Provincial Treasury & Western Cape Gambling Audit Outcomes & Annual Reports 2020/21

Meeting report

Opening Remarks by the Chairperson

The Chairperson opened the virtual meeting, welcoming the Members and all the guests in attendance. He said that the meeting would be split into two parts, with the first part being confidential and closed to the public – the closed part of the meeting would be the interaction with the Auditor-General of South Africa (AGSA) while the open part of the meeting would be the Committee interaction with the Provincial Treasury and the Western Cape Gambling & Racing Board.

Remarks by the Western Cape Minister of Finance and Economic Opportunities

Minister David Maynier appreciated the opportunity to present to the Committee, before handing over to the Head of Department for the presentation.

Briefing by the Department: Western Cape Provincial Treasury 2020/21 Annual Report

Mr David Savage, Head of Department, informed the Chairperson about a technical feedback glitch with his connection. He expressed that it was hampering him from delivering his presentation.

Mr R Allen (DA) and Ms M Maseko (DA) requested that the Chairperson allowed Mr Savage to log out of the meeting and back in.

The Chairperson agreed, after which Mr Savage proceeded.

Mr Savage said that 2021 has been an extremely difficult year with many pitfalls that Treasury had experienced, given the pandemic and its disruptions to operations as well as the additional demands that had been placed on the provincial treasury. These challenges resulted in an underspending of the budget vote, particularly in the procurement of equipment related to Information and Communications Technology. The AGSA reported also placed emphasis on material underspending on Administration, Sustainable Resource Management and Asset Management. There were disruptions in the recruitment cycle, which prevented the Department from completing appointments and filling its vacancies.

Part C of the Department’s annual reports covered the different types of risks that were identified as threats that may lead to underperformance for FY2021/22. Emerging risks included an increasing economic pressure due to budget cuts and further outbreaks of COVID-19; increased demand for municipal support services due to a reduction in municipal income; as well as potential non-compliance with Protection of Personal Information Act (POPIA) and the associated regulations.

He said that the Provincial Treasury remained committed to ethical governance, enforcing a zero-tolerance policy with respect to corrupt, fraudulent or any other criminal activities. There were no such cases identified for the year under review. The Department also plans on being alert to all emerging risks, and taking steps towards strengthening its municipal management systems – in order for it to maintain its unblemished record of clean audits that it had sustained for the last eight years.

In order to minimise conflict of interest, financial disclosures were submitted by all senior managers; no actual conflicts of interest were identified. The Department’s internal control environment remained robust; it conducted investigations on losses, irregular expenditure as well as fruitless and wasteful expenditure. The Department also conducted post-audits on payments; it facilitated and reported on the outstanding internal-audit action plans that were handed over to it. There were four assurance audits, one consulting engagement and four follow-up audits. The Department also indicated that the Auditor-General’s report reviewed the implementation plan for audit findings raised in the previous year. The Department concurs and accepts the AGSA’s audit opinion.

See Annual Report for further details

Discussion

The Chairperson indicated that both reports of the Department and the Western Cape Gambling and Racing Board would be interrogated, starting with Part C of each report.

Ms N Nkondlo (ANC) asked about budget and fiscal stability in the municipality, and pointed to treasury’s remarks about the constrained ability of treasury to improve conformance by municipalities to laws and regulations in the supply chain management (SCM) environment.

She asked what else the Department had planned anything extra, other than what it had indicated, because the officials mentioned that the Board primarily would be focusing on the law and using the available legal instruments in as far as adherence and ensuring some kind of fiscal discipline and stability.

What would be the type of constraints from your side in as far as the same environment is concerned and how are you mitigating this particular risk mentioned in the presentation concerning this?

Mr Savage responded that fiscal instability was indeed a constraint. As mentioned in the meeting with the Standing Committee on Finance, the Department’s approach is both enforcement and enablement. On the enablement side, historically, the Department tried to do as much of its activities in person with municipalities, but the pandemic had disrupted that. “It may well be bringing us some long-term efficiencies but it does mean we have had to shift gear in a way to be able to provide more support in an online environment”, he added. Previously, training and support would have been done through site visits to the municipalities, and so forth.

He reckoned that this was obviously very important for detailed explanation of what were often some quite arcane elements of supply chain management regulation. However, the enforcement side is really a very complex regulatory environment, where interpretation is everything. There can often be some complexities and differences of opinion between the Department’s supply chain management specialists, those of the municipalities, those of National Treasury as well as the AGSA. In that environment there was often uncertainty, and regulatory uncertainty was always undesirable. Concerning this, the Department had elevated the issue quite significantly, tabulating its concerns over regulatory ambiguity in the municipal SCM space. They had shared these with National Treasury in the province. Subsequently, they had also submitted these to the Technical Committee on Finance. He said that they were getting regular feedback on the matter, and they were expecting to receive more of it soon. In short: fiscal stability remained a risk but the Department was committed to ensure that it alleviated it.

The Chairperson pointed to page 135 of the report on the governance structure of the audit committee. He asked about demographic representivity and why some members had attended less meetings than others.

The HOD replied that they were very fortunate in the audit committee to have very highly skilled and capable members. He said that the representativeness of the committee as something that had been considered during the appointment, but it was obviously a function of who applied and how long people had served on committees. Western Cape government had a policy that one could not be an audit committee member indefinitely. He said that the attendance of members was a reflection of the terms of office of the individual members – when they commenced and/or exited office.

Ms Nkondlo asked the Department for explanation on the irregular expenditure as indicated in the report. How did how had this come about? The same question also related to fruitless and wasteful expenditure. She also wanted to ascertain how the Department had attended to these anomalies.

She recalled that, on page 140, which had dealt with the contingent contingencies, the Department had not listed the elements of broad-based black economic empowerment in its presentation. Information indicated that they had managed to win the case. However, it had been taken on review.

On the contingent liabilities, as indicated in note 17, in reference to the litigation, she had asked the Department for a thorough explanation on what ‘accrued revenue’ for the Department meant.

Mr Savage replied that he would request the board to respond to the question related to the fruitless and wasteful expenditure, and requested one of the Department officials to provide an explanation on what was meant by contingent liabilities.

Mr Aziz Hardien, Provincial Accountant-General, Western Cape, explained that contingent liabilities were liabilities that might be incurred by an entity depending on the outcome of an uncertain future event such as the outcome of a pending lawsuit. It was thus a worst-case scenario that meant financial outflow.

The CFO of the Department had responded to the question about the notes as indicated at 17.1 in the presentation. She explained that the two notes in question related to litigation that involved the Western Cape Gaming and Racing Board, and that this could possibly mean that the provincial treasury had not been directly involved and the Provincial Revenue Fund had been the affected entity.

The second note related to a matter that had been adjudicated by the Labour Appeals Court with regards to the ruling on salary increases that of course had been unforeseen.

The note thus indicated that the accrual had to be paid over that cruel it is just a note that the Gambling Board needed to pay over the surplus to the provincial treasury. This, however, had not yet been done. It also included the unspent conditional grants by municipalities that had to be returned to provincial treasury. X2522c1de

Mr Claude Bassuday, Chairperson of the Western Cape Gambling and Racing Board, said that the Western Cape Racing Board had won the case. However, it had been taken on appeal.

The Board’s Legal Manager explained that the irregular expenditure, as indicated on page 149, related to two matters that the board had undertaken, such as the procurement of training from the University of Las Vegas. In this matter, the board had failed to get tax confirmation for the suppliers from the South African Revenue Services (SARS).

The second matter related to money that had been spent in respect of the requisition of office furniture. This tender had not been put out for bidding, as the board had argued that it faced severe supplier management capacity constraints and therefore felt that it would just source the furniture itself in lieu of this.

The AGSA had then ruled that the board had been able to put the tender out despite the supplier management capacity issues it had faced. The amount concerned had been condoned by treasury, and the board therefore had no fruitless and wasteful expenditure recorded for the current financial year.

In respect of imported services, she indicated that the board had failed to pay value added tax to foreign suppliers. SARS had then asked the Board to go back five years and compile a list of all its foreign suppliers and funds spent on these suppliers. The board had done that. The board was then fined R2 560, which was interest payable for the VAT. She indicated that this process had been dealt with in the current financial year.

She said that the board had attended to this request by the AGSA, and that controls had been implemented – such as checking whether the board tested the market in its bidding processes, in order to prevent irregular, fruitless and wasteful expenditure. The board had not been a VAT vendor, but it then had to start paying VAT on imported services, where the service provider had not been registered with SARS.

Concerning the court case that had involved the Gambling Board, the Committee had been informed that the board had been empowered by the court case that had determined its right to set policy guidelines on BBBEE. “We now await a set-down date for the matter to be heard by the Supreme Court of Appeal”, she added.

The Chairperson asked about the R1.5 million irregular expenditure, as mentioned by the Board CFO. Was it based on the payment made to the University of Las Vegas?

The CFO responded that the R1.5 million was related to the furniture that was procured by the board. An amount of R462 000 was paid to University of Las Vegas for training services.

The Chairperson commented that the Western Cape had become ‘the champion of clean audits’ and could possibly present a whole course on how to obtain clean audits. He added that it had become common cause that clean audits had not necessarily translated into service delivery.

About this, he wanted to know whether performance auditing would be implemented in the province. More than 10 of the 12 department had received clean audits. He used the Department of Community Safety as an example of a Department that had received a clean audit. Yet, could it be said that citizens in the province had enjoyed a safe environment? He asked whether the Department had formulated a view about performance auditing, and whether plans had been afoot to implement such a performance-based auditing system. There is a need for a balance between clean audits and service delivery.

Mr Savage indicated that performance information is normally recorded during quarterly reports, and this had been done to keep it in sync and up to date.

The Department was not necessarily a public interfacing department. However, it does operate some – such as the Procurement Client Centre. The Department’s budget documentation information outlines what the provincial government does. He added that they wanted to ensure that the recordkeeping around the products that it produced fared well against the key performance indicators that it strived to achieve, and that the document system is well-maintained and easy to evaluate.

The biggest complexity that was imposed on the AGSA as well as the Provincial and National Treasuries had been operating in an online environment. The technical issues contained in Note 5 released by National Treasury, and the subsequent provincial circular 23 of the Western Cape government about procurement under disaster conditions had caused challenges. However, the process had led to a precedent on the role and responsibilities of provinces during disaster conditions.

On the integrated financial management system (IFMS), he reported that the Western Cape had been selected as a pilot province, and that it had been delayed nationally. Part of the reason for that was inadequate methodology. In its inception, the IFMS was intended to be rolled out as a cascading, top-down structure that integrated all government financial management system. This initiative proved to be easier said than done because it was expected to handle large-scale, active legacy systems (such as the PERSAL) that were already operational. As the provincial treasury, they did support the concept of the IFMS, and they had been very keen and active participants of the pilot project. Alongside that, the Department was planning to ‘ever-green’ its legacy systems such as BAS and PERSAL in order to optimise the value extracted from them, and undertaking data-cleansing work that would streamline the implementation of the IFMS. This would hopefully not only influence the final design of the system but the methodology behind it as well. He referenced Lithuania and the FBI’s case management database as examples. He called for a more nuanced approach, and reiterated support for the initiative.

He added that a clean audit was indicative of good governance and sound financial management. These provided a pathway to service delivery. He conceded that the Department had to focus more on performance auditing, other than just conformance. This process of audits remained compliance driven. He reckoned that departments might lessen their targets.

He also pointed towards the various tools at government's disposal – such as citizen engagement, and interaction with statutory stakeholders such as the AGSA, who had communicated an interest to be appraised on the reforms that the Western Cape had proposed.

The Department, he stated, had been focused on making sure that the document system had been well maintained.

He then asked Ms Nadia Ismail to elaborate further on the performance and the status of records process.

Ms Nadia Ismail, Director: Strategic and Operational Management Support, Provincial Treasury, reported that the internal controls rested with the CFO, and that it had been a desktop exercise. The Department had tested whether evidence had existed for all indicators. This had not been the case previously. This influenced a decision to check the performance evidence on a quarterly basis.

The Chairperson stated that the provincial treasury might need to take the lead on audits, as some departments had a litany of serious findings. He requested the Department to indicate how entities would be assisted with audit outcomes.

Mr Savage said that he saw the Department’s role as an enabler and enforcement. Assistance to departments had been transversal and department specific. He added that lessons always had been learned from audit processes.

Mr Hardien added that various programs and training opportunities had been made available to those departments that required it.

All departments had addressed the AGSAs concerns, and none related to the previous year.

The Chairperson called on stakeholders for closing remarks.

Minister Maynier thanked the Committee for the interaction.

Mr Savage apologised for the technical glitch at the start of the meeting, and thanked the Committee for the opportunity to appear before it.

The chairperson of the Gambling and Racing Board promised to furnish Ms Nkondlo with the BBB judgement.

The Chairperson excused the Department from the meeting.

He then said that that the support staff should be allowed to finalise Committee reports on the recent meetings conducted.

There had been no public participation.

He thanked Members for attendance.

The meeting was adjourned.