Department of Economic Development and Tourism and entities Annual Report 2021/22

Meeting report

[the meeting began with a closed session on the audit outcomes]

Discussion on 2021/22 Annual Reports of Western Cape Department of Economic Development and Tourism and their entities, namely, Wesgro, Saldanha Bay and the Atlantis Programme

Ms M Maseko (DA) enquired about Wesgro, asking what loopholes the Department has identified with Wesgro and what is the arranged assurance principle set in place.

Ms C Murray (DA) referred to pages 51 and 53 on governance and asked what are the requirements for attending for the audit committee members. What is the target associated with attendance and what are the repercussions for non-attendance? On Wesgro and audit outcomes, she asked for more information on the action plan and how it aimed to address the findings. What has been achieved to date? What are the timelines for implementation?

Ms Mireille Wenger, Western Cape Minister of Finance and Economic Opportunities, said that all hands were on deck to assist Wesgro in improving its audit findings for the next financial year.

In response to the fraud cases, Ms Sibongile Jongile, CFO, Department of Economic Development and Tourism (DEDAT), referred to page 128 on the fraud case in the Department’s Annual Report. She said that this case did not relate to the Department. This case occurred within the Corporate Services Centre (CSC) in the Department of the Premier. The expenditure and write-off were with the Department, but the internal control deficiency is with the Department of the Premier. There were no fraud cases for the year under review for this Department. On the whistleblower policy, the Provincial Forensic Services (PFS) case did not relate to a whistleblower. This case was within the Department and the disciplining was being done this financial year.

In response to the internal control unit and the internal audit, on page 133, on the Internal Control Unit and the internal audit of the Department’s Annual Report, it was stated that there was a combined assurance model. The internal audit had a 50% implementation and the Internal Control Unit in the Department had 100% implementation. There were constant follow-ups on action that had been implemented during the year under review. On combined assurance from service providers, the Department and the Department of the Premier followed a combined assurance model where all the assurance providers from the Internal Control Unit to the Enterprise Risk Management Unit combined to determine all the risks in the Department and mitigate these risks.

On page 135, on audit committee members, the chairperson, Mr Richard Rhoda, was appointed on 1 January 2019 till December 2021 and he attended five meetings. Mr Comfort Bunting took over from 1 January 2022 and attended two meetings. The chairperson attended all seven meetings.

Regarding budget cuts and constrained funding, Mr Rashid Toefy, DDG: Economic Operations, said that there would not be a larger budget for HR, hence, reorganising and prioritising strategies were being considered. Some positions that are not filled yet will be considered for removal.

On the SMME support network, there was a strong relationship with the SMME network. 35 SMME supporting organisations had come together with the Department, led by the Cape Chamber of Commerce, and were bringing in the interests of businesses by identifying the binding constraints in the economy to address these issues.

Mr John Peters, Chief Director: Economic Enablement, said an ecosystem was crucial for SMME development. On the provincial and national level, an SMME forum brought in various departments and their particular interest in SMME development. The district model also brought in support organisations.

Ms Ilse van Schalkwyk, Chief Director: Economic Sector Support, responded to questions on oversight. The Department’s role on entity oversight, concerning Wesgro, was in two parts – firstly, it looked at performance, which occurred once a year, and considered business plans and draft plans for the next financial year. This was followed by the Transfer Payment Agreement with the entity which governed the relationship between the Department and the entity. The accounting authority of the entity was the Wesgro Board. The Western Cape government was a major shareholder and had a board seat. The CFO from the Department of Health is the nominated official from the Western Cape Government, representing government and the Department on the Wesgro Board. There were ten seats and non-executive positions. Different targets were set in place and the oversight was managed through the Transfer Payment Agreement. Various reports, such as expenditure reports, quarterly reports and so on, were examined and any red flags that came up were raised with the board. This was to determine how well the entity was performing. The PFMA is strict on the roles and requirements of members. The Provincial Treasury was developing a Public Entity Oversight framework which would focus on all entities and their areas for improvement.

On accounting technicality issues and internal control weaknesses, Mr Michael Spicer, Chairman of the Wesgro Board, said there is a very effective governance procedure in place from the board and an effective internal audit team and audit committee. On page 96 of the Wesgro Board paper, it was stated that the useful life of 1 400 office and pieces of computer equipment needed to be restated and the correction was not done in time. Less than R1 million was available for accounting technicalities and internal control weaknesses.

On issues on Wesgro, Ms Wrenelle Stander, Chief Executive Officer of Wesgro, said that the board has been changed – there is a new CEO, new board members and so on. The entity is stabilising and is on the path to good performance. The Executive Committee (Exco) structure is finalised and strategies have been reviewed and reconsidered. Culture interventions have been introduced and the teams have been well-staffed. There is a turnaround plan that has been drafted. The audit and risk committee meets monthly to review work performed by the team and the Exco meets weekly to ensure that all issues are dealt with. A full policy review is currently to identify all issues and interventions for them. The finance team has been supplemented. On asset restatement, with the support of the Department of Economic Development and Tourism (DEDAT), the team is working on the six monthly financials to ensure that they have the correct Asset Restatement. On the supply chain process – the supply chain policy has been fully reviewed and the SOPs have been finalised and set in for review.

On issues on Saldanha Bay, Ms Kaashifah Beukes, Chief Executive Officer, Saldanha Bay Industrial Development Zone, referred to page 57 on CSR initiatives, stating that this is a small amount due to the effect of COVID. The Mathematics Training High School programme was via the link centre to provide training to enhance teachers’ skills through digital tools. 14 teachers have graduated from this programme. The SMME collaboration gives free WIFI, printing access, meeting room access, etcetera for 80-90 SMMEs.

Mr J Stake, Acting Chair, Saldanha IDZ Board, said that the main risks had been discussed under challenges in the paper provided by the Saldanha board.

Mr Sollie Martinez, Secretary, Saldanha IDZ Board, responded to Ms Murray. Both boards of directors operated according to approved terms of reference. It included the regulation of attendance of meetings and information on the proceedings of the meetings. On page 51, the board meets quarterly and the members that did not attend all the meetings were due to cases of resignation and formal apologies. If members do not attend at least three meetings, they could be removed if they do not provide a formal apology and valid reasons for non-attendance.

Further discussion

Ms Maseko said that Wesgro has regressed, and this is due to non-compliance. What are the financial principles that have to be adhered to? What went wrong? What needs to be done to sort out the regression?

Mr M Xego (EFF) said that the instability in Wesgro is very concerning. What are the measures that the Department is putting forward to ensure stability? There needed to be an economic recovery plan. Why is there no report from the audit committee?

The Chairperson said that the board persisted in saying everything was fine with Wesgro yet there was no audit report. What is the cause of the problem?

Ms N Nkondlo (ANC) asked if the Department is satisfied with Wesgro. What is the outcome of oversight on Wesgro? There were many challenges with Wesgro and these needed to be transparent to the Committee. What is the difference in Wesgro being an entity of the state versus other entities of the state? What can be done to improve shareholder oversight? What internal controls are set in place to maintain order and stability? On page 70, how does the distribution of work occur between members? Can there be more information on Mr J Copplen (sp) and the meetings he has attended?

In response to Wesgro’s instability, Ms Stander said that Wesgro did have instability due to the resignation of members and the CEO and CFO resigning contributed to things falling apart in Wesgro.  Moving forward, a new CEO and members have been appointed and the board is on the road to recovery. A colleague of the AG and a member from the provincial government with strong financial management experience would aid the board in making a turnaround from regression.

The Department should have reacted faster to the leadership changes by strengthening internal controls. There are supply chain management issues, API issues and so on. The policies are being reviewed and staff are being properly trained. The 6-month financial statements were being audited with a specific focus on irregularities. Investigations on the irregular expenditure have been completed and consequence management and correction action would take place. Audit controls were being discussed and implemented for a better audit outcome.

Mr Spicer said many of the 29 meetings noted were for interactions on resignation and recruitment for a new CEO. Mr Copplen attended five board meetings and has resigned from the Wesgro Board.

Section E

Mr Xego referred to page 182 of the Department report. He asked for clarity on the investments listed. On page 188, he also asked for more clarity on transfers and subsidies.

On Programme One, Administration, what was the reason for the delay that resulted in underspending in the “we mean business” campaign?

On Programme Four, can there be more information on the delayed appointment of the Director?

On page 222, on the debts written off, he said there needed to be more information provided on this.

On the Pick n Pay revitalisation programme, he asked if the people returned the money. What happens when people cannot return the money?

On page 229, how stable is the economy for profit generation?

On page 227,  irregular expenditure, how much of the payment was made to the beneficiary? On page 238, fraudulent disbursements of salaries, is this still going on? What is the consequence management for this?

On page 242, movable assets written off; what happened to these assets and why are they being written off?

On page 246, why were some municipalities given grants and some not? What are the criteria for receiving a grant?

Ms Maseko referred to page 115 and asked if the Committee could get clarity on the different fees and the value of each programme to Atlantis.

Ms Nkondlo referred to page 128 on Wesgro and asked for an explanation of the acting allowances.

On page 129, she asked why the consulting fees had doubled. On the war-room operations – are these operations driven by the Premier's office?‘If so, what are Wesgro’s roles with these operations? On pages 26, 130 on administrative expenses, who is the grant refund to be refunded to? What does the “fees for services for board members” mean?

Mr van Der Westhuizen referred to page 227 on the Annual Report and asked for an explanation of the recovery of expenses concerning government vehicles. On the GG vehicle – can there be more clarity on the 53 cases?

On page 228, on the Western Cape funding project, what is the full amount paid to the contractor and what is the reasonable management fee allocated to the contractor to keep?

Ms Maseko referred to Saldana IDZ. On the maths programme for the teachers, how does one check the value for money for the recipience of the training?

The Chairperson said the Pick n Pay project is a noble idea, but it may perpetuate poverty instead of eradicating it. Why does the Department not assist those individuals who may want to start their own spaza shops except for when it is done through a monopoly or conglomerate company like Pick n Pay? She said that individuals with potential needed to be identified and funded directly for their business which must be monitored.

On page 135 on irregular expenditure, she said there needed to be more explanations on some of the unusual expenditure listed.

A Department official answered questions on page 182 on the CTICC. She said that the period of COVID was harsh on the convention centres and tourism slowed down drastically. The CTICC is suffering losses. The impairment has been reversed. The financial statement of the CTICC showed that this was the case at the end of June 2022.

The detail on page 188 on transfers to one profit institution is on Annexure 1D. The process followed is an open call for proposals. Businesses are to apply for possible funding and are allocated according to a set criterion. Shortlisted candidates will be sent to the Adjudication Committee and chosen on who suited the criteria best.

On page 222, on the debts that are written off – this is according to the debt policy and occurs with salary overpayments. The salary overpayment is to be stopped, but if it is not, it results in a debt that has to be paid back. The debt will be written off if the process is too expensive. On the funding fee – the full contract was for R144 300 and from this amount, R75 000 was for a management fee for event expenses. On irregular expenditure, R1 469 is made up of two cases – case one is for a commitment made for a beneficiary and the second is for AG finding of R29 000. Both cases have not resulted in any financial losses to the Department. Case one will result in a disciplinary hearing towards an official.

On page 238, on salary overpayment, this occurred in the CSC and transpired in the Department of the Premier and was written off for this Department. The official involved will undergo a disciplinary process with consequence management.

On page 242, removable assets written off; the three assets were the camera and two laptops. An investigation was taking place to determine whether it was negligence or theft. On recoverable revenue for GG vehicles – if the official is found to be negligent, then there will be recovery of damages to the vehicles and this process has not begun as yet.

Mr Toefy responded to questions on underspending on page 200. The case of R188 000 is a result of delays in the finalisation of the appointment of the new Director. Acting allowances were not paid. The underspending on the “we mean business” campaign was due to money set aside to promote the province and these campaigns could not happen due to COVID.

The Pick n Pay issue occurred in 2018/19 year. The Department provides 10% of the cost of Pick n Pay and not the full amount. The Department was amongst several other partners to the Pick n Pay revitalisation project. People are funded directly through the booster fund.

Mr Peters said that the township Revitalisation Programme aided the Oudtshoorn Municipality and helped four small businesses. One of the four was a man who made belts and he was provided with the proper machinery and his business became successful. The other two were women, who were clothing manufacturers, and they were paid for the equipment, but both had failed to place an order for the equipment and now have to pay back the money. And the last was a group that reared ostriches and now, with the help of the project, they breed ostriches.

On irregular expenditure, an official referred to page 128 and said that R124 000 was an acting allowance for an acting CEO when the former CEO left. R217 000 was an acting allowance when the former Chief Officer left.

On page 129 – the increase in R2 million in consulting fees was due to the Cape Trade Portal. The export promotion platform has been digitised, allowing more exporters to access the platform.

On page 130 – the first amount is for board fees. The amount of R7.1 million is the underspent amount that had to be surrendered to DEDAT.

On page 135 on irregular expenditure – there are three underlying issues. First is for the SPD1 and SPD4 forms which have to be completed in relation to SARS and the declaration. A request for exemption has been sent to the Provincial Treasury. Second, are the RFQ and the evaluation criterion – the process has been adjusted towards compliance and is addressed. The third is related to deviations that the AG did not deem viable. Investigations are ongoing to determine the extent of the issue.

Mr Elroy Makok, Acting Chief Financial Officer, Wesgro, said that on the SPD1 and SPD4, the reason for the application being sent for exemption was due to the dealings with foreign suppliers and them not wanting to complete these forms.

An official said that the war room was a project that was completed and no longer a priority and the money had to be returned. This project was to solve complex government problems with specific methodology. The project had 16 initial problems that it dealt with. The good outcomes were that it allowed for better understanding and actions towards issues.

On the value for money and impact of the Saldana programme – 18 teachers enrolled and 14 graduated. The reason for the low numbers was due to the movement of teachers out of the area. The high school programme aimed to increase the mathematics pass rates. The focus is on the teachers and equipping them with confidence and skills for implementation. The financials will be sent to the Committee.

On the Atlantis programme, community stakeholder network, this is a forum set with the community and is a voluntary organisation. There is an agreement with the stakeholder network and stipend payments are funded for data costs, travel etc. Funding is also spent on capacitating members on the forum. Costs were involved in the skills development initiatives. Consulting and professional fees were for water, energy, waste and zone management issues. On the Supplier Development Programme – money was spent on a 6-month SMME programme.

The Minister and the Department thanked the Committee for their oversight and engagement.

Committee Resolutions

The Chairperson said that the Wesgro issue stands out and the Department needs to come back with a complete recovery plan to deal with the problem of regression.

Ms Maseko said that the Department has systems in place to combat the issue of Wesgro and further information needs to be provided to the Committee on this. On the issue of Wesgro, there needs to be involvement with DEDAT in the next engagement. The audit committee needed to return to the Committee with more information on Wesgro and how they aim to stabilise Wesgro.

The Committee moved for the adoption of the report.

The meeting was adjourned.