Department of Rural Development and Land Reform 2019/20 Annual Report: AGSA briefing; with Minister and Deputy Ministers

Meeting report

Chairperson’s Comments

The Chairperson thanked the office of the Auditor-General (AG) for the good work. The Office of the Auditor-General of SA (AGSA) fulfils the role of oversight, accountability, and governance. It is also an enabler for the institution of Parliament to fulfil its role of oversight. It does this by ensuring the executive arm fulfils accountability and has the necessary support to guide environment, programmes, and budgets, to effect delivery of the mandate. It is for this reason the Office of the Auditor-General is critical in ensuring the health and normal functioning of the South African democracy through the return of clean audits. This is possible if the Auditor-General’s implementations are diligently followed. There is a concern regarding the Department being slow to attend to internal control deficiencies, record management deficiencies, preparing financial statements, supply chain management prescript compliance, a high number of investigations, and enhancing internal controls. The Chairperson said the Auditor-General calls for a greater commitment to internal controls by the Department, and a negative culture must not be tolerated regarding oversight, accountability, and governance in the delivery and the important work of the Department.

Regarding the Agricultural Land Holding Account (ALHA), there are issues of concern and call for serious interventions. This includes inadequate accounting for grants, non-compliance of beneficiaries with agreements, monitoring controls over existing and new projects, improving the accuracy of financial statements, and the consequence management for irregular, fruitless and wasteful expenditure. Adequate responses will be expected from the respective accounting officers to ensure the issues and concerns are addressed urgently. Such deficiencies can affect public opinion and reflect negatively on the Department’s work. There is no doubt on the important work the Department does, it is necessary for the Committee to ensure oversight, accountability, and good governance. This is the responsibility of freedom and democracy, as well as the expectations of people in respect of food security, land hunger, and shelter. Blame cannot be placed on the lack of capacity, lack of commitment to accountability, internal controls, and governance. Doing so will be a betrayal of the confidence and trust put in the Committee. The Chairperson said the country cannot return to 1994. If the necessary precautions are not taken, then there is a risk at hand.

Minister’s Comments

The Minister of Agriculture, Land Reform and Rural Development, Ms Thoko Didiza, said the presentation is in anticipation of the 2020 fourth quarter Gross Domestic Product (GDP) data release. There is hope for Agriculture to show growth during the reporting period, and to complete positive growth throughout the 2020 year, despite the pandemic. The year also showed signs of a bumper grain crop export of citrus, and the finalisation of the Agricultural and Agro Processing Master Plan, which will provide renewed optimism for inclusive growth of the sector. The Budget Statement also provides encouragement through the allocation made by the Minister of Finance to the Land Bank, which created challenges in the past. This will grant stability to the sector, not just in development finance, but across the whole agricultural finance space. The Department together with other private partners in the private sector banking industry and Development Finance Institutions(DFI) are working together to relaunch blended finance for the stability of farmers. The Committee will receive a presentation from the office of the Auditor-General, on the Department of Rural Development and Land Reform, and the other entity, ALHA. The Office of the Auditor-General highlighted the areas which require strengthening, to the Minister. Areas such as leadership, financial management, supply chain management, human resource management, and compliance monitoring, require close attention as outlined by the Auditor-General. The Minister said there are also challenges with land administration, as signified by the increasing number of cases, which indicate administration needs to be addressed, especially on land leases and land allocation systems.

In the auditing process, a need for middle to top management training was identified. Each employee plays a role in the financing process in preparation of the financial statements and reports of the Department. On ALHA, the Minister said the annual financial statement was submitted late and the internal controls within ALHA were a huge challenge. Drastic measures need to be taken by the new Department to ensure the legacy issues are addressed effectively. The merging of the two Departments, given the legacy issues, will be challenging. The critical posts of the Director-General, Valuer-General, and Deputy Directors- General, will be advertised to ensure stability in the new organisation. The Department started working on the Fit for Purpose structure, which will deliver on the Department’s strategy. The Department will also institute independent investigations on illegal land evictions in the various provinces, and the misallocation procedures. 32 communities were investigated, and the findings were made, which must be followed up. The Department will put in place controls to confirm the accuracy of information in the preparation of financial statements. Consequence management will be implemented to deter employees from non-compliance with prescripts and processes. Repeat findings should have been addressed accordingly by the Department.

Auditor-General South Africa (AGSA)

Ms Kgabo Komape, Business Executive, AGSA, said the briefing document will be presented to the Committee regarding the Department of Rural Development and Land Reform, and the ALHA. In the previous meeting with the Committee, the Committee asked the AGSA to bring more information to supplement the presentation. A document was attached to highlight the key principles followed during the auditing process. 

Mr Thabo Ditodi, Senior Manager: Rural Portfolio, AGSA, outlined the reputation promise and the role of the AGSA in the reporting process. He highlighted the audit outcomes of the Department and ALHA over five years.

• Unchanged unqualified audit outcome with findings for both the Department and ALHA in the 2015/16 financial year.
• Unchanged unqualified audit outcome with findings for both the Department and ALHA in the 2016/17 financial year.
• An unchanged unqualified audit outcome with findings for the Department, and an improvement with an unqualified audit outcome with no findings for ALHA in the 2017/18 financial year.
• Unchanged unqualified audit outcome with findings for both the Department and ALHA in the 2018/19 financial year.
• An unchanged unqualified audit outcome with findings for the Department, and a qualified audit outcome with findings for ALHA in the 2019/20 financial year.

On credible financial reporting, he said the Department submitted its financial statements on time in 2018/19 and 2019/20, and ALHA did not submit its financial statements on time. Material errors were identified in both the Department and ALHA’s financial statements for both 2018/19 and 2019/20. ALHA and the Department both had non-compliance areas which included:

• Late submissions of financial statements for ALHA
• Poor quality of financial statements for both the Department and ALHA.
• Lack of procurement and contract management for the Department.
• Lack of prevention of irregular expenditure for both the Department and ALHA.
• Lack of prevention of fruitless and wasteful expenditure for both the Department and ALHA.
• Poor expenditure management in the Department.
• Poor consequence management in the Department.

On the status of internal controls, he highlighted:

• Effective leadership is concerning in the Department and ALHA.
• Proper record keeping requires an intervention in the Department.
• Regular reporting is concerning in the Department and an intervention is needed in ALHA.
• Review and monitor compliance intervention is required in the Department and ALHA.
• Risk management is concerning in the Department.

Fruitless and wasteful expenditure decreased in the past two years, from R5 million in 2018/19 to R0.6 million in 2019/20. Irregular expenditure increased in the past two years from R194.4 million in 2018/19 to R207 million in 2019/20, which was mainly incurred by ALHA. On supply chain management, he said there was regression in supply chain management compliance and both ALHA and the Department had material findings. He outlined the recommendations to the Department and ALHA.

Briefing Note on the PFMA

Mr Ditodi outlined the reputation promise of AGSA and the purpose of the document. This was stated as being, to provide an overview of the audit outcomes and other findings of the 2019/20 financial year, for the Department and ALHA. He provided details on the audit outcomes for the Department and ALHA as well as the ALHA conditional grants. Details were also provided on the irregular, fruitless and wasteful expenditure, and the assessment of internal controls.

Discussion

Ms M Tlhape (ANC) welcomed the presentation and said the Minister’s acknowledgement of the Department’s faults in the opening remarks is comforting. She asked what will happen to the recommendations provided by AGSA once the departments merged, and if the Committee’s oversight will await the completion of the merger. She agreed with the Chairperson regarding clean audits being possible through oversight. She highlighted what the presentation mentioned about AGSA not monitoring action plans, accountability plans, and management plans, and asked what AGSA’s contribution was in addressing this.

She had a question regarding the recommendation for ALHA to perform a detailed assessment of the grants not adequately accounted for. She also had a question about identifying beneficiaries who do not comply with the contractual agreement requirements, and where the grants are repayable, pursuing legal collection. In this regard, she wanted to know what happens to beneficiaries where the grants are not repayable, and if the Department has the competency or capacity to write off the grant debts.

Ms T Mbabama (DA) applauded AGSA for highlighting the deficiencies in the Department, and said the whole report is understandable. Hopefully, the comments made by the Minister will be put into action. The Committee expects a detailed presentation from the Department on the plan of action to rectify the deficiencies.

Mr S Matiase (EFF) noted disappointment with the audit results from the Department and ALHA. He said ALHA’s mandate is to buy and hold land, until suitable beneficiaries are identified in line with the Provision of Land and Assistance Act of 1993. If ALHA fails to uphold simple internal control and risk management, the entire land accusation programme is in a state of disaster. The Department being unable to present its Annual Report is not a shock. This is also the case with ALHA and the request for an extension to submit. The Office of the Auditor-General could not make sense of the Department’s statements and omissions, which are a result of a lack of internal control, risk management and consequence management. The Minister should have said, based on the recommendations and findings by the Auditor-General, heads will roll and those responsible for the ALHA will be held accountable. A strong message must be sent regarding irregular, fruitless and wasteful expenditure, not being tolerated. Consequence management should not be a token, but concrete action.

Mr N Capa (ANC) asked if the increase of irregular expenditure continued even after it was highlighted in the previous financial years, and if there is arrogance in addressing the matter. He said if this is the case then the issue must be addressed, and the acknowledgement is different from the actual implementation.

Ms B Tshwete (ANC) said the Auditor-General report is clear and detailed.

Ms T Breedt (FF+) thanked the Auditor-General for the report and the outstanding work done to support the Committee. On the Minister’s opening remarks, she said acknowledging mistakes and faults are different from implementing change. She agreed with Mr Matiase’s statement about heads which must roll, and said it is not acceptable to see continual regressions in supply chain management with no consequence management.  In the briefing, the Committee discussed the implementation of agents, and she asked what the finding was in relation to the implementation of agents.

Ms K Mahlatsi (ANC) appreciated the work of the Auditor-General. She said for the first time the Auditor-General’s report does not provide any information on the strengths of the Department. The Department could not have been in a bad state for the whole financial year. The successes of the Department could have been outlined in the presentation.

On the usefulness of performance indicators and targets, she asked for clarity on the meaning of the statement, and asked if the performance indicators and targets used by the Department were not useful.

On the late submissions, she said before the Department submits the final financial statements, preliminary financial statements have to be sent to Treasury for assessment. She asked what the role of Treasury was in assisting the Department to ensure accuracy in the financial statements.

On fruitless and wasteful expenditure, she said the decrease in expenditure must be acknowledged, but she noted concern on duplicate payments.

She asked the Auditor-General to brief the Committee on the interests resulting from rentals, and if the interests of the 2019/20 financial year were informed by the rentals.

On the recurring findings, she asked if the findings were informed by the legacy issues, or new findings.

On the internal controls and action plans, she said the Committee receives a quarterly report from the Department. The last report from the Department showed the Department was able to address issues through the action plan, and less than three actions still had to be addressed. She asked if the same process is being followed by the Department, and if it was fruitful in ensuring the possibility of being qualified is reduced.

On the officials doing business with the Department, she said Treasury must come on board to assist Departments. She appreciated the input by the Minister, even though there was a regression. The Committee cannot throw the Department under the bus, but a regression report should not be welcomed. The Department should be given an opportunity to explain the outcomes of the audit report, especially since most of the challenges are controls and systems within the Department.

Ms N Mahlo (ANC) appreciated the input by the Minister in acknowledging the rights and wrongs of the Department. On the recommendations by the Auditor-General, she asked in which areas the Department and AHLA were found to have impressive performance. She asked if the Auditor-General assisted or can assist the Department and ALHA to further improve the audit outcomes, especially when it comes to internal controls. The Auditor-General can propose recommendations to assist.

Mr M Montwedi (EFF) said the comments by the Minister are unfortunate because the Auditor-General said some of the audit outcomes were stagnant for the past five years. There is concern regarding if there will be change.

On irregular expenditure, he said bids were not advertised for 21 days as required by the Supply Chain Management (SCM) principles. He raised concerns on the process of land development support not conforming to the supply chain processes.

On ALHA, he said implementing agents do not follow SCM process. There are notable challenges. If a 40 hectare pivot stopped working and a farmer planted crops, if the farmer has to wait 21 days for the Department to assist the farmer, and for bids to be advertised, he asked how this will impact production, and if the Department cannot provide in-house services.

He also asked if the Office of the Auditor-General has not advised the Department to follow better SCM processes to avoid non-compliance with SCM processes.

On the implementing agents of the Department, he asked what the cost benefit is of getting contracts, and if the Department implements programmes through the organisations, as opposed to getting contractors. He also asked if a different route was looked at. 

The Chairperson thanked the Auditor-General for the presentations. The AGSA presentation is supposed to assist the Committee to engage with the Department’s Annual Report, as well as to hold the Executive accountable. There are seriously evident management challenges within the Department, and the presentation highlighted the issues which need to be questioned by the Committee. Investigations have not held those responsible accountable for actions. The Chairperson asked the Auditor-General if the Department has a problem, or lack of capacity to address:

• Poor financial statements, which are often subjected to material adjustments after being submitted.
• Non-compliance with legislation, which includes the late submission of financial statements.
• The failure to assess grants allocated for recapitalisation of farms, and accounts for monies supposed to be repaid by beneficiaries.

The Chairperson asked which factors contribute to inadequate expenditure monitoring in ALHA.

He also asked about outsourcing project implementation to commodity organisations, which leads to flaunting supply chain management prescripts.

The Chairperson asked for the Auditor-General’s view on the use of commodity organisations for work which could be implemented by government officials, in the former Department of Rural Development and Land Reform (DRDLR) and Department of Agriculture, Forestry and Fisheries (DAFF).

He also asked about the impact of commodity organisations in improving productivity of farms. He wanted to know, if so, if there was value for money in using commodity organisations.

He asked if the delayed report from ALHA was a result of engagements with the Department, AGSA, and Treasury. He wanted to know because it appears part of the reason for significant irregular expenditure is non-compliance with supply chain management, and conditional grants, without support to farmers.

The Chairperson asked what the nature of the dispute was which required intervention from Treasury; asked about the outcomes of the engagements with Treasury; and asked if the key commitments from the Department regarding the R566 million were expressed to the Office of the Auditor-General.

The Chairperson asked why the audit outcomes of the Department were stagnant for the past five years. The Auditor-General raised concerns regarding financial statement preparations and material mistakes in financial statements. He asked why this is happening, and how the matter is being addressed.

The lack of proper record-keeping and internal verification was flagged by the Auditor-General, and the Chairperson asked how this impacted the process of audits.

The Chairperson said conflict of interest between departmental employees and other departments was flagged as well. He asked for a deeper understanding on the matter and asked which action was taken, especially in mitigating the risks.

The Chairperson asked which conflict of interests were identified, and which departmental officials it impacted.

He asked for the exact number of investigations, with specifications on the number of internal investigations; how many are with the Special Investigating Unit (SIU); the age analysis of the investigations; and how many were completed during the current term.    

Responses

Regarding the recommendations in the action plan and what will happen when the merger happens, Ms Komape said all the accounts from the former departments will remain effective. This means the financial statements signed off on, or audit opinions provided, will still be expected to be worked through.

The merger will not disregard old accounts. It will allow processes to be streamlined to address some of the internal control deficiencies. There was a qualification for the former Forestry, but Forestry moved and merged with Environmental Affairs. Only in such an instance can an account be disregarded, because it was moved and it will be audited as part of the new account, being Environmental Affairs. All individual accounts will still impact the newly merged departments and the deficiencies will still need to be addressed.

On the successes identified by the Auditor-General in the Department, she said departmental targets and indicators are noble in nature, and it is rare for the indicators and targets to be labelled as useless. The Office of the Auditor-General supports the Department in relation to the Annual Performance Plan (APP) processes, where the APP’s are shared with the Auditor-General, and insight is given to the Department to try and strengthen the indicators and targets.

On the role of the Auditor-General, she said the Auditor-General role arises from the Constitution as an assurance provider compelling the role of referee, and player at the same time. When audits are conducted, focus is placed on individual findings and areas and recommendations are proposed.

The Auditor-General also conducts the Status of the Records Review. Here, the Department and entities are visited during the year, and a highlight of red flags is done to avoid bad report outcomes at the end of the year. Action will always rely on management.

On some grants not being repayable by beneficiaries, she said unless a proper assessment is conducted the fiscus will remain unknown. The PFMA and Treasury regulations say all the money which belongs to the Department must be well-taken care of, and there is no room for fruitless and wasteful expenditure. If money is allocated to farmers and work is not done, it is the Department’s and the entity’s responsibility to ensure the money is recovered. The PFMA places the same responsibility on the accounting officer. If the assessment reveals it is not possible for the Department or the entity to recover the money misused, then the amount must be written-off. Capacity is required to address challenges, DRDLR was able to correct issues, and the preventative measures are encouraged by the Auditor-General.

Regarding if the Department has a problem or lack of capacity, she said it is a combination of factors. The Department was not identified as not having capacity, but the monitoring process in the Department was found not to be as strong as expected to enable leadership to achieve goals. The internal control area revealed there was inadequacy in monitoring because the Department has a strong audit committee and internal audit. It should be able to assist the Department in addressing the issues immediately when it occurs.

On value for money in the use of commodity organisations, she said AGSA is aware there could be areas which need to be supplemented. There could also be unforeseen events the Department experiences. Assistance in the form of commodity organisations and implementation agents is allowed, but if it is not possible to follow the lengthy supply chain processes then the prescripts allow for deviation. However, the deviation process must be followed. The officials of the Department may not always be able to deal with issues and may need to seek assistance externally. The prescripts need to be followed to ensure processes are fair and accommodate any party who may be interested in participating in the processes with the Department. 

On outstanding debts, Ms Michelle Magerman, AGSA, said the beneficiaries are given a grant and there is an agreement on how the funding/grant will be used, and what it will be used for. Beneficiaries then need to return to the Department to show how the grant was used, by either providing an invoice, or any form of verification.

On the agreement, if the funds are not utilised then a debtor is raised and the beneficiary is required to repay the outstanding funds.

On the R566 million, she said this amount is the funds given to beneficiaries, and verifications of utilisation were not provided. There is a project monitoring process of obtaining the verifications and invoices contract by contract to determine what the beneficiaries used the money for, and if the beneficiary needs to repay the money or not. If so, then the funds can be closed off.On the dispute from Treasury, she said it was on the R566 million, and the resolution was if there should be an indication beneficiaries did not use the funds. There was an agreement on the resolution, and the Department said the recommendation will be considered.

On increasing irregular expenditure, Mr Ditodi said there is no arrogance in addressing the matter, but there is speed in the implementation of internal control enhancements.

On the findings in relation to the implementation of agents, he said the Department signed agreements with implementing agents and in the process, some of the implementing agents procured goods on behalf of the entities. The PFMA says if an implementing agent is required for procurement, the implementing agent must follow all supply chain management prescripts as if the procurement happened within the Department.

Another instance is where the implementing agent would do the procurement and the supplier invoices the entity or the Department directly. The supply chain management process must still be followed. There are two options available to the Department and the entity in this case. The first option is if the Department or the entity understands, because of the nature of its operations, services might be required on an emergency basis. This could be a competitive tender and a panel of service providers would be set up to respond to its needs. If the panel is well set up then services will be delivered efficiently. All the service providers on the panel need to be approached equally to fulfil services.

The other option is, in an emergency, the Accounting Officer can approve a deviation. On the role of Treasury in assisting the Department to ensure accuracy in the financial statements, he said the Department submits quarterly financial statements, but Treasury does not audit the financials. The Department does not use any consultants on the preparation of financial statements.

Regarding if the interests of the 2019/20 financial year were informed by the rentals, he said there are currently rental payments and other categories where invoices are paid on rates and taxes, or security services.

On the reason for the action plans not bearing fruit, he said when the Department or entity drafts an action plan, the plans implementation dates are mostly until year end, which is 31 March. AGSA will evaluate if the action plan is adequate and if there are deficiencies, it is highlighted in the Status of Record Review.

During the year, it becomes hard to test the action plans because management is usually still drafting the plans. AGSA then has to wait for the implementation of the action plans to assess it.

On the assistance provided by AGSA to systems, he said the Office of the Auditor-General tries not to be a referee and a player at the same time. The Department was told the data held by the Auditor-General belongs to government and can be accessed through Treasury.

Regarding if the Department can provide services in-house, and the cost benefit of getting contracts, he said it depends. The implementing agents are paid two percent of the project fee, and bringing in in-house services is possible, but if in-house is considered it must not result in excessive costs being charged to the Department instead of the two percent. A cost benefit analysis would have to be conducted by the management of the Department.

On value for money, he said the Office of the Auditor-General highlights areas where there is no value for money. Fruitless expenditure in the Department, and in ALHA, even in the previous financial year, did not increase.

On the issues of conflict of interest among employees of the Department and other departments, he said the Department was given the exceptions.

On the investigations, he said the age analysis can be provided by the Department. There were 45 internal investigations concluded, 42 ongoing internally, and 32 SIU investigations concluded.

On the usefulness of performance indicators and targets, he said what is meant is, the APP and Annual Performance Report indicators are noble, reliable, and are useful. If 20% was achieved, 20% is reported.

On the request to share the Department’s conflicts of interests and list of investigations, Ms Komape said the information can be provided by the Auditor-General because it was used in the auditing process. The DRDLR was not far from attaining an unqualified report with no findings, but the discipline around supply chain and in-year monitoring need to be strengthened. It is the nature of AGSA to primarily highlight where things can be done better.

The Chairperson confirmed the reports on the conflicts and investigations are expected by the Committee in preparation for the engagements with the Department.

Follow-Up

Ms Mahlatsi asked what the role of Treasury is in the financial statements, if the statements are accepted and kept.

Ms Komape said AGSA cannot answer for Treasury. Treasury remains the key institution which provides guidance and sets the standards. The Department reports in line with the Cash Modified Standards, which are drafted by Treasury to guide the Department on how to prepare financial statements. The PFMA places full responsibility of the validity and accuracy of financial statements on the Director-General. The role of the Auditor-General is to verify if the accounting officer’s information is aligned to the prescripts and framework.

The Chairperson thanked the AGSA for the responses and said the information will be used in the engagements with the Department on the APP. The Chairperson said the reports which need to be forwarded are awaited by the Committee Secretariat, and will be used to measure the successes and the challenges of the Department.

On the Committee’s oversight in KwaZulu-Natal, the Chairperson said the Committee was told R205 million was spent on drought relief programmes, but there was no evidence of drought relief. Beneficiaries did not know about the money, and the cattle allocation which the Department claimed happened.

The Department needs to be held accountable for the false claims and wrongdoings of the officials, and the law needs to be applied so monies are recovered. The Committee, through the work of the Auditor-General, needs to follow every cent spent by the Department, and to account to the citizens of South Africa.

The Chairperson thanked the Deputy Ministers for attendance.

In-house Matters

The minutes of the Committee were adopted.

The joint sitting with the Portfolio Committee on Labour will be on 19 March 2021. All the necessary documents will be forwarded to the Committees.

The meeting was adjourned.