DIRCO & African Renaissance Fund Annual Report 2021/22; with Deputy Minister

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International Relations

12 October 2022
Chairperson: Mr S Mahumapelo (ANC) & Mr B Nkosi (ANC) (Acting)
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Meeting Summary

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International Relations and Cooperation

African Renaissance and International Fund

In a virtual meeting, the Committee received a briefing from the Department of International Relations and Cooperation (DIRCO) on the Department’s and African Renaissance Fund’s annual performance reports.

The Deputy Minister said multilateralism remained a focal point of DIRCO’s foreign policy in its engagements with organisations such as the United Nations and the G20. Its engagements were premised on the need to advance the priorities reflected in the national development plan and to advance South Africa’s national interest and those of Africa and the global south. South Africa has continued its commitment to maintaining the objectives of the Brazil-Russia-India-China-SA (BRICS) partnership to enhance the growth and development of not only South Africa, but Africa as a whole. The BRICS partnership was critical for the country's post-Covid recovery. 

In their annual report, DIRCO had an overall performance achievement of 97%. There were 32 targets for this reporting period and 31 were achieved. The only target that was not achieved was in Programme 3 on the system of global governance, where a bi-annual progress report on the implementation of the approved strategy had not been produced. Details of financial variations were given, with many of the reasons being related to the effects of the pandemic lockdowns,

The ARF had achieved only six of its ten targets, with Covid again playing a part. It also reported a loss of R 216 million for the 2021/22 financial year, but said it would not affect the entity as a going concern as the projects were funded from the surpluses accumulated in prior years. It still had cash, and cash equivalents, of R719 million.

Committee Members asked DIRCO to submit an audit action plan and wanted to know why the Department had still not addressed the issue of consequence management. It also raised concerns about DIRCO’s ongoing information communication technology (ICT) challenges. They asked why the network contract had been extended for another six months, as this had been flagged by the Auditor General of South Africa (AGSA) as irregular expenditure.

Members referred to the financial misstatements from missions, and wanted to know whether corporate managers at missions had adequate financial skills, and what DIRCO was doing to address the issue. Rental deposits were being lost at overseas missions because of damage to leased properties -- what internal controls were being put in place, and what steps were being taken to recoup the money from those responsible?

Members also asked about the R63 million loan to Cuba and what it entailed. What progress had been made in establishing a property management unit? How much was it paying the British consulate for sub-leasing accommodation in New York? Who were the beneficiaries of ARF, and how did countries apply for ARF funding?

In the meeting yesterday, it was reported that DIRCO had improved its overall audit outcomes compared to the prior fiscal year. It had moved from being financially qualified with findings to financially unqualified with findings. The African Renaissance Fund (ARF) sustained a clean audit outcome mainly due to maintaining the basic financial discipline of preparing credible financial reports supported by reliable information, and the review and monitoring compliance with applicable laws and regulations.

Meeting report

Deputy Minister's overview

Ms Candith Mashego-Dlamini, Deputy Minister of International Relations and Cooperation (DIRCO), said that during this reporting period, the Department, its missions abroad and the rest of the world, had continued to deal with the impact of COVID-19 on traditional diplomatic operations worldwide. Nevertheless, South Africa, through its missions, had continued to focus on increasing investment into South Africa through focused investment promotion. DIRCO also pursued export promotion, identified new markets for South African goods, and promoted South Africa as the preferred tourism destination. DIRCO’s initiatives in these spheres aimed at combating the triple challenges faced by South Africa of poverty, unemployment and inequality, in line with the national development plan (NDP) and the medium-term strategic framework (MTEF).

During the first year of the pandemic, face-to-face meetings had not taken place, but the situation improved during the second year as the pandemic eased and more people were vaccinated. She said bilateral, political and economic engagements remained an important basis for strengthening political, economic and social partnerships in the various regions of the world. During this year of review, Africa continued to be the main focus of South Africa’s foreign policy. The pandemic had severely impacted the continent, and many countries on the continent were not sufficiently equipped to adapt to conducting business online. However, as restrictions were eased during the third and fourth quarters of the year, conditions had slightly improved for post-Covid rebuilding.

The Southern African Development Community (SADC) remained the primary vehicle for South Africa’s foreign policy to achieve regional development and integration within Southern Africa. For South Africa, a stable and prosperous Southern Africa was vital if the region was to fully integrate and prosper. South Africa continued to be a leader in the SADC region on peace and security matters in its position as chair of the SADC organ on politics, defence and security cooperation from August 2021 to August 2022. During the reporting period, South Africa continued to enhance the African agenda and the African Union’s (AU's) first ten-year implementation plan.

Multilateralism remained a focal point in DIRCO’s foreign policy in its engagements with organisations such as the United Nations and the G20. DIRCO’s engagements were premised on the need to advance the priorities reflected in the national development plan and to advance South Africa’s national interest and those of Africa and the global south. South Africa continued its commitment to maintaining the objectives of the Brazil-Russia-India-China-SA (BRICS) partnership to enhance the growth and development of not only South Africa, but Africa as a whole. The BRICS partnership was critical for the country's post-Covid recovery. 

She said that following the official enactment into law of the Foreign Service Act, DIRCO had commenced with the operationalisation of the Act, which would contribute towards achieving the goals and objectives as outlined in the national interest document that formed the basis for the execution of South Africa’s foreign policy. In line with DIRCO’s strategic objectives of the approved digital strategy, laptops and desktops had been distributed to all of DIRCO’s officials. During the year, the public diplomacy branch prepared targeted messages on various issues for use by missions during interactions in their respective countries.

Mr Zane Dangor, Director-General (DG), DIRCO, said Ms Brenda Molatlhegi, Chief Information Officer, would lead both DIRCO’s presentations. Ms Dineo Mathlako, Chief Operations Officer, African Renaissance Fund (ARF), would lead the ARF’s presentation, and Ms Hlengiwe Bhengu, Acting chief financial officer (CFO), would lead responses.

DIRCO Annual Report 2021/22

Audit of performance information

Ms Molatlhegi said DIRCO’s audit focus had been to determine whether the reported performance information was properly presented and whether the performance was consistent with the approved performance planning documents, to determine whether the indicators and related targets were measurable and relevant; and to assess the reliability of the reported performance information to determine whether it was valid, accurate and complete.

She said the Auditor-General had not identified any material findings on the usefulness and reliability of the reported performance information. It had received an unqualified audit outcome, with no findings.

Overall performance

DIRCO had an overall performance achievement of 97%, having achieved 31 of its 32 targets. In programme 1, all nine targets were achieved and in programme 2, all five targets were achieved. Programme 3 was on the system of global governance, and the target that was not achieved was to produce a bi-annual progress report on the implementation of the approved strategy. In programme 4, all seven targets were achieved, and programme 5 had one target which was achieved.

( See the presentation for further details)

Financial Information

Ms Molatlhegi referred Members to the financial tables on slides 39 & 40, and explained the financial variances of each programme.

Administration

The 17% variance was attributed primarily to the delay in the procurement process relating to information communication technology (ICT) projects, the delay in the implementation of the property management strategy due to delays experienced with the bid evaluation committees, and reduced travel expenditure due to lockdown restrictions.

International Relations

The 2% variance was primarily attributed to reduced travel expenditure due to lockdown restrictions and favourable exchange rates experienced on missions’ transactions.

International Cooperation

The 4% variance was primarily attributed to reduced travel expenditure due to lockdown restrictions and favourable exchange rates experienced on missions’ transactions.

Public Diplomacy and Protocol Services

The 11% variance was attributed to expenditure relating to the repatriation of South African citizens abroad, which could not be paid and processed before the financial year end, and reduced travel due to COVID-19 lockdown restrictions.

International Transfers

There was a 10% variance due to unspent funds earmarked for the South African Development Partnership Agency (SADPA), favourable exchange rates experienced at the time of payment for other transfer payments, and a reduction in the membership fees for the United Nations.

Compensation of employees

The -4% variance was due to the CoE ceiling implemented by National Treasury, which did not cover the cost for the filled positions.

Payments for capital assets

There was a 73% variance due to the delay in the procurement process relating to ICT projects, and the delay in the implementation of the property management strategy due to delays experienced with the bid evaluation committees.

(See the presentation for further details)

Audit Outcome

One of the Department's strategic objectives in 2021/22 was to achieve an unqualified audit outcome. The objective had been achieved, as it had obtained an unqualified audit opinion from the Office of the Auditor-General (AGSA). There were, however, matters of concern (findings on compliance) that were highlighted in the report that still needed attention.

With the development of the audit action plan, these matters of concern would be addressed in the near future, as they had been incorporated into the audit action plan. The plan had been reviewed by both the National Treasury and Auditor General to ensure that the root cause of this matter would be addressed.

The Department was striving for a clean audit in the coming financial years, and the build-up had begun with the implementation of the audit action plan and the implementation of the road map to a clean audit.

Matters of concern (findings on compliance)

  • The financial statements submitted for auditing were not fully prepared following the prescribed financial reporting framework, as required by section 40(1)(b) of the Public Finance Management Act (PFMA).
  • Effective and appropriate steps were not taken to prevent irregular expenditure, as required by section 38(1)(c)(ii) of the PFMA and treasury regulation 9.1.1.
  • There was no evidence that disciplinary steps were taken against officials who had incurred irregular expenditure, as required by section 38(1)(h)(iii) of the PFMA. This was because not all instances of irregular expenditure reported in the prior year had been investigated.
  • Some of the goods and services were procured without obtaining at least three written price quotations per Treasury Regulation 16A6.1, paragraph 3.3.1 of Practice Note 8 of 2007/08 and paragraph 3.2.1 of supply chain management (SCM) instruction note 2 of 2021/22. Similar non-compliance had also been reported in the prior year.
  • Effective and appropriate steps were not taken to collect all money due, as required by section 38(1)(c)(i) of the PFMA.

Discussion

Mr B Nkosi (ANC) congratulated DIRCO on obtaining an unqualified audit opinion. He said the Committee had struggled in the past to get an audit action plan from the DIRCO, and requested that it manage the process better and submit a plan to the Committee the moment they started implementing the plan. DIRCO also had to report to the Committee on the progress of the audit plan. He asked to what extent the Deputy Director Generals (DDGs) were involved in ensuring the audit action plan was implemented, particularly regarding consequence management, as this was a matter that had not been attended to. He asked what the relationship was between the team responsible for implementing the audit action plan and the internal audit function. Did the internal audit team advise or help DIRCO to monitor the implementation of  AGSA's findings?

He said the AG had identified issues around ICT and asked DIRCO to explain why these targets were not met, as it was clear the Department had challenges regarding ICT. He was concerned that DIRCO continued to submit financial information with material misstatements, and asked who was responsible for quality assurance before financial statements were handed over to the AGSA. What role did internal audit play in ensuring financial statements were credible? DIRCO had previously reported they were on track to address the capacity issue within the finance unit, but this report indicated otherwise. Several people in this unit had been deployed to missions, resulting in a skills gap, which may be why there was a problem of material misstatements.

He asked if these targets had all been achieved in the third or fourth quarters. Why was DIRCO not addressing procurement issues, as the Committee had raised this issue before? DIRCO had committed that it would be addressed, but there had been no progress, particularly on compliance which led to irregular expenditure. There has been a backlog of consequence management cases at DIRCO since 2018 -- what steps were being taken to address this issue?

He said R29 million was a lot of money being lost through rental deposits not being paid back, and asked what steps were being taken at missions to ensure DIRCO did not forfeit the rental deposits. Would DIRCO recoup money from officials who damaged property? There should be early warning systems in place that notified them six months before a lease ended, and they therefore had to inspect properties and retrieve deposits. He welcomed the AGSA findings on the Cuba funding and commended the DIRCO for adhering to legislation. He said the opposition used the Cuba matter as a political issue, and this issue belonged to be considered separately.

Ms T Msane (EFF) asked DIRCO what progress had been made with establishing the property management unit, which missions had been closed, and which properties inherited from the apartheid government had been released. She asked DIRCO to submit a detailed report to the Committee on all properties it owned and was leasing, and how much money it was spending on them. She asked what consequence management would be in place for rental deposits not being paid back. DIRCO had done only 25% of investigations into irregular expenditure -- what remedial actions were being put in place to deal with this issue? She said the ICT contract would be extended for six months, and asked DIRCO to give reasons for this. Did DIRCO have ghost employees? Why did South Africa abstain from the Ukraine vote at the United Nations?

Mr M Chetty (DA) said DIRCO had not given the Committee a proper answer on the additional R62 million given to Cuba. He heard what Mr Nkosi had said, but this issue was not political -- the ANC was fighting the issue of what was expected from the ARF. This should be a discussion for another day -- hopefully an in-person discussion for the Committee to debate about Cuba being funded by the ARF. He asked the Deputy Minister why DIRCO had entered into a sub-lease for certain properties that were overcharging South Africa. He asked if the ANC had discussed the issue of sub-leasing from the British Consulate with Vladimir Putin, considering the ANC’s position on Ukraine. What was the purpose of informing South Africans that they had engaged in three United Nations (UN) discussions but had abstained from voting on all of them? South Africa seemed to be controlled by external forces.

The Chairperson commented that Mr Chetty was in the mood for political debating.

Responses

Ms Bhengu responded on the audit action plan, and said the DIRCO would provide the Committee with a report on the progress that was being made.

On misstatements, the reviews were done by a team of senior managers from finance. This team did the first review of financial statements before they get reviewed by the acting CFO, and thereafter it was sent to internal audit. The misstatement experienced was on transactions coming through from missions. The missions struggle with preparing financial statements, and work was being done to implement an integrated system that would integrate the financial systems of missions with those of the Head Office.

On compliance, DIRCO had changed some of the internal controls to address issues experienced in the SCM unit. Colleagues not getting three quotations was one of the main challenges, and sometimes in some African countries, it was difficult to get three quotations, but there was a correct process that needed to be followed if missions were unable to get three quotations.

She said two contracts had contributed towards the irregular expenditure, and one was for the ICT network system. There had to be a transition period between the old and the new system. The two service providers had to coordinate. This was to ensure the Department continued to work and there was not a complete switch-off. The contract was extended until the new service provider could cover the whole network system at all the missions. This had been included in the original contract from the outset.

Regarding rental deposits, DIRCO had analysed the rental account, and the transactions included in the R29 million dated back to 2011. These transactions were forced to be written off because transactions were recorded against officials who had already resigned and left DIRCO, making it difficult for it to recoup. Important information was also not recorded by missions, which makes it difficult for the Department to trace it back to officials. Most of the transactions were untraceable, which was why DIRCO requested a write-off. In future, DIRCO would be doing reconciliations and using correct references to be able to trace transactions. Officials would be held liable for damage or if the landlord would not pay back the deposit. DIRCO had also written to officials who had damaged property, and was in the process of recovering money where a property had been damaged. This process had been strengthened, and officials signed indemnity forms before receiving keys.

There was a contract management section within the properties and facilities management unit, and early warning systems were in place. There was a new system in place at all missions, ensuring that officials vacated properties a month before they returned to South Africa. Officials also needed to undertake inspections with the landlord and head of administration from missions. They would confirm and do a physical evaluation, and both the landlord and the officials needed to sign a document.

She said DIRCO was sub-leasing a property from the British consulate. It had viewed a range of properties in New York and when prices were compared, the British consulate was the cheapest. The British were liable for the property and DIRCO paid only 50% and Britain the other 50% -- it was an agreement between both missions that it would be cheaper for both parties if they sub-leased together. DIRCO was paying a below market price for the property.

The property management unit had been established and a chief director and director had been hired. Both these officials had qualifications in the built environment, and DIRCO had enlisted the Government Technical Advisory Centre (GTAC) which was part of National Treasury. GTAC had engineers and built environment specialists who would help strengthen the unit going forward.

She said DIRCO owned 118 properties abroad, and an assessment had been completed on which properties to dispose of and which would be renovated or used for a different purpose. 18 properties would be sold. After evaluations had been completed, 11 properties had been advertised by missions to be sold. DIRCO was finalising the other seven. Four properties had been identified to be changed to staff apartments. These were huge properties that had been inherited from the apartheid government. The properties were all over the world, and DIRCO did not have enough officials to travel and inspect each property. It would procure facilities management companies within those countries to manage the properties.

Ms Molatlhegi said the ICTaudit findings were related to obsolete infrastructure, which was replaced in the coming financial year, as DIRCO had had had difficulty replacing it due to Covid. The other findings were related to change management, back-ups and DRT purchase management, and user account management. She said there were no ghost employees, but there had been a delay between HR and ICT on officials that had left the system. This issue had been addressed and would not be picked up during this financial year.

Mr Dangor said there needed to be a skills review of corporate managers at missions. Better training would be provided, but DIRCO would relook at how it handled the placement of managers at missions.

On consequence management, DIRCO would reinstitute the finance misconduct board. This structure would pick up irregular expenditure immediately when it happened, and the board would be able to quickly assess which steps to implement as consequence management on irregular expenditure.

DIRCO would go back as far as 2016 and look at all irregular expenditure cases and institute disciplinary hearings on the officials implicated. Where there was a need, cases would be referred to the relevant authorities.

He said DIRCO would share the audit action plan with the Committee, and the plan would focus on the root cause issues identified by the management report and AGSA. There needed to be a culture change at DIRCO, and people needed to know that when there was non-compliance, there would be steps taken against them.

DIRCO understood the risk of not completing the ICT management issues, and was monitoring the project very closely.

Responding to South Africa's abstention on three votes at the UN, Mr Dangor said abstaining was not non-action -- it counted as an action at the UN. DIRCO was willing to have a more in-depth discussion on the merits of those particular votes.

The Chairperson thanked the DG, and said he would not be tempted to respond to Mr Chetty. The Member had been informed of the political stance his party had taken, and the Committee could resolve that issue on this platform.

ARF Annual Report 2021/22

Performance overview

Programme 1: Promotion of democracy and good governance.

There were two targets and only one target was achieved. The non-achievement was due to Covid-19 as the ARF could not be sent as election observers to Zambia.

Programme 2: Support to socio-economic development and integration.

There were two targets, and neither was achieved. This was due to the delay in the operationalisation of the African Continental Free Trade Agreement (AfCFTA) and humanitarian projects that were still under consideration for funding.

Programme 3: Provision of human resource development.

There were two targets. One was not achieved, and the other was partly achieved. The ARF was unable to do development training as a request for training had not been received. The other targets were not completed due to an outstanding evaluation.

Programme 4: Administration.

There were four targets and all of them were achieved.

(See the presentation for further details)

Financial reporting

  • For the financial year 2021/22, the ARF committed a significant amount towards supporting African countries in response to the Covid-19 pandemic.
  • The loss of R 216 million reported for the 2021/22 financial year would not affect the entities going concern, as the projects were funded from the surpluses accumulated in the prior years.
  • The ARF had submitted a request to retain the declared surplus to National Treasury, as per the requirement of the PFMA, for R 229 million for new projects in the 2022/23 financial year.
  • The cash and cash equivalent balance of R 719 million was inclusive of funds committed towards projects.

ARF received an unqualified audit with no findings for the 2021/22 financial year. This was a result of oversight by the executive and adequate internal control measures applied by management.

Discussion

Mr W Faber (DA) said the AG had stated the R63 million was a previous loan from 2012 for payment for equipment, as stated by the Minister. He did not understand this, and asked for further details on what the equipment entailed. He asked why DIRCO had funded Cuba through the ARF when it was supposed to fund only African countries.

Mr Chetty said he wanted a second bite on the New York rental relating to Ms Bhengu’s response.

The Chairperson had a very bad network and could not hear Mr Chetty.

Mr Nkosi stepped in as Acting Chairperson while the Chairperson sorted out his connectivity issues. He said Mr Chetty could ask him a question once the ARF questions had been concluded.

Mr Nkosi said the Committee had asked the ARF to submit an impact assessment on the socio-economic benefits of beneficiaries. He asked for an update on this report. How far was the establishment of the SADPA?

Rev K Meshoe (ACDP) asked who benefited from the ARF’s funding, and which countries were funded by it. How did a country become a beneficiary of the ARF? Did Cuba formally apply for ARF funding, and were countries from other continents also able to apply for funding?

Ms Mathlako responded on the matter of the equipment purchased. The loan had included a grant of R40 million, which was for purchasing equipment which included engine parts and mining machinery.

She said the ARF had requested funding from the National Treasury to do the impact assessment. It runs programmes all over the continent and would require a large amount of funding to do an in-depth assessment of all projects on the continent.

On who benefited from ARF, she said the funding was governed by the ARF Act and it allowed for African funding and international cooperation funding, meaning the ARF could, when suitable, fund other international projects on other continents.

She said SADPA consultations between DIRCO and National Treasury had been concluded, and Cabinet must now approve the bill.

Mr Chetty said in New York, South Africa was currently paying US$160 000, which meant the total rental was $320 000. He asked how many square feet South Africa was paying for.

Ms Bhengu said that the SADPA Bill was being finalised and would be presented to Cabinet for adoption. There was a first draft, and the legal team was finalising aspects of the bill.

In New York, the DIRCO was paying $37 square foot, which was $169 000 a month. The size was 51 843 square feet, and this was relatively cheap compared to market prices in New York.

Mr Chetty asked if he could respond to this.

The Acting Chairperson asked Mr Chetty to put his question in writing.

Deputy Minister Mashego-Dlamini thanked the Committee, and said DIRCO would take forward all the suggestions indicated. The Department would submit an audit action plan and quarterly reports on its implementation.

The meeting was adjourned.

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