that when they are implementing the initiative and the controls that should be there so that the Department is achieving the purpose of the initiative – to provide relief of up to R50 000 per applicant for small and communal farmers in the form of vouchers for production inputs in farming activities.

Key findings:

  • Inadequate supplier selection process
  • The approval of invalid and duplicate ID applicants
  • Approved applicants not meeting criteria
  • No adequate list of distributed vouchers
  • Vouchers claimed not marked as redeemed


Ms M Tlhape (ANC) appreciated the presentation from the AG. She said that it was helpful for the Portfolio Committee to understand the performance of the Department and its entities. She noted the recommendations and findings of the AG on the COVID report and said that the Committee had previously agreed with the Department in the discussion of the findings and that the Members agreed with how the AGSA is trying to tackle the concerns raised by the AG, up to supplier interests. Additionally, they recently spoke about the implementation of an IT system in order to scrap the use of a manual method of dealing with applications.

She noted that the ARC has repeat qualifications. She asked the AGSA how they assist entities and departments with such repeat qualifications. She knows that there are audit action plans and management meetings that are being held, but she asked that if these qualifications become repetitive and whether the AG is helpless in this regard.

OBP has indicated that they had an issue of inventory ordered and paid, but not received. Is it legal for departments and entities to do this? What is the position of the AGSA? Is it okay that they can order and pay upfront?

She said that across the board there is non-compliance with SCM. This is an old song. Out of the experience of the AG, what needs to be done differently as people who are doing oversight to try and impose this issue of non-compliance? What is the role of the AG in improving audit outcomes, except the preventative management and action plans? Is the AG able to move along with the Department and entities throughout or do they just come in to audit? She was asking because she knows it is a huge sum of money that is paid to the AG. Besides action plans agreed to, what is their role? Is there a point that they will see the AG walking alongside the various departments up until the time they can start the audit process?

Ms A Steyn (DA) thanked the AGSA. As far as she is concerned, there is something called the management report that goes from the AG to the management of the departments, giving them an indication of the exact problems. She made reference to slide 30 of the AG’s presentation, where it says “There should be the required urgency by management in responding to our messages about addressing risks identified and improving internal controls”. She said that those messages and reports are being sent from the AGSA to the Department, and as far as she can read in the report, this is what is not being responded to by the Department. She said that the Committee must strongly think about the recommendation that it be sent those same messages and reports from the AG to keep the Department accountable. Members cannot leave it in the hands of the AG. The AG must give them the report and it must be up to the Committee to do something. She said that it is the Committee’s role and responsibility to keep the Department responsible for its performance.

She said that she was happy to hear that the AG would have a follow-up process on the recommendations that the AG’s department has done regarding the shocking findings in respect of COVID spending. She said she has had her concerns from the beginning when she said that there were too many loose ends that could open the whole process up to corruption. She was getting calls from farmers saying that they never qualified although they had met all the necessary criteria. She is concerned about who sat down and worked through all the 50 000 applications in such a short period and came up with people who apparently qualified for assistance. Now according to the AG’s report, when they did spot checks and they found people without valid IDs or who did not meet the criteria, as well as people who qualified but did not get the funding. She said from the beginning, bells were ringing that this process was open for corruption and she believes that they would need the second report from the AG to help in this regard.

She further asked that the Committee get a full list of all the farmers, with their contact details, with amounts that they were given for vouchers and details of where they were supposed to be spending these vouchers. She emphasised that the role of the Committee is to conduct oversight and said that it was not the role of the AG to do oversight because they have their own work.

She asked whether any investigation was done into the Personal Protective Equipment (PPE) contracts for the Department offices in respect of the amounts that were spent to sanitise and clean all offices and Departmental premises. She said that some of these amounts raised concerns because they were too high, considering that some were areas that at that stage were not even open yet massive amounts were spent on those specific premises.

Lastly, she said that she is aware that there was a court case against the previous financial manager under DAFF. Was anyone charged? Was there any investigation?

Mr N Matiase (EFF) thanked the Chairperson for the opportunity to make a contribution on the presentation of the AGSA. He said that the Chairperson would not agree with what he was about to say, but he had to say it nonetheless. He stated that “the ANC should be in Bloemfontein picketing in support of its Secretary-General than to waste time in this hearing because the ANC and its team that sits in this committee is just as corrupt as the Secretary-General of the ANC”.

The Chairperson subsequently interrupted Mr Matiase while other Members of the Committee concurrently raised points of order.

Mr Matiase continued and stated that “we are having these discussions about corruption in the Department when you and I know that there will be no consequences. You are wasting your time”.

The Chairperson ruled that Mr Matiase was out of order and requested that Mr Matiase be muted or taken off the virtual meeting.

Mr Matiase continued until he was muted.

The Chairperson reminded the Committee that they are dealing with the AGSA’s report. He emphasised that it was their duty as a Committee to ensure that they engage and interact with the presentations that the AG has put before them. Therefore, he requested Members to desist from other engagements other than what has been put before them. He requested that they proceed with the discussion.

Mr M Montwedi (EFF) expressed his condolences on the death of the outgoing Auditor-General, a man who had dedicated his life in service of the people of the Republic of South Africa and who guarded against the continuous abuse of public funds. Mr Montwedi passed his condolences to Mr Makwetu’s family and colleagues from AGSA, some who are part of this meeting, and the general population of the Republic.

He stated that he struggled with his connection during the presentation of the AG but managed to get few very important points. Referring to Ms Steyn’s statement regarding the management report, he stated that normally the AG would give these reports to any institutions that they audit in order to give them the opportunity to demystify any of the issues that may be in that report, so that they can clear them with the AG before a final finding or report is made on a particular institution. He said that it was worrying that they are sitting there with repeat findings from one financial year to the other. Clearly there is no will in the Department in addressing some of these repeat findings. In terms of the Public Finance Management Act (PFMA) and the Municipal Finance Management Act (MFMA), if these findings are continuously reported, they should be flagged as a risk and all the institutions are supposed to identify at least ten risks in the institution. He asked whether the Department actually flagged some of the repeat findings, particular those regarding SCM processes. He asked the AG what they can do from their office to ensure compliance with the laws that must be followed, especially with regards to the PFMA.

On the COVID-19 special report, he said that there was an issue that Michelle raised as part of the recommendations as she was concluding – that the Department was advised to review the prices that the suppliers were charging farmers; he said he would really appreciate this recommendation. Some farmers on paper are said to have received R50 000 or whatever amount approved to them, whereas in reality they only received goods to the value of almost 50% or half of what was approved. He stated that this is a result of suppliers charging handling fees of 25%, VAT and tax. Some of them are not even suppliers of those goods. He said that the Department said they are not appointing middlemen; they want people who are directly involved in the business. He asked the Department how many of the appointed suppliers were manufacturers and not middlemen are. He said almost 80%, if not more, of the approved suppliers are middlemen and as a result, people were ripped off. On paper, it is said a person has received R50 000 when, in fact, they have only received items of R25 000 because the middleman also had to take their commission.

He asked how the COVID-19 applications assisted the Department in terms of updating the farmer register. Michelle said there are 861 farmers that did not meet the minimum criteria. Why were those people given vouchers if they did not meet the minimum criteria as set by the government? He stated she went on to say that there are some farmers that met the criteria but were not assisted. Can the Department quickly look into that and make sure that the deserving farmers receive those vouchers? He said that the assistance issued by the Department was meant to assist farmers for winter crop planting. When the AG is doing their audit, they should know that this assistance did not assist for winter crop planting. This is because the vouchers were only given out when winter crop season ended. He asked which season this assistance was for.

On the duplicate voucher issue, he said that he had an experience where one farmer approached him saying that he received a duplicate voucher and he advised him to take it back because the government should be able to pick up if there are any duplicates. In the AG’s report, he said he has not seen or maybe he missed where they made mention of duplicate vouchers that were distributed to farmers and subsequently. Is there such a situation? How many were identified and what systems are going to be put in place to make sure that money is recovered from those that received duplicates? Who printed duplicates because there should have been a system in place that indicates whether a farmer has already received a voucher? He thanked the Chairperson for giving him the time and opportunity.

The Chairperson reminded the Committee that the Department has not given its presentation and that questions must be directed to the AGSA. 

He said one of the risks identified by the AG has been the excessive prices charged by the suppliers and he would like to understand from the Department, when it does grapple with the AG’s presentation, to explain if this risk was ever prevalent in the past and if so, what has been done and will be done to ensure suppliers will not overprice their goods and services.

He said that in responding to these findings from AG, his question was centred on the factors relating to the wasteful and irregular findings and that he would like the AG to explain in detail what actually led to these factors and what the AG’s recommendations to the Department were.  How has the Department responded to previous recommendations?

He stated that when one is looking at the issues that have been put to the Committee by various Members in terms of the farmer support given, there is the sense that a number of farmers who were beneficiaries of the COVID-19 support funding have not been fully able to benefit or receive the monies allocated to them. From the AG’s point of view, how can it be ensured that what has been disclosed to be, for example, R50 000 paid to a farmer in the Northern Cape, they are able to find and track every rand of that amount? In trying to ready themselves and prepare for oversight, the Members would like to understand if they were to choose a province like the Free State and call hearings with the farmers that benefitted, in seeing their names on record and seeing the amount claimed to have been paid to them, would the Committee be able to receive testimonies that confirm the records as put to the Committee by the Department?

He stated that the Department and the ARC, in particular, have been presenting audit improvement plans to the Portfolio Committee every quarter and have been giving the Committee assurance about addressing these issues, yet the audit outcomes continue to regress. What does the AG see as an underlying challenge? Who is responsible for ensuring that the AG’s recommendations are followed through? In the AG’s opinion, are the Department and its entities’ internal audit functions as effective as they should be? Do these structures receive the necessary support from the Department or entities’ management?

In light of these audit risks identified by the AG, what systems, if there are any systems models, can the AG recommend to the Department for consideration?  He stated that inadequate supplier selection of beneficiaries is very worrisome given the fact that many small-scale farmers and emerging black farmers did not qualify for relief programmes from the Department. In responding to these findings from the AG, how is the Department going to ensure that in future small-scale and emerging black farmers are properly screened for departmental programmes without risk of excluding those who do qualify?

AGSA Responses

Ms Komape thanked and appreciated the questions posed by the Members. In answering Ms Tlhape’s question, she referenced the AG’s reputational promise which is linked to its mandate. She said that key to their role is the independence of their office. From a constitutional perspective, they are requested not to be a player and a referee at the same time. They are dependent on other players to take their messages, recommendations and implement them to ensure they everyone sees their desired results. Key to their reputation is that they enable oversight. They indicate what their observations are and hand them over to the Committee to ensure that there are consequences to the matters they have put forth. It is key that for any audit office that they do not find themselves playing the management role. However, from 01 April 2019, the Public Audit Act would have been enhanced and amended to include the concept of material irregularity. As the office, as much as they will not be performing any management role whatsoever, they are empowered to take some of the matters forward up until the element of consequence at least to a certain extent. To implement this, they opted for a phase-in approach which would mean that they are taking all the entities in stages. They have not yet put this portfolio on board. They first targeted some of the big players around irregular expenditure and some municipalities. They have rolled in the approach from the 2018/19 financial year and have increased their scale to accommodate more auditees for 2019/20. They are hoping that this portfolio will eventually be on board and they will be able to, at least to the extent of material irregularities, take it forward where the fiscus would have been lost. Once again, they will be doing this as auditors and not in any management capacity whatsoever. She emphasised that their dependency on other role players will always be there and that is how the law is structured and how the auditing standards are.

Responding to Ms Tlhape’s question regarding whether it is legal to pay for goods before receipt of the goods, she said that it is good accounting practice to pay once one has received goods because they are able to match the quality of what is sitting on the table to what one was ordered with the good receipt note. However, if one has an arrangement that allows them to pay in advance, one ought to ensure that at the point of receiving, they literally match what they have ordered versus what they are receiving. If they do not do that, then it becomes an illegal payment from the PFMA perspective, which is quite clear that one shall not incur fruitless and wasteful expenditure, meaning any payment in vain is prohibited.

On the repeat non-compliances, she highlighted that even in their independence they do interim audits that mean that even prior to the AG expressing an opinion that they bring to the Committee there is work that they perform in the intermediate. They also do a status of records review that they share with management, the audit committees and the boards. In this status of records review, they highlight the areas that, according to them indicate red flags. Should the auditees not attend to them, there will likely be consequences. She emphasised the importance of the inter-dependency on other role players taking that message and implementing them.

She stated that there are management reports that each entity within the portfolio has that include more detail on the nitty-gritty of the AG’s findings. It is not a public document and they are not required to send it through. However, the AG is obligated to support the Chairperson on any other document and information that the Committee requires and requests.

She noted the comments around the COVID-19 issues and that the Department was working on the AG’s report. She appreciated this. She said that the AG did do work in respect of the procurement of PPE for the Department but in terms of the quantum and money attached to it, the work would not have been as massive as it would have been for other portfolios. The budget attached to it was around R20 million and they indicated the supply chain requirements that were not followed. She does note that the Department instituted an investigation and was implementing consequence management in that regard.

In terms of how many of the suppliers were middlemen and not manufacturers, she said that the issue around suppliers is that, inasmuch as the Department would have taken as many suppliers as possible, they were cognisant that eventually if they did not standardise the pricing and put thresholds around it, it would make vulnerable farmers susceptible to being taken advantage of. This is because if a supplier that is close by is selling commodities at sky-high prices, as much as one can argue that there is another supplier that one can go to that may be cheaper, the answer is that in that area that expensive supplier is the only person they can deal with. They therefore urged the Department to support that process to make sure that even in the most rural places no one was taken advantage of. The Department had indicated that they are working on that process and taking their recommendation forward.

She said it would be important to have a conversation with the farmers and understand what their burning points are. But it is also crucial to visit some of these farms indicated as areas where their farming activities are taking place. She says this because as the AG and as part of report two, they are particularly visiting some of these farmers to try and get a sense of the relationship between what is sitting on paper and what is happening on the ground. They can already see that some things are not playing themselves out in reality. She said that sometimes it is from the side of the Department playing oversight, and at times it is the very same farmers that also take advantage of the process. As the farmers are visited, she said they would also like to receive the observations made in those visits as the AG so that they see if there is a synergy between what they are picking up and what the Department would have reported.

In terms of fruitless and wasteful expenditure, she stated that it is as simple as disregard of the law. The PFMA is crafted in a manner that prohibits this. She said that their etiquette around the prescripts have to be enhanced, meaning that all the officials trusted with the supply chain processes and those who are trusted with overseeing have to respect the prescripts. What they are finding is that at times there are deviations and as much as the law allows for deviations, it is very particular in what instances deviations are allowed. They are findings that officials are not necessarily respecting the prescripts in the manner that they ought to. What is exaggerated is the element of consequence management. If an official does not face consequences for their actions, another official is unlikely to be deterred from performing similar actions.

She said that the speed in which the ARC responded to the matters, which the AG put on the table, is not where they want it to be. In the current year it would be seen that the qualification is around two/three matters which one can see a bit of improvement in terms of the number of qualifications. They believe that ARC has the capability to report reliably. However, they should be waiting for the audit process to play itself out, because if the AG does the correction process, they will ordinarily not be able to attend to all the matters. The speed in which they attend to the matter consistently during the year, even when auditors are not there, would benefit the ARC.

Regarding their observations of the matter of internal audit, they are very much appreciative of these functions. Internal audit and audit committees by law have to be independent, even though they would have some level of interdependence from management to act. They found these functions to be effective in this portfolio. This talks to how speedily they respond to some of these matters as auditees. To make sure that they benefit from some of the recommendations before they become qualifications or whatever the case may be in the year-end report, she emphasised they just need a speedier response from the auditees perspective so that the issues can be addressed before the audit process.

In respect of the issue of duplicate vouchers, she agreed that this was problematic by the mere fact that the very same voucher may be used twice without being picked up in the system.

Due to time constraints, the Chairperson requested they proceed to the ARC’s presentation and OBP’s presentation. He said that other questions may be sent to the AG in writing.

[Mr Montwedi posed the following question for AG in the chat: “The presenter spoke of deviations and lengthy supply chain process in one sentence. Are there any recommendations that the AG can make in making sure that the length supply chain process is avoided in the public sector as this at times causes serious delays with regard to implementing some programmes in the agriculture sector? Supply chain has continued to fail the agriculture sector.”

The other question to the AG is that most of the issues that the office makes qualifications on are issues that were already picked up by the audit committee, internal audit and the risk in the particular institution. What has the review of the AG done to mitigate the continuous avoiding of the law by the various institutions?”]

ARC Annual Report 2019/20

Ms Joyene Isaacs, ARC Chairperson, made opening remarks and stated that they have a lot of work to do after listening to the AG. She noted that they started on 01 July 2020 which was an unusual way of taking over the council because it was halfway through the year for an annual performance plan and finalising the annual report.

Dr Shadrack Moephuli, CEO and President of ARC, stated that the organisation had delivered in accordance with its objectives in terms of predetermined indicators and targets during the course of the year.

Strategic Goals

  1. To generate knowledge and technologies that will enhance the efficiencies in crop based agriculture
  2. To generate knowledge and technologies that will enhance efficiencies in livestock, wildlife and aquaculture based agriculture
  3. To generate knowledge and technologies for the conservation and utilisation of natural resources
  4. To generate knowledge, solutions & technologies for food safety, quality and improved efficiencies in the agriculture value chain
  5. To generate and disseminate knowledge and technologies for decision-making and transformation of the agricultural sector
  6. Apply resource management practices towards a high performing and visible organisation

Key Highlights of the Audited Annual Financial Statements for the Year Ended 31 March 2020

Ms Maureen Manyama CA(SA), ARC CFO, presented the financials and the audit outcomes:

  • Governments Grants received → R978.34 million [5.3% Year-on-Year (YoY) growth]
  • Total expenditure →   R1.28 billion (1.6% YoY savings)
  • Surplus for the year reported → R122 million
  • Net Assets →  R1.60 billion (38% YoY growth)
  • Revenue from Rendering of Services → 1.5% YoY decline

FY 2019/20 Audit Outcome

  • ARC received a qualified audit outcome
  • Qualification areas:
    • Prior Year Land Valuation
    • Commitments
    • Rendering of Services

Dr Manyama emphasised that the aspect of consequence management has been difficult in that inasmuch as there may be an audit finding by the AG, they are required in terms of labour relations to investigate the matter and bring the evidence through a proper disciplinary process. This is what has caused delays in a number of instances.

OBP Annual Report 2019/20

Ms René Kenosi CA(SA) was introduced as the new chairperson as of 01 November. Dr Baptiste Dungu, CEO of OBP, and Ms Elspeth Govender, CFO of OBP, both presented on the organisational performance and financial highlights.

Key Highlights

  • 46% Achievement rate of planned targets
  • Net sales of R177 million against target of R234 million
  • Assets increased by 34%
  • Revenue increased by 6%
  • Auditor-General report of the financial statements:
    • Unqualified audit opinion
    • Reduction in irregular expenditures from R42.2m to R1.9m
      • Process of condonation under way
  • Unqualified audit on performance information (all five strategic goals)
  • The company passes the going-concern evaluation
  • Improved customer satisfaction due to improved product availability


Ms Tlhape welcomed the presentations of the ARC and the OBP. She stated that the ARC’s programmes have at times impacted on qualifications. Her interest in programme seven in particular is the commercialisation programme of the ARC which achieved all the three planned targets. The ARC has indicated that it has a license agreement with Murdoch University. Based on this license, can they indicate their role in respect of this agreement? What the sector is benefiting from this partnership?

On programme nine, administration and corporate service programme, they only achieved eight out of the 22 planned targets. She said that it is very worrisome considering the financial and audit challenges that the ARC faces. Despite the training of master’s and doctoral students, the ARC has been struggling to meet employment equity targets. Can they indicate if they have any strategy to attract competent candidates from designated groups?

She asked whether the AG can indicate what they intend to do with repeated findings, because inasmuch as their audit findings have decreased, repeated findings have a huge impact on their audit opinion. She stated that for the past three years, there has been a challenge in terms of the viability of the ARC. They also indicated that due to COVID, their external revenue is at risk and this will affect their programmes. She asked how the ARC plans to increase its external income. Considering that they are also working with academia, especially in respect of research, is there a figure they can provide indicating the proportion of its scientists that are attached to academic institutions and if they are any, are they able to generate a revenue through the work of the scientists in these academic institutions?

In 2016, the ARC developed a vision 2050 strategy to turn around the entity and effectively address some of its challenges. Because it is still grappling with some of these strategies, can it indicate the status of this strategy, whether it is functional or operational or whether it is still being developed?

Mr N Capa (ANC) expressed his concern on repeated audit findings and asked about the strategy to eliminate these repeated audit findings. He said there should be a way to do away with them because by the time of the following audit, they will know what needs to be corrected.

Ms Steyn thanked the presenters. She asked whether the ARC was looking into the evaluation of the sale of the massive buildings and property they are sitting on to consider their financial stability. She said it was important to look at this. She wanted to further confirm the information that the ARC had assisted with the drawing up of the list under the PLAAS contracts of farmers that would get COVID assistance. Is that confirmed and can the Committee be given the reports by the Department explaining why certain farmers were picked and why some were not?

Mr Montwedi said that his network connection was failing him and he would not be able to engage with the presentation properly. He congratulated the new boards of the ARC and OBP. Regarding the ARC’s indication of 1.6% of YoY savings, he asked whether they reinvest these savings into the aligned priorities to the National Development Plan they mentioned in the presentation, which Mr Montwedi indicated they do not subscribe to as an organisation. He said that there are certain priorities that need to be improved. Former Director-General, Mr Mike Mlengana, used to speak of Kaonafatso ya Dikgomo (KyD), which is one of the projects that is implemented by the ARC. He asked if they do not think that some of these savings should go into some of these programmes since there is no positive work that they are doing under the KyD programme.

On the ARC’s top five revenue streams, are there any other revenue streams, besides government, which is their top stream that they can tap into? Since they are dealing with seeds, cultivars, feeds and fertilizers, do they not see these as revenue streams they can tap, especially considering that the prices of these products are extremely high?

He asked the OBP why they reached only 46% of their planned targets and how this has impacted their programmes. He apologised if this question was answered, as he was in and out of the meeting due to connectivity issues. He commended the OBP on having a decrease in irregular expenditure. He said he would appreciate that the R1.9 million indicated be reduced to R0. He referred the AG to his questions posed earlier in the chat and said she may either respond via chat or email.

The Chairperson welcomed Mr Montwedi and asked the secretariat to note the questions on the chat and requested that they be sent as Committee questions to the AG and the other entities.

Ms N Mahlo (ANC) apologised to the Chairperson and the Committee as she had connectivity issues since the morning. On her understanding of the AG’s presentation, the proper financial policies framework is not effectively implemented on the issue of wasteful expenditure. She asked why the Department is not making sure that they implement the regulations that are there for the unit standard that they use in the Department. Normally, if the Department has a unit standard, it will always follow its policies and procedures to implement the regulations. She said that the willingness of the officials of the Department must be there all the time to assist to implement their Department policies and procedures; why is this willingness not there? She asked what is preventing the entities of the Department to ensure the regulations and policies and procedures are implemented.

The Chairperson asked a question regarding ARC’s management which did not take effective steps to prevent irregular expenditure of almost up to R22.5 million during the 2019-20 fiscal. This was not investigated and that is the most alarming part. Can the ARC provide reasons and indicate how it plans to address this matter? In light of the AG’s report, can the ARC explain how they plan to respond to the risk audit findings? He said that cellar is geared towards sustainable wine production and this is very much welcomed. He asked whether ARC can explain to the Committee on how the intended reduction on the national grid will contribute to better financial management and prudence.

ARC Responses

Dr Moephuli passed his condolences on behalf of the ARC to the team at the AG’s offices. He stated that unlike in previous years, during the course of the current audit, they had an audit steering committee which consisted of all the managers and senior managers, including the executive management team of the ARC and the team from the AG. They met at least every week to look at all the key issues in terms of understanding each other, the exchange of information, presenting the evidence that is required and making sure that they respond to the request for information or data to the AG as quickly as possible and clarifying what some of the information means. This interaction created a relatively seamless process of resolution and this was appreciated.

Responding to Ms Tlhape’s question around the ARC’s partnership with Murdoch University in Australia, Dr Moephuli said that this particular university had sent some scientists to look at different types of plants and species in South Africa that might be useful to develop into animal feed or pastures. Through this bioprospecting, they were able to take some samples back to Australia to conduct trials and develop them further. Having developed them further, they were then able to demonstrate that particular plant species had very good qualities as plant fodder and could grow very well under certain conditions in different parts of Australia, which would then make it ideal for animal feed. They then went through a whole regulatory process as the ARC, together with Murdoch University, to get the necessary approvals in terms of benefit-sharing arrangements, because now that they have developed it as an animal feed plant species, the food will be produced and once it gets sold to farmers there will be income and royalties that will be shared. At the moment, this particular plant species had only been exchanged and identified and they were not yet finalising the license agreement. He stated that the seed sales have not yet commenced but they hoped they would commence in a year or two. What is reported in the annual report is the achievement of having come up with the particular plant species that has now been properly developed to being of a variety as plant fodder. This helped them establish the partnership with Murdoch University where they will share the benefits once there are seed sales. It will also allow SA farmers to use it in different parts of the country.

He stated that employment equity targets are a negotiated matter with a whole range of stakeholders in the ARC. They do try their best to achieve particular targets, in most instances as and when people retire. The ARC is well on track in terms of various categories of designated groupings, particularly in respect of recruitment. The CFO indicated that in terms of findings of the AG on the outcomes, they are not necessarily repeat findings. This has been confirmed by the AG. Some items are placed in the same categories but are not the same items as in previous years. He stated that he would respond to how they deal with these particular findings.

He stated that financial viability of a public entity, which is a non-profit organisation, such as the ARC, is a challenge and will remain a challenge, especially when the parliamentary grant gets cut on a regular basis. They are paying particular attention to this. They did not achieve the full target of their external revenue and some of the contributing factors include whether customers are willing to procure services from the ARC and some of these are influenced by the changes in the agriculture sector. Some of the projects or proposals, which they had submitted to a whole range of funders both locally and internationally, did not come through even though they anticipated that they would.

The ARC works in partnership with many universities locally and internationally, which helps them reduce the cost of employees. All their researchers are also responsible for generating external revenue in terms of research proposals and do participate and work hard to assist the organisation to become viable and to contribute towards sustainability of the ARC. This forms part of the ongoing contribution to the ARC vision 2050 project.

He stated that the CFO, in the last two slides, indicated some of the key interventions that they are implementing to deal with the audit findings, mainly through a specific audit improvement plan. He noted that they had previously implemented the intervention of interim financial statements and interim audits to identify certain key areas to resolve audit findings from the previous audit period.  He said that the ARC had no role in respect of the Department’s identification of PLAAS farmers for COVID interventions.

In respect of the suggestion that ARC’s savings be used for projects such as the KyD project, he stated that whatever profit or savings they have at the end of the year need to get approval from the National Treasury which will only approve such spending if it is used as once-off items and not as recurring items. Therefore, the ARC tends not to bring these kinds of monies into regular operations, but the suggestion has been noted.

The ARC does look at a number of revenue streams. However, they need to be careful as they are a public entity that is intended to support the agricultural sector and not designed to be a competitor to the private sector. If they are going to compete with farmers, that may bring challenges to the ARC as a public entity because their primary role is to provide the necessary solutions for the sector to be sustainable. They have made efforts in previous years where they have produced in large quantities of drought-tolerant seed and they were able to sell that seed mainly to government departments for them to be able to deliver on their programmes. If they use this as an approach, they might actually assist the sector and government in achieving their objective. They are aware that some of the inputs in the agricultural sector are quite expensive. The ARC is not always structured in such a manner that they can produce these inputs in large quantities to be able to sell to the agriculture sector but these are good suggestions and they will look into how they can produce these inputs. Alternatively, they will find ways in which they can assist the agriculture sector to lower the costs of these inputs through seeking alternative technologies or solutions to enable the agricultural sector to be competitive and more productive.

He stated they continuously look at their policies and procedures and seek to ensure compliance. The R22million irregular expenditure was identified by ARC’s management who then engaged with the National Treasury because it concerned the interpretation of the Act versus the interpretation of National Treasury Regulations and how the organisation needed to implement some of the procurement processes. Having engaged with the Treasury, they then decided to classify that particular set of items as irregular expenditure and agreed that they will engage further with Treasury on how they will be condoned in the current audit year.

With regards to the cellar that had been renovated and converted as off-the grid, meaning now uses solar energy, he stated that this project has been part of their measures as the organisation in terms of financial sustainability and turnaround plan to reduce their input costs or cost-saving measures and that it actually has assisted them in being able to run a cellar that is providing research services and other services to the wine industry while reducing cost of electricity to the ARC.

The Chairperson said that the Department has made available approximately 700 000 hectares of state land for access by previously disadvantaged farmers or potential farmers that will include women, youth and vulnerable groups. One of the criteria for the programme’s beneficiaries is training of the beneficiaries. He asked the ARC what role they plan to play in the programme to ensure that the beneficiaries of the farms become successful commercial farmers.

Ms Manyama said that in terms of the revaluation of land, they had appointed a service provider to assist them. However, in terms of the report they were given, it was a consolidated report for the land that was readjusted relating to the report for 2013. They have now embarked on a process to engage the same service provider to provide a report per property as was expected by the AGSA and they believe that this will be resolved when they submit their interim financial statements.

On the issue of processes, she said that policies and procedures are in place but they continue to review and see how best they can provide further guidance because their finance function is decentralised and there is a lot that the finance teams at the institute does that affects the overall financial statements of the organisation.

With regards to the issue of rendering of services, she indicated that they have embarked on the AIP as indicated and what they sought to do last year, they actually did. It was just unfortunate there was one institute that did not implement the guidelines they provided; this is what resulted in that qualification. What they are currently doing is that the team is actually meeting on a weekly basis to make sure that they continuously monitor the progress in terms of the finance work, and have also introduced a system of monthly sign-off in terms of the numbers that are coming from the institute.

One of their strategies in dealing with the audit findings was to provide refresher training for both the finance team and supply chain management.

She confirmed that they are in the process of going out on a tender. They will be revaluing all the buildings and properties of the ARC that have been identified as unutilised or under-utilised but equally they will also be getting the market-related rentals to make sure they are charging market-related rentals. They believe this will be implemented before the end of the financial period. She said that the procurement process has been implemented.

She said that the major revenue stream is the parliamentary grant that is coming from the government; it is followed by external income from the rendering of service, which is core research that the ARC does based on the agreements that it has with different funders. There are also royalty agreements the ARC have signed for its cultivators. They will also be reviewing that they get the best value out of these agreements.

On the issue of the R21 million, she responded that it was indeed disclosed by management that it was a misinterpretation of the National Treasury instructions and the meeting with them was only able to be secured in April. Investigations have been initiated and they believe that this will be finalised within a month and they will be able to deal with the related consequence management arising from the investigation. The ARC has since clarified and has aligned with the National Treasury for the current financial period. On deviations in lines with the regulations, the ARC has been consistently reporting these to the National Treasury and the AGSA.

Dr Moephuli stated that the ARC supports the Department’s initiative of 700 000 hectares of state land made available for land reform. He stated that what is important for this to be sustainable and successful is the need for comprehensive post settlement support and a much more focused agricultural development programme that is coordinated properly. In the absence of the programme, they would still be setting up these beneficiaries for failure.

The Chairperson asked what role the ARC would be playing.

Dr Moephuli said that their role is in a number of areas including identifying the training needs and skills of the beneficiaries and advising on what kind of training they require and where possible, providing the necessary training together with the agriculture colleges that are in the provinces. They have agreed with the Department in this regard and they are ready to go. They would also provide technical expertise and assistance in terms of actually conducting the necessary analysis on the farms. Part of that is around doing things such as soil analysis to be able to identify what can actually grow on a particular farm and which kind of variety of crops will grow and then providing the necessary advisories, which includes technical and scientific advice to the farmers so that they are able to understand what is required for them to produce on that particular farm. The ARC will continuously avail its new scientific solutions and innovations as and when they develop and engage with the farmers on the new knowledge that comes on stream.

The Chairperson noted that the OBP reported they could not meet some of their targets due to lockdown restrictions. He highlighted that the financial year started on 01 April 2019 and ended 31 March 2020. The lockdown was announced towards the end of the financial year around 23 March 2020 and commenced 26 March 2020. The OBP therefore should explain how the lockdown interfered with its business for the fiscal of its 2019/20 financial year, bearing in mind that agriculture is an essential service. He asked the OBP to indicate how it plans to conduct business in these circumstances to ensure its sustainability considering our new normal. He noted that the OBP operates in a highly technical and scientific environment that requires highly skilled and competent personnel and their high turnover rate of 12% is a serious concern. He also asked the OBP to indicate its current vacancy rate, including the location of most of the vacant positions in its structure, plans to fill them and how it retains critical skills, i.e. retention strategy.

OBP responses

Dr Dungu thanked the Members for acknowledging their efforts during the last financial year. Regarding the concern that they only reached 46% of their planned targets, he stated that OBP operates internationally and due to COVID there was a loss of export sales due to lockdown and travel restrictions, which came into effect as early as in January in some countries. Therefore, one of the key contributors to low performance is the fact that there was a loss of export sales. Towards March there was R25 million worth of sales lost due to product they were unable to export. They were prudent and started revising their training expenditure already as they were anticipating things to go bad. The fourth quarter performance review was not fully conducted due to the fact that as soon as the lockdown started, they were operating at low rates, especially because some low level staff do not have remote access. Their financials for current year have not so much been impacted by COVID because the international market has reopened. He said that they are doing extremely well in terms of export now. But taking into account that COVID will be around for much longer, they will be improving remote access for staff so they can operate from home and they are also taking advantage of the fact that livestock is still needed locally and internationally. Additionally, they are broadening their markets into new areas that are not necessarily as affected to the same extent as the main markets such as Africa, where there are still less cases. Internally on their local sales, the impact is evident. They have increased their participation in departmental programmes which are providing additional income to compensate with the loss they are incurring already due to COVID.

Ms Thlape asked for the stance of the OBP on the R7.4million inventory that was ordered and paid for but not received.

Dr Dungu said that the irregularity that was reported in audit by AG was detected by management and not the AG. So they reported it to AG, treasurer and shareholders. As the board they went on to consequence management by putting the officer involved on precautionary suspension. An internal audit validation was conducted which has confirmed the findings and now they are moving into full investigation with law enforcement agencies. They are still working with AG through the process to finalise the investigation and report on it.

In terms of retention rate and capacity, they had through discussion with the board and embarked on a project to bring in retirees who used to work at OBP because their expertise is fairly unique. They brought them back to train a number of young scientists and this programme has been successful. They have also been able tap into technologies that are internationally available to make them available to their scientists. Through their Human Resources department, they are working on a succession strategy that they will be implementing more effectively and will be starting this year already. He highlighted that they have a number of programmes where they are trying to build value chain expertise in previously disadvantaged communities and they have engaged with the South African Veterinary Association and the Animal Health Technician Organisation to start training them to get into the distribution of products, especially in rural areas. He clarified that their vacancy rate is less than 2%.

Closing Remarks by the Chairperson

The Chairperson said they will have to look further into the OBP’s vacancy rate for further engagement and hopefully get a more precise figure. He then thanked the Committee for attending the meeting and the AG, ARC and OBP for their presentations. He said there is a lot of work cut out for the committee into ensuring that they engage with the Department on its spending as well as the spending of its entities. He said that they look forward to the presentation of the Department and would be pleased if the AG would avail itself to get further input from the Department on the issues they have raised.

The meeting was adjourned.

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