In virtual meeting together with the Minister, the Committee was briefed by South African Tourism on its 2021/22 Annual Report. The SA Tourism interim board chairperson said that this was the first time in 17 years that it had received a qualified audit report.
The Committee members raised the R33 million irregular expenditure and asked how it had come about. They stressed that the Auditor General findings had been reoccurring and asked how SA Tourism planned to resolve these. They noted that the SAT internal controls were deemed not effective. On the concern about the previous SA Tourism CEO's relationship with Tourism Marketing South Africa (TOMSA), the Minister was asked why the CEO had not faced consequences for the alleged corrupt relationship. Members pointed out that a Covid-19 fourth wave was looming and asked for the Minister’s position was on this and if there were any preparations. Concerns were also raised about the irregular expenditure of the Covid-19 relief fund where funds were allocated to undeserving beneficiaries. Members were not pleased about the incomplete projects despite the funds being exhausted.
Minister of Tourism, Ms Lindiwe Sisulu, said that they had met with Auditor-General South Africa and the Auditor-General zeroed in on the critical aspects of the audit that the Minister needed to pay attention to which was the CEO aspect of the audit outcome. The seemingly corrupt activity was detailed and it was requested to pursue this expeditiously. She made an undertaking that she will meet with SAT Board and the Auditor-General and will revert to the Committee on consequence management and recovery of the lost money.
There had not been an opportunity to meet with the SA Tourism Board to discuss this further. She would consider the matters that had been raised. The Ministry and Department was present today and there would be a meeting later with the SAT Board to resolve the matters that the AG had pointed out to her. The AG also advised her to investigate the background of a potential CEO before appointment. She promised to take appropriate steps to remedy the Auditor-General findings. It is the right thing to do; it is the only thing to do.
SA Tourism (SAT) 2021/22 Interim Board Chairperson remarks
Adv Mojanku Gumbi, SAT Interim Board Chairperson, said that the SA Tourism Board had a profound sense of disappointment at the qualified audit. She explained the context. SA Tourism has a dual relationship with the Tourism Business Council of South Africa (TBCSA) and one aspect was a financial one, where the first relationship was governed by the collaborative fund. The collaborative fund was within TBCSA which followed SCM processes but supported projects by SA Tourism in some instances. The second relationship was where TBCSA collected levies on behalf of SAT then transferred them to SAT which then became part of the SAT’s income and those had to follow the SAT supply management processes. So, the moment the President announced the 21 million targets for bringing in international tourists, SA Tourism went into an overdrive to meet the target. All stakeholders were mobilised. An understanding developed that TBCSA would support some of the SA Tourism activities, which was done. TBCSA started paying the invoices (that led to the qualified audit) long before there was clarity about which fund should have been used. The SAT executives submitted invoices to TBCSA which were paid. Later it was communicated those invoices should have come from the levy and not the collaborative fund. After there was correction in the funds allocations it seemed that SA Tourism had not complied with its own internal control systems – whereas all along everyone was under the impression that there had been communication about the funds coming from the collaborative fund. The Minister had said that SAT had no Chief Executive Officer. However at the time that the funds were wrongly allocated there was a CEO who left at their own accord. The then CEO had confirmed that the fund that was supposed to be used was the collaborative fund.
South African Tourism 2021/22 Annual Report
Ms Sthembiso Dlamini Acting CEO and Chief Operations Officer, said that late in March 2021, several European countries entered the Covid-19 third wave and faced lockdown as Germany and parts of France and Italy imposed renewed restrictions. The announcement of several viable vaccines suggested the beginning of the end of the pandemic was in sight. However, the road to recovery would not be a straight and smooth one. All regions are still experiencing reduction in international tourism of more than 70% compared to 2019.
International arrivals are the slowest of all indicators to recover, with travel and re-entry restrictions the most likely drivers. USA and India are recovering faster than other priority markets but are still 86% lower than pre-pandemic levels.
Vaccine incidence and infection rates play an important role in determining future travel prospects into South Africa. Arrivals from African countries are the quickest to recover. African land and air exhibit the greatest level of inbound recovery but are still 76% and 77% lower than in 2019. Medium-term recovery will therefore be largely dependent on African arrivals, with Mozambique, Namibia and Zambia showing the highest recovery to date.
The 2020/21 Annual Performance Plan had 28 targets across five programmes. The performance recorded was discussed for these programmes: Corporate Support; Business enablement; Leisure Tourism Marketing; Business Events; Tourist Experience (see document).
SAT Financial report
Ms Nombulelo Guliwe, SAT Chief CFO, discussed the revision of the 2020/21 Annual Performance Plan that resulted in an adjustment to the associated financial resources, resulting in about 66% of South African Tourism’s annual budget being paid back into the National Revenue Fund. The 2020/21 annual budget was allocated to projects aimed at re-igniting demand, building internal capability and supply side rejuvenation.
In Progamme 2: Business enablement, the approval to retain funds for the Marketing Investment Framework (MIF) system led to the expenditure being recognised in 2020/21 in line with GRAP.
SA Tourism R622.1 million total expenditure, which comprised of marketing and overheads expenditure, was audited by Auditor-General South Africa (AGSA). A limitation on completeness of expenditure of R16.8 million led to a qualification on the expenditure line item for transactions paid by TOMSA, which accounts for 3% of SA Tourism’s 2020/21 annual expenditure. The associated credit leg of the transaction was also qualified. To mitigate future risk of qualification SAT has not incurred similar transactions in the current year.
Irregular expenditure disclosed in note 36 decreased from R162.5 million in the comparative financial year to R45.13 million in 2020/21. Irregular expenditure in 2020/21 was mainly due to not following a competitive bid process.
Risk Management, Human Capital and Governance
Through ongoing efforts, SA Tourism reduces its risk profile by managing risks effectively. The identified risks and their ranking were managed through specific monitoring.
The vacancy rate is 8.9% with 18 vacancies, of which two vacancies are at top management level and three vacancies at senior management level. By year end, SA Tourism had 184 positions filled of a staff complement of 202.
The Minister appoints the SA Tourism Board as the accounting authority. The Tourism Act stipulates that the Minister appoints a minimum of nine and a maximum of 13 members, for a period of three years.The Board consists of non-executive and two executive directors appointed by the Minister in line with the Tourism Act. The Minister is yet to appoint the CEO.
Ms H Winkler (DA) stated that there were 19 out of 45 findings by the Auditor General which were recurring findings. She asked what SAT was planning to do to ensure that such occurrences did not happen again. What had been done to ensure procurement and contract management processes follow the law and regulations, especially with management bypassing enterprise content management (ECM) processes? Has SAT followed up on the AG recommendations for investigation and what were the outcomes? Were there any investigations underway?
On the recently held African Travel Summit that SAT hosted, what were the outcomes and how were they going to be implemented? Also, how would its success be measured?
Mr P Moteka (EFF) asked if the irregular expenditure on service provider appointments was a new or recurring finding and if so, why? He asked why SAT used funds without Treasury’s permission. Why do these problems reoccur every year? He asked for an explanation on how the Covid-19 relief funds could be given to people without identity numbers, to deceased people, to people who benefit from UIF and to municipal employees. How were the people involved dealt with?
Mr H Gumbi (DA) said that the highest risk faced was tourists being able to access the country with the fourth wave approaching. What would the Minister’s approach be about the effect of the fourth wave on the tourism sector – since it had suffered the most?
Would Cabinet or the Command Council decide? Would there be a counter proposal to a lockdown which could hurt the sector?
Ms S Xego (ANC) asked what SAT planned to do to correct the identified problems and would the audit action plan be made available for the Committee. Where there no indicators that a problem was coming? What does SAT saying about its internal controls? The Committee needed an update from the Minister on the recruitment of the CEO. She suggested that with the investigations on consequence management, dates should be attached so that the Portfolio Committee is able to hold SAT accountable.
Ms P Mpushe (ANC) asked what measures were in place to avoid reoccurrence of the audit findings? The presentation seemed promising about its internal controls. Was the Department reassured about the internal audit control’s function and effectiveness? What ensures its effectiveness? How were relations between the Department and SAT? How often did they meet to assess performance and guide SAT? What were the details about the resignation of the Chief Operating Officer who is Acting CEO? Had the post been filled? At what level of senior management was the conflict of interest that circumvented the procurement process? Was that related to the R33 million irregular expenditure?
Why were there no records about the implementation of the Tourism Marketing South Africa (TOMSA) levy on the goods and services for the marketing costs related to Covid-19 interventions? She requested that the forensic report be given to the Committee. On the R33 million irregular expenditure on the TOMSA levy, why did SAT issue bids without a competitive bidding process on goods and services procured through the third parties?
Ms M Gomba (ANC) referred to the presentation where the Board Chairperson stated: “In order to improve our internal control’s environment we have tasked management to develop and implement an audit improvement plan which will be monitored by our audit and risk committee.” She asked if the monitoring was implemented only later by the Department, how was the audit and risk committee relationship before? She requested the Minister follow up on the functionality of the risk and audit committee, if it was listened to and if its recommendations adhered to
A report was not submitted in the past two financial years about projects paid for and funds fully used but the projects were never properly completed. How was the money going to be recovered for those projects? When would the investigations be completed? About the monitoring and evaluation system placed in the Department, 23 out of 28 key performance indicators were achieved and five unachieved. Was there a system that showed the achievability of the Annual Performance Plan?
The PFMA was not complied with which indicated a lack of understanding of the legislation which showed that the officials were unqualified for their positions. What was the monetary value of the KPIs that were not achieved? How much went back to Treasury because of underspending or underperformance?
SA Tourism response
Ms Guliwe, CFO, confirmed that SAT had not had an audit action plan in place but it had a continuation of online internal and external audit findings that were tracked and monitored independently by the SAT internal audit function. The report was tabled and at the end of the financial year it contributed to the SAT performance report included in the presentation and subsequently audited by the AG. The appointment of service providers was a new finding which was linked to the findings of investigation report.
Ms Amanda Kotze-Nhlapho, Chief Convention Bureau Officer, replied that the Africa Travel and Tourism Summit was held to start a recovery plan and to engage with other African countries. The purpose of the summit was to reintroduce Africa to the global industry and discuss what would and would not work for the industry. No decisions were taken that weekend. The information would be used to craft better marketing sales plans; how technology would be used; and how Netflix could be partnered with in positioning South Africa and Africa as a travel destination of choice.
Ms Sthembiso Dlamini, SAT Acting CEO and COO, replied that of the four KPIs, the key unmet KPI was business mapping and automation. The expenditure had been 50% of the total value. The other 50% was rolled over to 2020/21 and all processes were followed. The other three were non value KPIs. On the effectiveness of risk and internal audit and what had been done to ensure it was strengthened, she confirmed that the work on mapping of business processes, supply chain management and contract management were prioritized and had been finalized. They mapped and aligned the relevant policy and legislation to ensure compliant processes. The supply chain management (SCM) and contract management systems were automated to minimize human error.
Ms Dlamini said the CFO was placed as chair of the adjudication committee to strengthen the bid and to ensure compliance. It also strengthened the evaluation committee and scoping meetings by partnering with National Treasury that had completed the training of staff. They had revised delegation of authority that looked at financial thresholds which was one of the internal controls to ensure line of sight at board level. Before entering a partnership, there was an approval process that was introduced going up to board level. Another way SAT strengthened its internal control environment was it started with a combined assurance model which was maturing.
SAT had monitoring systems for performance indicators. The previous year’s performance was 62% and 2020/21 was 83% which showed improvement. The executive team looked at the dashboard which showed how far SAT was in implementing the KPIs and achieving targets. All unmet or partially-met KPIs were highlighted on the dashboard as high risk and recovery plans were implemented. Although not all SAT targets were met, the Committee can be assured that performance was strengthened with that jump from 62% to 83%.
Mr Mduduzi Zakwe, Audit and Risk Committee chairperson, said SAT had taken into consideration the accumulation of findings, hence the business automation project. Having automated controls significantly reduced control deficiencies. When the AG raised findings, management tended to correct only the findings whereas it was advisable to look at the root cause of the problem. To avoid irregular expenditure on goods and service providers that were not qualified, management was asked to use computer assisted audit techniques for verification.
Concerning the qualification due to lack of quality performance information, management had put in a turnaround plan on purchase transactions to ensure the findings were dealt with. In Mr Zakwe’s view, if the controls mitigated the risk for the board, then it was effective. If one looked at the risk profile, control was achieved to some degree. The Board has stated that for every tender, senior management must be checked for conflict of interest.
Adv Mojanku Gumbi, SAT Interim Board Chairperson, stated that in 17 years this was the first time SAT received a qualified audit. She promised the Committee to check if the information of the first qualified report was correct. The board was the one to pick up that there was a problem with the allocation of the expenditure with the collaborative fund instead of the levy that Tourism Business Council of South Africa (TBCSA) collects on behalf of SAT. The board instructed the internal audit to investigate the matter without informing management. A report was brought back, a forensic audit was commissioned and the board shared this with the AG and the Minister. Thus it was the board that picked up that the allocation of the spending was to the wrong fund. In the process it was found out that the executives - the CFO and the CEO - were assured that it was the collaborative fund by the person who had left the organisation voluntarily long before the investigation was completed.
Adv Gumbi reported that the CEO post had been advertised and shortlisting was done, interviews were conducted during Covid-19, but no one was eligible for the position. Then SAT found a head hunting service provider which was discussed with the Minister. The Minister asked if it was possible to continue with the acting CEO but the acting CEO would be moving to become the CEO of a sister organisation in December 2021. Adv Gumbi likewise was the interim chair of the board – which she did not mind – but the organisation needed stability.
Adv Gumbi said that the SAT did not have the capacity to check IDs for the Covid-19 relief fund. She assured the Committee that SAT would never use public funds in an irresponsible way.
Adv Gumbi clarified that once the forensic report was issued, letters were issued to those officials who we thought should have exercised better judgement even though they were given assurances. They had responded to the Human Resources board subcommittee which was working with HR and lawyers to decide whether to proceed with an appropriate sanction, and that should be done in the next two weeks according to the timeline.
Adv Gumbi replied to the question about the recovery of the money paid to the two companies saying that the companies came back for more payments. Lawyers for SAT applied to court to review if the companies should be paid the remaining amount according to the contract or rather instead the companies owed SAT for having not completed the work although some work had been done. SAT awaited the affidavits to be drafted for the review of the contract by the court.
On the qualified audit report, Adv Gumbi explained it is not that there were no measures; however, there were changes in the delegation of authority. SA Tourism deals with a lot of money. To launch a global marketing campaign takes millions due to the exchange rate. The board wanted to have some control without putting the organisation on hold waiting for the board to authorise spending. The delegation of authority was changed to R10 million.
On competitive bids, the executives thought that the bids were issued by TBSA. Later after paying some of the invoices, TBSA came back in writing stating that it was not managing it through the collaborative fund but through the levy so SAT should bid.
Adv Gumbi hoped that the audit and risk committees worked well having seen how they operated. She agreed that there was no place for non-compliance.
Follow up questions
Mr Moteka repeated the question about the projects that had never been completed or reported completed but that had not existed. He noted the Barberton project which cost R24 million that never existed and the building in Mafikeng which had no roof. The use of funds and extending contracts without Treasury’s permission was not honestly answered. The CEO said it happened once but in both 2019 and 2020 R48.9 million was used without permission.
Mr M De Freitas (DA) asked what had been done to bring the previous CEO to book if he was the cause of the qualified audit.
Ms Gomba asked why SAT depended on the TOMSA levy for correct information instead of setting up its own systems. It is going to be a continuing problem.
Adv Mojanku said the organisation was taking advice on how to deal with the person who left the organisation before the investigation was complete.
Ms Dlamini replied to Mr Moteka there was no awareness of the R48.9 million; rather she knew of the R130 million irregularly spent in 2017/18 on an extension of a contract.
Mr Victor Tharage, Director General of National Department of Tourism, said the 2018/19 audit report pertaining to EPWP capital contracts dating from 2005 to 2014 was dealt with. Investigations were conducted and it was taken to law enforcement agencies and the State Attorney where there were delays. Internal disciplinary hearing processes had been initiated. Strangely, the disciplinary hearing chairperson at the time dismissed hearing the matter in 2020 saying they were too old – which was irrational conduct as it was an outcome of a 2019 audit and investigation. The Department took two of the cases to the High Court for review. They are using the services of DBSA and performance is much better. The fruitless and wasteful expediture will remain on the books until the entire law enforcement process is completed
The Chairperson said that they needed a full report on the Auditor-General findings. She asked the Minister to follow the money and ensure the audit action plan is implemented and hold the SAT board accountable. Vacancies must be filled so there is enough competency to ensure accountability that speaks to good governance.
Minister Sisulu responded that she was not aware of the TOMSA levy and only found out when the AG pointed it out in the audit report. The AG was concerned that there was no consequence management in that a person could jump from one job to an equivalent job without consequences. She agreed that the matter was of importance. She had promised the AG that she would personally attend to this. She would meet with the AG again and report in person to the Portfolio Committee.
The meeting was adjourned.
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