DEFF & MLRF 2020/21 Annual Report; with Minister.

Meeting report

Minister’s Input
Minister of Forestry, Fisheries and the Environment, Ms Barbara Creecy, thanked the Committee for convening with DFFE. She noted that all relevant parties are present within the meeting and introduced to the Committee the Department’s new Chief Financial Officer, Ms Andiswa Jass.

She noted that the Department had made some progress regarding financial accountability however the Department had areas of weakness. In terms of progress, all five of the Departments entities have unqualified audits. In the 2019 financial year, only two entities were unqualified. This is an important step forward. Unfortunately, the Department itself remains with a qualified audit and two matters of emphasis.

She noted that the Chairperson made the important comment that compliance with the Public Finance Management Act (PFMA) is a basic norm and is a requirement of all government departments. All the money we have received in the Department itself is public money and because of this we have a duty to comply with the PFMA, and to ensure that our financial statements comply with accounting principles.

She noted it is a source of shame to her, that the Department is receiving its third qualified audit. The Department has not achieved this basic requirement or norm that the Chairperson outlined in this morning’s meeting.

She had told the senior managers in the Department that they all carry collective responsibility for this failure and that they must collectively hear the strong words from the Committee, for their failure to achieve an unqualified audit.

She expected that the Committee is going to be tough on the Department. The Department is not here to plead for mercy. The Department will explain what they have done since they received the previous qualified audit; it will take the Committee through the plan, and what progress they have made. The intention of this is not to make excuses but to share in an open and honest manner the difficulties the Department is facing, and also the progress made on these difficulties.

The Department has also put together details on consequence management, which was requested from the Committee this morning.

She requested that the Director-General make the two presentations and will be assisted by the CFO.

Introductory Remarks by Director-General
Ms Nomfundo Tshabalala, Director-General, DFFE, thanked the Chairperson, the Committee, and the Minister. She noted that she is accompanied by various Deputy Directors-General (DDG) from the Department, and its CFO. She then introduced all the DDGs to the Committee.

She noted that in terms of the progress made, the Department has been qualified for the financial year 2020/21. She confirmed that as a Department, they are not pleased by this outcome. This has been the third qualified audit that the Department has experienced.

Progress made on the Plan on Audit Outcomes for 2019/20
Ms Tshabalala highlighted that the Department had obtained:
• “adverse with findings” in 2017/18,
• “qualified with findings” in 2018/19, and
• “qualified with findings” in 2019/20.

The Department was required to submit annual financial statements by 31 July 2020 to the National Treasury, and the Auditor-General of South Africa (AG) for auditing purposes. The Department obtained permission from National Treasury to submit the annual financial statements for audit purposes on 30 September 2020 because of the challenges experienced with the preparations of these statements and the audit process during the Covid-19 lockdown period. The AG finalised and provided the Department with a signed audit report on 23 December 2020.

AG on the Overstatement of Accruals
The Department recognised accruals where it did not meet the recording requirements as prescribed by the relevant chapter on the overstatement of accruals (R56 million). Status: This has been resolved and the action plan has been finalised.

Audit finding on Overstatement of Commitments
The Department did not implement appropriate systems and controls to properly account for commitments. Status: This has been resolved and the action plan has been finalised.

Audit finding on Goods and Services
The Department did not obtain sufficient or appropriate audit evidence for the amounts disclosed in note 5 of the financial statements and this resulted in the AG not being able to confirm the adjustments to goods and services (outsource services). Value: R1.3 billion in 2018/19, R2.2 billion in 2017/18. Status: This has been resolved and the action plan has been finalised.

Progress made on SCM improvements include recommendations that the Department should revise its functionality criteria for tenders such that there is compliance with the Preferential Procurement Policy Framework Act, 2000 (which was implemented from 1 April 2020).

The DEFF should revise its practice of appointing the same officials to serve on the BSC and BEC. The functions of bid specification and evaluation should be segregated in order to minimise the risk of collusion between officials (which was implemented from 1 April 2021).

The DEFF should implement a system whereby all BSC, BEC and BAC meetings are digitally recorded. Such recordings should be filed for reference (which was implemented through MS Teams since April 2020).

On skills development and full capacitation in the SCM unit, this is still work in progress. The Director-Acquisition Contract management was appointed. This went into effect on 1 September 2021. Training in the form of workshops were provided to the SCM staff and end-users)

Discussion
The Chairperson opened the floor for members of the Committee to ask the Department questions.

Ms A Weber (DA) noted that record-keeping was a serious problem and that it is at the basis of everything.

On consequence management, she asked if one suspends someone and the consequence management is appropriate, and they are suspended for three months without pay, then if they come back, is the problem categorised as skills-development or is it purely that the person is taking chances. A distinction must be made between these two. If it is skills development, then one can sort this problem out.

She thanked the Department for being transparent.

She asked for the name of the service provider used for 6-months. She noted that disciplinary hearings could take a while. How long will the disciplinary hearings take? She noted that a year-long disciplinary hearing is unacceptable. She commended the Department’s action plan, and she is hopeful that it would work.

Mr D Bryant (DA) commended the Minister for being open and honest in her opening remarks. It is very refreshing, but there is a level of disappointment amongst members that more had not been achieved up until now. However, the briefing given on consequence management, and other aspects, were appreciated.

He thanked the officials concerned for making the effort to ensure that the Committee had received more information during the course of the day. At the end of the day, we are dealing with money that is meant to be spent in the best interest of all South Africans, and its imperative that we ensure that every cent is accounted for and that it is being spent in order to improve the lives of all our people.

On officials attending the counseling processes, he said he took it that their individual performance would be proactively monitored going forward to ensure that they do not re-offend at a later stage. We would not want a similar scenario to reoccur at a later stage.

He asked whether or not the hiring process itself for some of these positions will be looked at once vacancies open. It does appear that if there are 36 officials seemingly being unable to fulfill their job requirements, this must be improved upon.

On underspending, the chemicals and waste management aspect was at 65%. He asked if he could get feedback as to why this was so low? What was the reasoning behind that underspend? In terms of ideas for improving on spending, can the Department expand on the different sourcing models? What is meant by the different sourcing models?

The Chairperson thanked the Committee for their questions.

Responses
Ms Tshabalala thanked the Committee for their questions. She requested that she be assisted in responding to the questions, especially regarding the HR disciplinary procedures, the time it takes, ensuring that employees are monitored, and that there are no re-occurrences.

Ms Mmamokgadi Mashala, DDG: Corporate Management Services, responded to the question on the disciplinary process. A disciplinary process is expected to take 90 days, however in this instance the Department has taken longer than anticipated. The reason is the sheer magnitude of the process with which the Department had to simultaneously deal. Planning took longer than expected.

On what the Department is doing to make sure that the problem does not re-occur, she said that as part of the counseling process there were elements of skills, and in this regard, there are processes being implemented in relation to skills development according to the requirements of legislation and other policies, specifically on SCM. The Department has put in place measures to review performance, which the Department is monitoring on a biannual basis to ensure that there is no reoccurrence.

On recruitment measures, the Department has implemented processes aligned to DPSA requirements: analysis of qualifications of senior management service members, and to determine that they indeed met entry-requirements of particular posts. Additionally, competency assessments are being looked into.

Ms Mamogala Musekene, DDG: Chemicals and Waste Management (CWM) responded that underspending was attributable to the reprioritisation that the Department had to effect. Taking some of the funds from our recycling enterprise support program and directing it towards the Covid-19 waste picker relief. The reason for the delay in spending is because the Department did not have systems running, and the Department needed to know who those waste-pickers were. The registration thereof was delayed because the Department had to get the system online. This system had to be linked to Home Affairs and the National Treasury Safety Web System. This all contributed to the delay.

The relief also included getting the waste pickers protective equipment. Those RT contracts were demanding, for instance, service providers could not supply the delivery of the PPE on time, which led to the Department underspending. Since CWM has managed to pay over 10 000 waste pickers, not everyone came forward because the requirements were specific. In the Department’s estimate, there are over 60 000 waste pickers, however only 14 000 came forward with requested documents. The rest did not come forward for one reason or another.

Ms Jass (CFO) responded to the question of the different sourcing models. Before the end of the financial year, the Department will assess its procurement plan, and look into the common commodities to determine whether it can put term-contracts in place. The Department is making use of transfer contracts; this occurs when the Department assesses the procurement plan upfront to ensure that the it is deriving economic benefits on what the government has put in place. The research that we are looking at is to ensure that we comply and are not found wanting. This research is being done so that we can find a workable solution to ensure that we have different sourcing strategies, and that we comply with laws and regulations.

The Minister noted that she raised the same question as Ms Weber when this matter was brought to her attention. She was told that was because the staff member concerned was at SMS-level, the disciplinary process is an external process, with an external chair, and an external finding and sentence. Thus, the Department must accept this situation.

If the DG or CFO cannot answer the question about who the service provider is, then the question must be answered in writing.

The Chairperson thanked the Minister. She asked the Department to comment on the Department’s office accommodation arrangement, through a public–private partnership (PPP). The AG also flagged how the Department reported the PPP arrangement and that it was not in line with accounting standards. The Department must update the Committee on the status of the PPP.

On the biological forestry plantations, she noted that this had resulted in a qualified opinion. However, upon reading the 2020/21 report (page 16), the Department stated that the section 42 process of the PFMA for the transfer of these biological assets was still outstanding. On the contrary, when reviewing the Portfolio Committee meeting of 9 November, the Department of Agriculture, Land Reform and Rural Development stated categorically that its audit outcomes were improved due to the transfer of these biological assets. Can the CFO or DG explain the contradictions between the reporting by the officials of the Agriculture Department and the DFFE on the transfer of biological products? Who is the current custodian of these biological assets?

She noted that there was an article in the Daily Maverick in October 2020, which spoke about abalone poachers. The Daily Maverick reported that community members in places such as Kleinmond were resorting to poaching, which contributes to the community. What is the level of co-operation between the DFFE and fishing communities experiencing illegal fishing? What is the extent to which the DFFE has implemented the alternative livelihood strategy? Which communities are involved?

She asked what were the verification findings under the year of review. How much progress has the DFFE made in the FRP-process regarding the issue of the temporary unplanted areas in the DFFE category B and C plantation which remains high. Looking back at 2019/20, the DFFE planted 551.5 hectares instead of 945 hectares. In the present year under review, the DFFE has not planted a single hectare. Can the DDG responsible for forestry management, explain the reason for blaming supply-chain processes and limited time for planting. At face value, the reasons given could be flagged as poor planning by the DFFE and cannot be used as justification. Can the DDG also provide an update for the Committee on the current state of temporary unplanted areas in the country and the breakdown of a provincial level?

She noted a report from the South African Medical Research Council wherein they conducted a study in two landfill sites in Gauteng. They found that waste pickers suffer from respiratory illness. Can the DDG responsible for CWM, please tell the Committee to what extent is the DFFE collaborating with sister departments to address these challenges faced by waste pickers.

One of the missed targets is the publication of the 2018 State of the Forest Report due to the delay in printing and publication. With all these available platforms, what has stopped the DFFE in publishing the report online?

There are issues in the filling of vacant posts in Corporate Services. What has been the major limiting factor in filling these posts in our technological context? Zoom interviews could happen. Can the DG of Corporate Services please explain? What is the difference in the 263 posts that create confusion in the vacancy rate of 6.6% and 13%?

What is the delay in the finalisation of the Aqua-Culture Development Bill? This deals with the limited exposure to people from inland communities on the opportunities presented by the oceans.

The Minister suggested that all the questions pertaining to fisheries be answered when the Marine Living Resources Fund briefing commences which was the next item on the agenda.

The Deputy Director General of Forestry Management responded to the transfer of biological assets. The transfer process, in terms of signing off on the transfer certificate, has not been finalised. This is because all the assets signed off by the DFFE are to be verified. The DFFE is in the process of doing so and have set a target by mid-December that verification is done.

On the temporary unplanted areas, she confirmed the DFFE has experienced a lot of challenges with this target and have not been able to achieve it in the previous year because the DFFE usually plant in the last two quarters of the year. As there was a lockdown at the beginning of that financial year, we were unable to do planning in terms of procuring seedlings to ensure that we could plant trees at that time. Due to the lockdown, we experienced high levels of theft and vandalism in our plantations.

On publishing the forest report, there were delays in finalising the report. We were unable to publish it on time. We have published it online and we have successfully achieved that target.

She asked the Committee if a breakdown per province of TUP may be responded to in writing.

On waste pickers and the health risks that they face at landfill sites, this is a reality. The Department’s intervention involves working with waste pickers’ associations and the provinces, to allow for waste pickers to work in a more controlled environment, in terms of mitigating health risks. The waste pickers are producing a service to which the producers of these materials are gaining a benefit. The DFFE is working with stakeholders to implement extended producer responsibility. The DFFE is also working with waste picker associations to compensate waste pickers by November 2022.

Ms Mashala responded to the Corporate Management questions. During level five of lockdown, DPSA had issued a circular prohibiting activity meant to be issued. The reason for this was because the candidate would not have an opportunity to submit their applications for consideration and the Department did not want to disadvantage candidates in terms of job opportunities. Thus, departments were not advertising posts in levels four and five of the lockdown.

We are implementing virtual processes as far as recruitment is concerned. In terms of the difference between the 13.3% and 16.6%, the Department has a total of 263 posts which currently are on the post-establishment as approved, however they are unfunded. This is what makes the difference in terms of the additional numbers, taking us to 13%. We only account for the vacancies that are funded on the human resource plan in the immediate financial year, which is 271. This is what currently has resulted in the 6.6% vacancy rate, as this was prioritised in the current financial year.

Ms Jass responded on the issue of the PPP. Since the Department has entered into the PPP agreement, we have been accounting for the partnership as a finance list. In the financial year 2020/21, the AG assessed the agreement and indicated certain technical elements when we account for a finance list, all the risks and rewards should be transferred, however in the AG’s assessment it met the criteria of the operating list. As a result, there was a splitting of costs challenge, as there are elements that are fixed and operational in nature; it is a technical matter. The Department has requested assistance from the office of the Accountant General to assist us in outlining and clarifying technicalities.

The Chairperson thanked the DG and DDGs for their responses.

Briefing by the Marine Living Resources Fund
Ms Sue Middleton, Acting DDG: Fisheries Management, and the CFO of the Marine Living Resources Fund (MLRF), Mr Wickness Rooifontein, presented the MLRF Annual Reports and Financial Statements for the 2020/21 financial year.

While the presentation was loading on Zoom, Ms Middleton responded to the question regarding abalone poaching in Kleinmond. We would need to acknowledge, as the Fisheries branch, that abalone poaching and the near-shore species is very prevalent, particularly in the Overberg region. Abalone poaching is also common off Robben Island. It is a very difficult issue to get under control as it involves syndicate crime, with high demand from the East. It is an organised crime beyond the capabilities of the Fisheries branch. It does require a co-ordinated response from the security cluster amongst others. She thinks the Department can do a lot more to work with communities in the management of illegal fishing and the Small-Scale Fisheries Policy makes provision for co-management structures. The MLRF is in the process of setting these co-management structures up in the coastal provinces of Northern, Eastern Cape, and KwaZulu-Natal.

On the alternative livelihood programme, the APP states that the Department will implement the piloting of the alternative livelihood in two coastal communities situated in the Northern Cape and Humansdorp in the Eastern Cape.

On the FRAC-policies, the application process opened on 1 November. It is a two-step process. The first part, which is an online registration, runs until 22 November. The second part, which allows applicants to upload their applications and relevant supporting documents, starts on 22 November. The policy for the requirements will be gazetted this week. The Department has given extensive energy to categorising all the comments received from the public consultation process.

The Aqua-Culture Development Bill was finalised and was ready for resuscitation under the sixth administration, however after requests from stakeholders for further consultation we have delayed the process, and the Bill will be revived in the next financial year.

Regarding the Inland Fisheries Policy, this has been approved by cabinet.

She explained that in terms of the FRAC-15 process, there was a statement that said all successful right-holders will be subjected to a forensic audit, to see whether the information that they provided us is valid and legitimate. We have appointed a service provider, who will conduct forensic investigations into all the successful right holders. This audit has not started yet but as soon as the reports are ready, we can share them with the audit committee. In conclusion, the Department is on track to allocate the FRAC-21 rights by 31 December. The applications close on 7 December, and adjudications will follow immediately after that.

She then proceeded with the MLRF Annual Reports and Financial Statements for the 2020/21 financial year. She skipped to slide 18 as the first part is on the performance information which is very similar to the quarter four report, which we have tabled. The AG expressed an unqualified audit opinion. This is an improvement, because in 2018/19, we received a disclaimed audit with findings, and in 2019/20 we progressed with a qualified audit with findings, and now we are on an unqualified audit with findings. We will work very hard to put a strategy in place to deal with those findings.

Some of the 2020/21 challenges include material corrections done after the AFS were submitted for auditing as well as noncompliance with GRAP. However, the remedial action includes Generally Recognised Accounting Practice (GRAP) training planned for January 2022 and key positions have been advertised. Management has implemented the preparation of AFS on a quarterly basis to ensure compliance with GRAP. Another challenge includes capacity challenges; however, vacancies have been filled which include Director: SCM, Director: Finance and CFO.

The MLRF appointed a service provider to investigate irregular expenditure dating back to the 2013 financial year. The investigation was finalised after the audit. The recommendations of the report will be implemented in the current financial year.

Previously there was irregular expenditure dating back over many years. The opening balance was R183 386 615 (these are individual amounts that were incurred under DAFF) in 2018/19. This was deemed irregular.

Mr Rooifontein presented the Audit Action Plan for the MLRF. The audit finding included material adjustments and noncompliance with the PFMA and GRAP. The remedial action includes GRAP training planned for early next year. Interim financial statements will be prepared on a quarterly basis in order to improve the quality, accuracy and validity of financial reporting. The filling of vacancies to address capacity matters is ongoing.

Audit Finding of Irregular Expenditure
The remedial action does not include any material SCM matters, as reported by the AG for the current year. Training has been provided by the Office of the Chief Procurement Officer (OCPO) in Treasury and the DTI to the SCM staff, end-users, and bid committees for SCM and local content aspects. More training is planned for SCM and end-users through the National School of Government.

Audit Finding of Expenditure
No material finding was reported by the AG on expenditure. Management has nevertheless ensured that reconciliations are performed on a monthly basis to identify erroneous allocations.

The MLRF liquidity ratios signal that the MLRF is financially healthy and is a going concern. The cash is adequate to cover current liabilities. The debtor’s collection lead time is less than 30 days which means cash to pay creditors is always available. All revenue streams improved compared to the 2019/20 financial year, except for government grants, interest, and service in kind. The government grant reduction was to assist the National Treasury on funding Covid expenses. Expenditure was tightly managed to ensure cost containment was adhered to, especially taking into account the impact of Covid where funding had to be found to procure PPE.

Fuel prices are impacting negatively on vessel operating and transport cost. These costs remain the primary cost drivers of the MLRF. The Africana vessel lifespan has been extended twice. The original lifespan of the Africana was 25 years and is currently at 40 years. The vessel has been decommissioned in order to replace certain of its components.

In conclusion management is liaising with the AG on various matters raised in the current year. These involve more internal control matters. Management is currently capacitating the MLRF. Management has already started implementing the recommendations of the AG. The Accounting Authority has strengthened the governance structure within the MLRF by appointing the internal audit function as well as new audit committee members. The risk committee will be strengthened with a full time Chief Risk Officer.

Discussion
The Chairperson thanked the MLRF for their presentation and opened the meeting to questions posed by Committee members.

On abalone poaching, Mr Bryant said the Aqua-Culture Bill will be vital to disincentivising  abalone poaching.

He thanked Ms Middleton for her comprehensive report. He asked who the service-provider was for the internal audit.

On irregular expenditure, he asked if third-parties, including members of SAPS, that could be involved in poaching activities? SAPS must play a large role in policing poaching.

He said the presentations were comprehensive in covering the points that he wanted to raise.

Ms Weber was happy with the appointments. She asked what was meant by “charter” and if it was a risk management policy that the MLRF was implementing. 

Ms T Mchunu (ANC) asked whether everyone in the SCM team would receive training of GRAP, or just particular people.

On the current liabilities of the entity, do they mean that the liquidity ratio is okay? Does it also include the salaries of the entity’s employees?

Responses
Ms Middleton responded that the service provider is called the Audit Risk Management Advisory Services.

She confirmed that the MLRF has a disciplinary case against Gaansbaai fishery control officers who allegedly colluded with poachers and have been charged criminally. She confirmed that the MLRF does not have a risk officer as this position got frozen. The DG has assisted the MLRF.

She responded that the risk charter is not the same as a risk policy. The risk committee needs to have a risk charter. Our audit, internal-audit, and risk committees are all required to have charters in addition to policies.

Mr Rooifontein confirmed that training for GRAP will be for all the people in the office of the CFO. They must know all the GRAP standards. The MLRF salaries are paid for by the Department. The liquidity ratio does not cover the salaries.

The Chairperson referred to slide 20 of the presentation. She asked whether the Minister considered whether the MLRF can be absorbed into the Department? She was raising this question because the entity relies on service providers for basic functions. If the Department can absorb the MLRF, it can reduce the operational costs and improve accountability. On slide 20, it says that the MLRF appointed a service provider to investigate irregular expenditure. She asked what the cost was for this investigation.

She also asked about the breakdown of the UIF and the consequence management to identify the officials responsible.

The Minister responded that the MLRF is a trading entity, meaning that it receives revenue, and its budget is based on the revenue received for fishing licenses. Thus, it will be difficult to be absorbed into the Department. We have come a long way with this entity. Previously, the MLRF was bankrupt and had many vacant posts; it is a difficult sector. She noted that the team has done a good job to stabilise the entity. The last couple of years have been a stabilisation and recovery phase.

She requested that the Committee allow the MLRF to submit their answer in writing concerning how much the MLRF paid to the service provider for the investigation into irregular expenditure
.
Mr Rooifontein responded saying that the cost for that service provider was between R450 000 and R480 000.

The Chairperson asked the MLRF to submit the costs in writing as well as address the UIF in terms of consequence management.

The Minister agreed that these would be provided in writing.

The Chairperson was glad that the Department was trying to fill all vacant positions. The Committee appreciates this effort. The new recruits must make no excuse and must appreciate the challenges the Department is facing.

The Minister expressed her gratitude to the Committee and welcomed the opportunity for the Department to report to the Committee on the audit action plan and to follow up on any issue of performance. She thanked her colleagues and the Committee for convening with the Department.

The Chairperson adjourned the meeting.