In a virtual meeting, the Portfolio Committee was briefed by the South African Weather Service (SAWS) and the South African National Biodiversity Institute (SANBI) on their annual reports and financial statements for 2020/21.
Both entities reported that the Covid-19 lockdown had had a severe impact on their activities and revenue.
The Committee was told that the SAWS received an unqualified audit opinion for the year ending 31 March 2021. A material deficit of R16 578 568 was incurred as a result of a significant reduction in the revenue streams from the aviation industry.
There was irregular expenditure of R14.6 million resulting from a flawed head office lease process. The former CEO resigned after he was suspended and a criminal case against him was pending.
SANBI reported a material deficit of R78 612 416 as a result of a significant reduction in its ability to generate its own revenue due to lockdown regulations. It received an unqualified audit. However the audit found that effective and appropriate steps were not taken to prevent irregular expenditure amounting to R17 489 342. Most of the irregular expenditure was caused by noncompliance with SCM regulations.
Members congratulated both entities for an improvement in their performance. However they noted that their audits, in spite of being unqualified, emphasised concerns about financial controls and compliance with regulations. They also enquired about the action taken against officials responsible for irregularities.
The Chairperson welcomed everyone to the virtual platform. The agenda was adopted. The Chairperson said the SA National Biodiversity Institute (SANBI) had presented their fourth quarter report to the Committee the previous week. She asked SANBI to focus on matters they felt they had not already mentioned. Members had read the annual reports, so the focus must be on audit outcomes and the audit action plans of SANBI and the SA Weather Service (SAWS). She commended the SAWS for the progress they had made against the multiple setbacks they had experienced. However, they needed to improve on their audit outcomes. For six years, the audits had raised compliance issues and this needed to change. It meant that the audit action plan had not been sufficient to deal with the issues or the plan was not being implemented. The Chairperson said Members expected to be briefed on consequence management to deal with non-compliance.
SAWS Annual Report and financial statements 2020/21
Ms Nana Magomola, Chairperson, SAWS Board thanked the Chairperson and Committee Members. She said this was the current board's last appearancge before the Committee as their term was coming to an end at the end of the year. She said on behalf of the board that they really appreciated the great relationship the board had had with the Committee. The board appreciated the oversight role the Committee played and was grateful for the guidance and support provided over the years.
She confirmed that the majority of SAWS staff werve still working from home and that they had been provided with sufficient equipment to perform their tasks. The SAWS had lost time and work due to the Covid-19 lockdown and recent load shedding had made it difficult to perform their task. The biggest challenge to the SAWS was revenue generation and the impact of the lockdown has made it even harder. She said Mr Ishaam Abader, CEO, SAWS, would make the presentation.
Overall Annual Performance
Mr Abader told the Committee that the SAWS had four targets under Programme 1 - Weather and Climate Services - and all four targets were achieved. In Programme 2 - Research and Innovation - all three targets were achieved. In Programme 3 - Infrastructure and Information Systems - there were seven targets. Four were fully achieved and three were partially achieved. This was largely due to cancelled conferences and research papers that were not reviewed. In Programme 4 - Administration - there were six targets. Three were fully achieved, one was partially achieved and two were not achieved.
The effects of COVID-19 on the financial health of the SAWS meant that numerous vacancies could not be filled as planned. Priority was given to filling those vacancies evaluated as critical. The filling of 25 positions was deferred due to the financial constraints. Further, an exercise was undertaken to review the organisational structure and ensure its relevance and alignment to the strategic intent of the entity and manage an exponential increase in employee costs.
Women Advancement Programme
Despite financial constraints, the SAWS continued to introduce programmes to ensure an adequate, appropriately skilled, transformed, and diverse workforce. Among these programmes was the Women Advancement Programme which extended over 12 months. The programme aimed to drive gender equality and diversity by building a talent pool of female employees who would be readily available to take up senior positions whenever there were vacancies. A total of 15 employees were nominated to participate in the programme which was scheduled to end in March 2022.
The Committee was told that the SAWS received an unqualified audit opinion for the year ending 31 March 2021. A material deficit of R16 578 568 was incurred as a result of a significant reduction of the public entity’s regulated revenue streams that depended on the aviation industry. This was due to travel restrictions and lockdown regulations imposed by the government throughout the year.
Reported performance information for Programme 3 - Infrastructure and Information Systems - was found to be useful and reliable, and in accordance with the criteria in the performance management and reporting framework.
The regularity audit noted that detection controls implemented by the supply chain management unit identified significant irregular expenditure which could have been avoided if adequate preventative controls had been implemented earlier.
The Committee was told that a revenue turnaround strategy was being implemented. The results would materialise in the next one to three years. Cost containment measures were implemented. A government conditional grant of R124 million was converted to an operational grant to enable the SAWS to pay part of its operational expenses; and the Department of Environment, Forestry and Fisheries allocated a once off capital expenditure grant of R100 million over three years for infrastructure investment.
Consequence management on irregular, fruitless and wasteful expenditure
The Committee heard that the financial operating deficit was due to the fact that during the past two financial years revenue, especially from Aviation, had decreased by more than R100 million compared to the pre-Covid-19 era. The SAWS was awaiting condonation from the National Treasury.
As at 31 March, there was irregular expenditure of R14.6 million resulting from a flawed head office lease process. The former CEO was suspended and later charged with a number of charges relating to corruption and fraud. Prior to the conclusion of his disciplinary hearing, the former CEO resigned. A criminal case had been opened. The SAWS was awaiting condonation results from the National Treasury on the irregular expenditure.
Another matter involved an operating lease where no prior approval was obtained for deviation. A regional manager was suspended and resigned before the disciplinary hearing. No financial loss and irregular expenditure were discovered after the resignation.
Disciplinary action was taken against an employee for not adhering to supply chain management (SCM) policy in the installation of a fibre line. The employee resigned. No financial loss or irregular expenditure were discovered after the resignation.
Consequence management processes involving SCM officials were also completed. A final written warning was issued to the Manager, SCM. A warning letter was issued to the Senior Manager, Finance.
Ms Barbara Creecy, Minister of Forestry, Fisheries and the Environment, apologised for joining the meeting late and said she was having some connectivity issues. She had to join from a different device and would listen to the Members’ comments in the meantime.
Ms A Weber (DA) said she remembered when the Committee had stated that the situation at the SAWS was really bad and that it faced multiple challenges. There had been significant she congratulated them on their improved performance. The SAWS still had a long way to go but they were committed to solving issues at the entity and that needed to be commended. She was also happy to see that consequence management had started and will continue. She asked what the date was for the court case against the CEO who had resigned. She asked whether the SAWS had a plan that enabled them to continue with disciplinary action when an employee resigned.
Ms S Mbatha (ANC) referred to slide 16 of the presentation. She did not understand the reference to work in progress. This should have been a completed matter and there was also no monitoring and evaluation. There must be continuous monitoring and evaluation. Another slide referred to load shedding. The SAWS should have prepared a plan to be ready for load shedding. Instruments needed to work all the time as the SAWS also dealt with air quality, which was very important.
Mr P Modise (ANC) welcomed the presentation. He said he SAWS was one of the most important entities of the DEFF. He said there was no organisational sustainability within SAWS. How would this be fixed as important targets were not achieved?
Mr D Bryant (DA) said he was very impressed by the SAWS presentation and their improved performance. There were certainly some challenges which needed to be remedied going forward. The challenges with revenue generation were understandable given the lockdown and the South African economy being stagnant. This issue needed to be addressed immediately, however, and an alternative revenue generation plan needed to be developed and implemented. He asked about the R100 Million grant and how the money would be spent over the next three years.
Ms N Gantsho (ANC) pointed to slide 30 and asked how critical those positions that could not be filled were and whether it would hinder the progress of the organisation. She said not much attention was paid to people living with disabilities and asked how this would be incorporated in the equity plan.
The Chairperson asked about the Global Atmospheric Watch programme. She wanted an explanation about the usefulness of the programme, what work it entailed and what its objectives were. She asked whether the capital expenditure grant would address some of the challenges in achieving this target. On the target the SAWS had set for infrastructure availability, she asked whether this was the best they could do.
Ms Magomola said the matter regarding the former CEO had to be solved by laying a criminal charge against him. The CEO decided to resign before formal disciplinary action could be instituted against him and the decision was taken to open a case against him.
Mr Abader said consequence management was well underway. The SAWS had followed up on the case against the former CEO, but could not get an indication of when the matter would be concluded. The SA Police Service was exclusively responsible for concluding this case. There was a trend within the SAWS, where staff members resigned before disciplinary actions were instituted. There was a recovery policy in place and these members would still be liable for their actions. Steps would be taken regardless of whether they were former employees or not. The SAWS only laid criminal charges when the matter was of a criminal nature.
He said most of the equipment at the SAWS came from overseas and was quite expensive. Problems in accessing some of the SAWS’s sites and in the supply of some of the equipment hampered efforts to reach some of its objectives. The SAWS was currently busy with the procurement process for uninterrupted power supply which would help it to run its equipment even when there was load shedding. The SAWS was starting to implement standard operating procedures which would strengthen SCM processes. The process would also be systemised.
Revenue generation was one of the most crucial aspects of the entity. Government funding was dwindling and the SAWS was working on a plan for alternative revenue generation. The R100 million grant received would be spent on upgrading infrastructure and refurbishing some of the SAWS sites. The focus would be on critical infrastructure.
The SAWS was able to fill all the critical posts. The process to fill the less critical posts would start soon. The SAWS was focusing on people with disabilities and had hired a service provider to help with this issue. The service provider had indicated that people within the SAWS didn’t declare their disabilities.
Referring to the Global Atmospheric Watch programme, Mr Abader said South Africa was one of the most prominent observation points and provided critical information to other regions. This programme would assist in that effort and recognised South Africa’s importance in atmospheric observation in the region. South Africa was one of the countries that were doing well in monitoring greenhouse gases, but the procurement and upkeep of the equipment could be expensive.
SANBI Annual Report and financial statements 2020/21
The Chairperson also noted the performance improvements at SANBI. She said she was glad the entity was making progress. The only issue was their audit outcome. She said she was excited that national parks were open again. This was the season when South Africans visited National Parks. This should be a positive indicator for SANBI.
Ms Beryl Ferguson Chairperson, SANBI Board, said SANBI reached 98 percent of its targets. The past year had been very difficult. The closing of national parks meant no revenue was coming in and the organisation had to develop innovative solutions. She commended SANBI employees for their hard work during this time. She said the newly appointed CEO, Mr Shonisani Munzhedzi, would make the presentation.
Mr Muzhedzi told the Committee how SANBI had dealt with challenges to the implementation of planned activities:
- There was ongoing monitoring and management of the budget and capacity constraints to limit the impact on operations and the achievement of targets in the Annual Performance Plan (APP).
- A Post-COVID-19 Marketing Plan with clear deliverables was developed and additional marketing platforms were utilised to increase revenue.
- Efforts were made to strengthen marketing campaigns to improve visitor numbers in national botanical and zoological gardens.
- The allocation of funds from the Presidential Employment Stimulus Programme (PESP) to the National Botanical Gardens and National Zoological Garden assisted in relieving pressure on SANBI’s operations.
- The ‘Lockdown and Working from Home Policy’ provided opportunities to conduct online engagements, workshops and seminars with a wider reach.
The Committee was told that the Institute’s overall financial position was solvent, with total assets exceeding total liabilities by R570 million. It was liquid, with the current assets of R417 million exceeding the current liabilities of R227 by a margin of R190 million. Current assets had decreased by R74 million (18 percent) from the previous financial year, mainly due to a R64 million decrease in cash balances. The cash balances from the previous financial year were used for operating expenses, thus depleting the funds held for infrastructure projects.
Non-current assets had grown by R26 million ( six percent) from the previous financial year mainly due to computer equipment and software purchased during the year. Current liabilities had increased by R23 million (10 percent) from the previous financial year due to an increase in unspent conditional grants and non-exchange transfers payable. These were mainly related to project obligations. Non-current liabilities had increased by R7 million (11 percent) from the previous financial year as a result of the actuarial valuation of employee benefit obligations.
SANBI received an unqualified audit opinion. The Auditor General put emphasis on the following matters:
- Application of a new accounting standard and the related transitional provisions. Management described the challenges they faced during the first year of adoption of this new accounting standard. Transitional provisions provided by a Generally Recognised Accounting Practice (GRAP) directive had been applied. This indemnified the entity from recognition and measurement of living resources for a period not exceeding three years.
- A material deficit of R 78 612 416 was incurred for the 2020-21 financial year as a result of a significant reduction in the entity’s ability to generate its own revenue during the financial year. This was mainly due to lockdown regulations imposed by the government throughout the year.
- The financial statements submitted for auditing were not prepared in accordance with the prescribed financial reporting framework. The auditors identified material misstatements of current liabilities and expenditure and in the statement on comparison of budget information with actual information. They were corrected, resulting in the financial statements receiving an unqualified audit opinion.
- Effective and appropriate steps were not taken to collect all revenue due.
The audit found that effective and appropriate steps were not taken to prevent irregular expenditure amounting to R17 489 342. Most of the irregular expenditure disclosed in the financial statements was caused by noncompliance with SCM regulations
Effective steps were not taken to prevent fruitless and wasteful expenditure amounting to R588 015. Most of this was the result of the penalties and interest on late payments.
In some instances, disciplinary steps were not taken against officials who had incurred irregular expenditure and incurred fruitless and wasteful expenditure.
Internal control deficiencies
The technical indicator descriptions (TIDs) and relevant planning documentation for some performance indicators were not compiled in a manner that avoided ambiguity about targets. Proper systems and processes were not consistently established to ensure that all similar measurable outputs would be recorded consistently. In addition, the strategic planning process did not ensure that the output indicator took account of the budget required to complete and achieve the desired targets. Preventative compliance monitoring controls had not been adequately designed and implemented to avoid repeat findings on non-compliance.
The Committee was told that the checklist for the preparation of the annual financial statements had been updated to ensure that the gaps are addressed. GRAP training for all finance staff members was scheduled to take place in February 2022. The year-end plan had been updated and discussed with finance staff for an early closure of the general ledger. This would allow adequate time for review of supporting documentation and the financial statements. Senior management had received a presentation on areas for improvement and on the importance of adherence to year end timelines.
Disciplinary steps had been taken in regard to most of the irregular expenditure transactions. Condonations amounting to R122 914 216 had been approved by National Treasury. A request for condonation of a further amount R35 612 466 had been submitted. The remainder of R3 064 506 was still subject to the disciplinary processes and would thereafter be submitted for condonation. Processes against fruitless and wasteful expenditure were still in progress.
Management was enforcing compliance with relevant policy. A quarterly review of the recoverability of debt was being conducted and where necessary payment arrangements were put in place. An audit improvement plan had been prepared immediately on receipt of the audit report. A review of processes for preventative controls was conducted in August 2021 and corrective measures were implemented. A standard operating procedure manual on the prevention of irregular, fruitless and wasteful expenditure had been developed and implemented. Workshops would be held with non-finance staff members to capacitate the organisation.
Targets for the 2021/22 financial year were reviewed and further amendments would be made to the technical indicator descriptions. Technical indicators for the 2021/22 financial year were reviewed to ensure that there was consistent recording of achievements. Planning processes were reviewed to ensure that there was proper sequencing of activities. The planned output indicators were being used to inform the budgeting cycle going forward.
The Chairperson said SANBI should have presented in the format that the SAWS used. She also asked them to update the presentation regarding the remedial action and present it to the Committee the following day. She said the information on consequence management was also not sufficient. It must be updated and more information must be added. She asked SANBI to submit these revised reports in writing to the Committee. She asked members if they still wanted to proceed under these circumstances. She said SANBI would continue their presentation the following day.
Mr Bryant said he agreed. Going forward SANBI should document its programmes well. He said the presentation was good, but the Committee would like that final document to engage on this report.
The Chairperson said SANBI would return the next day to finalise the report. Members would then get a chance to engage on the report.
The meeting was adjourned
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