Tourism Portfolio Audit Outcomes; Department of Tourism 2022/23 Annual Report; with Deputy Minister

Meeting report

AGSA on Department of Tourism (DT) portfolio audit findings

Mr Siphesihle Mlangeni, Senior Audit Manager, Auditor-General of South Africa (AGSA), informed the Committee there had been a significant reduction in the number of findings at the Department of Tourism (DT). However, the action plan for South African Tourism (SAT) has not resulted in an improvement in the quality of submitted annual financial statements and compliance with legislation. There was an increase in irregular expenditure in the tourism portfolio. The AGSA had noted a significant improvement in the achievement of targets in the Department, but SAT had regressed significantly, from 73% in the prior year, to 54%.

For the period under review, the DT had achieved an unqualified audit opinion with findings. The submission of financial statements by the legislated date for the portfolio remained at 100%. This was an improvement from the prior year, as the Department had made material adjustments to achieve an unqualified audit opinion. The Department had a material finding on procurement and contract management, while SAT had material findings on the annual financial statements and expenditure management. No material findings were reported on the usefulness and reliability of the annual performance report. The AG commended the portfolio for submitting annual performance reports that were useful and reliable. The accounting officer and accounting authority should maintain the good performance management discipline concerning the usefulness and reliability of the performance information.

Concerning expenditure management, R3.27 million of the R4.7 million in irregular expenditure in the Department was related to the extension of employment contracts beyond the period of 12 months allowed in the Public Service Regulations (PSRs), while the remaining R1.43 million was related to a multi-year security contract awarded in 2020/21 for which expenditure had still to be incurred.

Mr Mlangeni said the Department had a material irregularity (MI) finding relating to awards to service providers whose tax matters were not confirmed to be in order prior to the award by the implementing agent. The accounting officer should obtain a written assurance from the implementing agent that the agent implemented effective, efficient and transparent financial management and internal control systems, and should render the transfer of the funds subject to conditions and remedial measures requiring the entity to implement effective compliance monitoring and internal control systems.

The Department had achieved 96% of its key performance targets linked to service delivery, compared to 80% in the prior year. Targets achieved included creating 5 315 work opportunities under the 'working for tourism' programme, which was 1 211 more work opportunities than targeted due to the Development Bank of Southern Africa (DBSA) projects that had moved to implementation in the fourth quarter. The Department had also implemented its 'women in tourism' business development and support programme which supported 225 women-owned small, medium and micro enterprises (SMMEs) across the country, and contributed positively to the priority of government to increase the contribution of the tourism sector to inclusive economic growth. A capacity-building programme, where 500 SMMEs and 2 500 unemployed and retrenched youth were trained on norms and standards for safe tourism operations in all nine provinces, had provided the required capacity for emerging businesses in the tourism industry and created work opportunities for unemployed youth.

He said the target for tourism monitors programme could not be achieved. This has resulted in delays in improving tourist safety -- for local and international tourists -- at certain attractions, and in providing skills and practical work experience to unemployed youths in Limpopo.

No material irregularities were identified in the portfolio during the 2022/23 financial year. Fruitless and wasteful expenditure amounted to R36 000. Fruitless and wasteful expenditure under assessment had amounted to R1.1 million for travel and accommodation-related expenses (cancellations, amendments for flights and car hire), and was being assessed at year-end by the Department. Irregular expenditure of R4.3 million was condoned subsequent to the year-end.

The AG recommended to the Portfolio Committee to monitor and regularly follow up with the executive authority, the accounting officer and the accounting authority on progress made in developing and implementing audit action plans; to monitor the implementation of appropriate preventative controls to prevent instances of non-compliance with supply chain management (SCM) prescripts; and to closely monitor the achievement of targets and the implementation of the strategy for catching up on targets in which the portfolio was underachieving, or had not achieved.

DT performance report

In his performance overview report, Mr Victor Tharage, Director-General, DT, said that three key indicators in Programme One could not be concluded.

The first involved the employment of women at the senior management service (SMS) level, where the Department had achieved only 49% of its target. There had been attrition in the last quarter. The notice from National Treasury on cost-containment measures would continue to have an impact on the indicator. This meant the Department would have to go to the Department of Public Service and Administration (DPSA) to request concurrence for prioritised positions. Once that was done, the positions would be filled.

The second was related to the payment of invoices. The Department had achieved 93%. Systems have been improved in the processing of invoices. Submissions had been centralised.

The last area was related to the target of 40% women in business with the Department. The DT had been affected by transversal contracts over which it had no control. The matter had been raised with the custodians of the contracts. This matter would be looked into, even though Department did not have direct control of these contracts.

The tourism policy and international relations programme missed only one target, and significant work had been done. It had to do with policy work that was presented to Parliament, and was now on its last lap of seeking public comments. It had been approved internally, but no go-ahead had been given to the Department by the Cabinet.

The destination development programme had achieved all of its targets. There was only one target that was not necessarily achieved in the tourism sector support services, which was the area of tourism monitors, even though significant work had been done. Limpopo was the only province where the work of tourism monitors was not done because the systems of the Department had detected that there would be tender irregularities in the bidding process. A curriculum vitae (CV) of an employee of the Department had been found in the documents of one of the bidders, and the employee was going to provide services to the bidding company. That was why the process had been stopped, and it was under investigation.

Ms Rhulani Ngwenya, Deputy Director-General: Corporate Management, took the Committee through the administration programme performance. An unqualified audit on financial statements and performance information had been achieved. A 54.76% level of expenditure on the procurement of goods and services from SMMEs had been recorded. A partial achievement of 37.03% of procurement was spent on women-owned businesses. A partial achievement of 49.2% was recorded on the representation of women in senior management positions, the small variance being due to the natural attrition of female SMS members during the financial year. Identified equity positions would be ring-fenced and the appointment of competent female SMS members would be fast-tracked in 2023/2024. 100% achievement had been recorded on the approval of the communication strategy and the implementation plan.

Dr Shamilla Chettiar, Deputy Director-General: Destination Development, briefed the Members on the tourism research, policy and international relations programme. A report on the state and availability of key tourism statistics and resources at provincial level has been developed. Four tourism sector recovery plan (TSRP) implementation reports have been developed. The monitoring of capacity building programmes -- the Hospitality Youth Programme, the National Youth Chefs Training Programme, the Tourism Monitors Programme and the Food Safety Quality Assurers Programme -- had been undertaken. Four reports on the governance and performance of SA Tourism have been developed for oversight purposes.

The tourism interests of South Africa had been advanced at the regional, continental and global levels through participation in six multilateral forums -- the United Nations World Tourism Organisation (UNWTO), the G20, the Brazil-Russia-India-China-SA (BRICS) bloc, the Southern African Development Community (SADC), the Indian Ocean Rim Association (IORA) and the African Union (AU). Two outreach programmes to the diplomatic community were implemented virtually on 25 August and 7 December 2022. The 'Sharing of Best Practices' workshop 2023 targeted African countries with whom SA had signed tourism agreements, and was hosted from 8 to 10 March in Cape Town.

All the destination development programme targets were achieved. A pipeline of nationally prioritised tourism investment opportunities (greenfield and brownfield projects) has been managed. The infrastructure maintenance and beautification programme was implemented in four provincial state-owned attractions. The piloting of the budget resort network and brand concept was reviewed. 5 315 work opportunities were created through 'Working for Tourism' projects.

Ms Mmaditonki Setwaba, Deputy Director General: Tourism Sector Support Services, reported that the training and placement of 2 517 retrenched and unemployed youth in various skills development programmes had been conducted. The youth were enrolled in the following programmes:

• Food and beverages;
• Professional cookery;
• Food safety quality assurers;
• Wine service training; and
• Hospitality youth training programme (fast food).

Additional learners were enrolled in skills programmes to manage dropout rates, hence the overachievement of the planned target. 571 SMMEs and 2 517 unemployed and retrenched youth were trained on norms and standards for safe tourism operations in all nine provinces. The marketing and recruitment of SMMEs had resulted in more numbers attending the training. Some of the SMMEs had attended without confirmation of their attendance. Additional learners were enrolled in skills programmes to manage dropout rates, hence the over-achievement of the planned target.

The tourism monitors programme had recorded a partial achievement. It was implemented nationally in line with the project plans in all of the provinces except Limpopo, as the process to appoint a service provider for Limpopo had not been finalised. It was also implemented at SANParks and iSimangaliso.

(Tables and graphs were shown to illustrate budget allocation and expenditure and human resource information)

Discussion

Deliberations with AGSA

Ms P Mpushe (ANC) praised the Department for obtaining an unqualified audit opinion, even though it had findings. Post-audit adjustments had led to improvements, and she noted the commendation from the AG about the work of the Committee for pushing the Department to achieve most of its targets. Her concern was about the increasing irregular expenditure. Regarding the AG's finding about the dome, she said it was so unfortunate the bidding process had not been thoroughly followed. Her other uneasiness was on over-expenditure, where South African Tourism (SAT) did not achieve key targets. She agreed with the AG that the Department had to appoint a proper board, because the interim board had not been appointed according to the legislation. Lastly, on the merger between Brand SA and SAT, she said Members had views on what to say about the matter.

Ms L Makhubela-Mashele (ANC) remarked that the Department had improved on the presentation of its reports, and also in terms of governance. She pointed out SAT had many vacancies in senior management positions. Key posts had not been filled and it had not achieved its targets. This was giving the Committee an opportunity to engage with the entity's executives and board to see what it could do to assist, because the lion's share of the budget of the tourism portfolio had been given to it.

Mr Nicholas Mokoena, Deputy Business Unit Leader:, AGSA, agreed the major share of the budget was given to SAT, but it was not achieving its targets. The matter had been raised with the senior management of SAT, because there had been a lack of manpower.

Ms M Gomba (ANC) said her concern was around over-spending and ending the year with a deficit. In previous years, there had been concern about over-spending and under-spending in different programmes. She asked if the Department and its entity were getting concurrence from National Treasury for spending unallocated money. She wanted to understand if such areas had been identified during the audit. She wanted to know how the Development Bank of Southern Africa (DBSA) was audited by the AG on the projects it was implementing for the Department. She sought clarity on the Tourism Marketing South Africa (TOMSA) levy, because the AG had not been able to audit it due to the entity not having a proper system in place, and she wanted to find out if the management letters had enabled the Department and SAT to reduce the findings that were doable.

Mr Mokoena said concurrence should be obtained from the Treasury for spending unallocated money. There were processes that should be followed. He added that the DBSA had always been audited by the AG on the budget and work given to it by the Department. Just like any other organ of state, it was being audited every year.

Mr Mlangeni said the biggest contributor to the over-spending had been Programme Four. It was key to note that in the prior year, the SAT had made a profit of R180m, and had applied to Treasury to retain the money for use in achieving targets. The matter of TOMSA levies has been discussed and cleared. The SAT had received R250m from the TOMSA levy in the 2022/23 financial period. On the matter of management letters, he said the AG had raised findings and asked the management to respond to them. The highlighted findings were the ones to which the management had not responded. Some findings have been resolved. The Department had addressed findings raised in the prior year. Non-compliance with legislation was one of the findings that had been recurring at SAT.

Ms S Xego (ANC) commented she appreciated the fact that the office of the AG had extended its mandate to include service delivery matters, because audit outcomes usually did not match service delivery. She wanted to know if the AGSA could not hold roadshows to educate the public about the work it was doing. She also commented that the issues mentioned by the AG had proved that the concerns raised by the Committee had not been exaggerated.

Mr Mokoena welcomed the suggestion of a public awareness campaign, saying it would be enhanced and roadshows intensified.

Mr A Matumba (EFF) sought clarity on spending from the TOMSA levy, and how it was giving money to the Department or SAT. He wanted to know what the Committee could do to fulfil its monitoring role and follow up on the filling of key vacancies at SAT, because the three members of the board were filling vacancies, while there had not been a fully-fledged board.

Mr Mokoena said what was needed first was to stabilise SAT. As the AG, they had recommended to the Department and its entity to stabilise the board by having permanent members and not focus on filling vacancies. Further, the Committee had to use its powers to ensure implementation of the recommendations.

The Chairperson remarked that the matters that the AG raised about the Department and its entity in the previous year had been highlighted on a positive note this year. These issues had to do with instability, the filling of key vacancies, non-compliance with legislation, the quality of financial statements, etc, but now there have been improvements. She said the Committee had done a lot regarding the implementation of the recommendations of the AG that it should monitor and follow up on the filling of key vacant positions at the SAT. Her concern was SAT's cash management, which resulted in irregular expenditure and a lack of adequate controls. She sought clarity on these inadequate controls.

Referring to the dome finding, she said the dome was showcasing the country in a 360-degree platform and was in line with the 4th Industrial Revolution. It had remained relevant. She wanted to know if the AG enforced another competitive bidding process in procuring the dome. She reasoned the entity had an agency that had been doing media buying for it to procure infrastructure, including marketing work. The agency had been following the processes of the entity. She wondered if the AG was not in contravention of the processes followed by the agency of the entity. The AG should reconsider its finding on the matter, because SAT had followed its own approved processes in appointing the agency. The SAT had a chance to dispute the findings of the AG. She further indicated the finding of the AG on fruitless and wasteful expenditure worth R36 000 was in sync with the report of the DT. She also sought clarity on the compensation of employees (CoE), where contracts had been extended, and that had been in contravention of the public service regulations.

Mr Mokoena said AGSA was not disputing that SAT should not have procured for the dome. The AG differed on how the entity had gone about procuring for it. SAT should have prescribed the process to be followed by the agency in order to comply with the Public Finance Management Act (PFMA).

Mr Mlangeni responded on the issue of inadequate controls, and explained if one identified matters of non-compliance, that meant the systems put in place by management were not correct in the first place, or had loopholes. The R9.9m spent on the dome required confirmation that there had been value for money. It was unacceptable to have one bidder, and then continue with the process. The concern was that the contract was a multi-year one. Concerning the CoE matter, he said the individuals employed in the Department were in the office of the executive. Their contracts had exceeded the stipulated 12-month period, and that contravened the Public Service Act.

The Chairperson emphasised that the Committee would continue to enforce the implementation of the recommendations of the AG, and asked the AG to respond in writing regarding the matter of the dome. She pointed out that the three members of the SAT board were not assisting in the implementation of the recommendations of the AG. She hoped the AG would consider the proposal from the Committee about educating the public about what it was doing.

Deliberations with Department

The Chairperson asked how the Department intended to overcome its 4% deficit to achieve 100% performance. She commented that the matter of security contracts and extended employment contracts which had resulted in irregular expenditure, had not been highlighted, and there had also been no reporting on fruitless and wasteful expenditure. She asked the reason for the learner dropouts, because it was not anticipated that there would be dropouts in these programmes of the Department.

Ms Ngwenya responded that the matter of extended contracts was under investigation, and the DT would await the outcome of the investigation.

Mr Tharage added the finding was related to regulations -- the 12-month contract period had been exceeded. The matter was not far from being concluded. The investigation on security contracts had been concluded and recommendations were implemented. It had been a subsequent event, and the AG could have reported on it before it was concluded.

Ms Maponya said the R36 000 incurred in wasteful and fruitless expenditure would be recovered from the officials involved in the matter, and the issue was still under investigation.

Mr Tharage added that the person who was at fault was the one from whom the money would be recovered, and indicated that sometimes there were losses that were written off.

On meeting targets, he said the Department was implementing stringent measures to see if they would be met. The Department would like to see the business of people being translated into meeting the targets. He also mentioned that claims against the Department were varied. They were related to cases involving third parties to the Department. Some losers' bids sometimes claimed for the full contract value, while others lodged counter-claims. This was reflected as contingent liabilities.

Deputy Minister of Tourism, Mr Fish Mahlalela, added it had been discovered that some officials were doing work, but not in the context of the APP. A decision had been taken that all projects should be aligned to the APP.

Ms Setwaba responded on the matter of dropouts, and explained that work opportunities created from these programmes were temporary, and some learners left their 12-month contracts to take up permanent positions. Others went to other programmes that paid them better. Some decided to pursue their studies further, while others got fired because of misconduct. She added that employees who had lost their work during Covid-19 were put on the programmes, and their employers had now taken them back. Learners were placed in the vicinity where they were recruited from, and were being absorbed by local tourism companies.

Ms Makhubela-Mashele asked for reasons for the condonement of the fruitless and wasteful expenditure, and asked if it had been granted. She wanted to know if the Department would put forward motivations for filling vacancies, seeing that there had been precautionary measures from Treasury on filling vacancies. She commended the Department on its performance by ensuring the elimination of corruption and bringing about improvements in the financial statements. This resulted in the DT's 96% achievement.

Ms Ngwenya said the Department submitted motivations for prioritised posts to the DPSA to achieve the targets. She said the condonement had been requested from National Treasury, and approval had been granted. The Department was of the view there was no corruption involved, and the R36 000 was incurred was from fruitless and wasteful expenditure. She also indicated that the R1.1m for travelling and accommodation expenses had been under assessment. A register had been kept for fruitless and wasteful expenditure.

Ms H Ismail (DA) asked what the Department was going to do to ensure there was no fruitless and wasteful expenditure in future, because the AG had raised concerns regarding consequence management and fruitless expenditure.

Ms S Maneli (ANC) applauded the Department for the declining vacancy rate, stating that a zero vacancy rate would be ideal; remarked the Department did not give full attention to domestic tourism enhancement; asked if there were proposals for the grading system to be part of the policy review process; asked if there was consequence management to deal with fruitless and wasteful expenditure; enquired if a memorandum of understanding (MOU) had been renewed with the DBSA, seeing that its contract with the Department was coming to an end on 30 November; wanted to find out if the awareness campaign was based on the Department's own initiatives, or it was getting invited by other stakeholders; and wanted to know where young people in the development of youth programme were placed.

Ms Chettiar responded that the DBSA contract, expiring at the end of November, would be extended to complete the projects. Domestic tourism enhancement was an area that required more work to be done. The DT was working with provincial authorities to galvanise the tourism sector because there were many stakeholders involved.

Mr Tharage added they were looking at the detailed implementation of the contract. It would be extended by two years so that all the projects could be wrapped up.

Deputy Minister Mahlalela referred to the placement of learners, and said some got absorbed by the companies that hosted them, while others went elsewhere. He thought the grading system was part of the policy review so that it was compulsory. The policy review was still out for public comment, and when it came back, it would be a White Paper. No conclusion on the matter had been arrived at yet. He indicated that the Department was working with the provinces, tourism associations and other relevant bodies, and municipalities on awareness campaigns for domestic tourism.

Mr Matumba remarked it was not acceptable to be discussing matters involving tax certificates, because that showed poor contract management by the Department. Once there were problems in procurement, people would start talking about corruption. He asked if there was a mechanism in place to follow money given to agencies; requested a breakdown on job opportunities created by the work opportunities programme, and wanted to know if the jobs were permanent or were learnerships; enquired if “achieved” on supported destination enhancement initiatives referred to achieved quality, or to money just spent and if people were enjoying something from the achievements; and requested the Committee to be given a report on the companies that were benefiting from the green tourism incentive programme (GTIP).

Ms Chettiar explained that jobs created through the work opportunities programme were not permanent positions, and were created through the programmes of the Department of Public Works and Infrastructure (DPWI). She added that “achieved” referred to support given to the community projects.

Mr Tharage said the work opportunities created were coming from the expanded public works programme (EPWP). When the candidates came out of the programme, they graduated with a certain level of skills.

Regarding the GTIP, he said the matter would be taken to the Minister, because the programme was implemented by the Department. Information could be provided, but the sticking point was that a parliamentary question and response had to be made public. The Minister would guide the Department on the matter.

Deputy Minister Mahlalela stated he did not understand why the list of companies that benefited from the GTIP could not be made available to Parliament, including the amount of money the state put into the programme, because these were public funds. He also indicated that “achieved” in community projects meant the projects were supported fully so that they could be completed. Quarterly details would be made available to Parliament from time to time.

Ms Gomba commended the Department for reducing recurrences from previous financial years and improving TOMSA levies. She praised it for improvements in many areas even though there were matters of emphasis it needed to work on. The DT should try to achieve a clean audit, and improve on consequence management to deter transgressions in policy procedures and procurement.

Ms Makhubela-Mashele commented that there were 443 non-profit organisations (NPOs) that the Department was supporting. She wanted to know the type of support given to them and the partnerships the Department had with these NPOs, and she asked that this information be made available to Members to share with NPOs in their constituencies.

Mr Tharage said the Department was engaging with the Federated Hospitality Association of Southern Africa (FEDHASA) to work with educators. The organisation provided facilitation. In future, there would be an opportunity to call for all of this, subject to the strategy that would be approved.

Mr Matumba asked the Committee to be furnished with the names of companies that benefited from GTIP so that they could be monitored. The list should state the name of the company, the name of the project, its value, proof of completion, and percentage of achievement.

The Chairperson remarked that the list of 41 projects presented had indicated no footprint.

Ms Chettiar said the DBSA presentation could have covered the number of projects completed and maintained. A number of these projects had not reached completion. 14 community projects would be completed by the end of the year.

Chairperson's closing remarks

The Chairperson, in her closing remarks, said she could not understand why the Department could not furnish the Committee with the GTIP details, because the Deputy Minister had made it clear that this information could be made available to the Committee, and suggested the DT should make time to brief them on the programme.

She applauded the Department for achieving 96% in its performance. She said the Deputy Minister should confirm whether the grading system was part of the policy review process. The Committee was of the view the grading agency should be on its own. She hoped consequence management would be applied to those responsible for the fruitless and wasteful expenditure of R36 000.

Lastly, she said it was clear the COE matters related to extended contracts were attributed to the office of the Minister. She said the Department should avoid such matters, because they reflected negatively when it came to the AGSA reports.

The meeting was adjourned.