In a hybrid meeting, the Standing Committee on Finance, Economic Opportunities and Tourism met to discuss the 2022/23 annual reports of the Western Cape Provincial Treasury and the Western Cape Gambling and Racing Board (WCGRB).
The Western Cape Government had obtained its best audit outcomes in five years, in that every single department and entity received an unqualified audit for the 2022/23 financial year. The Provincial Minister of Finance and Economic Opportunities believed that this was attributed to the Provincial Treasury continuing to be an integral driver of good governance in the Western Cape.
On the Provincial Treasury Annual Report, the Committee Members raised questions about the extensive support that was provided to struggling municipalities. Some municipalities are provided with continuous support throughout the financial year, such as the Beaufort West Municipality.
Most of the discussion focused on the challenges within Supply Chain Management (SCM), especially as it related to the implementation of preferential procurement in line with a Constitutional Court judgement, which declared the 2017 Preferential Procurement Regulations invalid.
The Committee was also interested in the Provincial Treasury’s role in developing funding models for efficient infrastructure investment. It was realised that in order to ensure a credible project pipeline, the Provincial Treasury needed to assist departments in establishing bankable projects that will meet all the requirements in terms of funding and SCM and to ensure that the fiscal framework can respond to the growth. The Provincial Treasury is exploring alternative funding mechanisms to draw in greater investment from outside the public purse. It is recognised that infrastructure is a driver of growth, and this will be done through exploring blended financing modalities. The Provincial Treasury has secured technical assistance support from the World Bank and will consider a blended financing instrument that was initially piloted in the energy sector.
A Member commended the Provincial Treasury for highlighting its employment equity priorities in the annual report because it seemed as if other departments tend to avoid the issue of employment equity and deal with it as a political football rather than dealing with it as a labour relations matter.
On the WCGRB Annual Report, the Committee commended the WCGRB for achieving a surplus of funds. One of the major contributors to the surplus was the influx of licence applications. A Member said that it has been wonderful to see the recovery after the COVID-19 pandemic, particularly in the amount of taxes and levies that the WCGRB had been able to generate. The Committee heard that the WCGRB had been authorised to use the surplus to purchase office accommodation.
The growth has not been the same for all sectors in the industry. There has been no growth with the totalisator because this has been a declining sector which was exacerbated by the Covid-19 pandemic. There has been a slight recovery in the casino sector, but the figures are not where it was intended to be. There was some decline in the limited payout machines (LPMs); while the numbers are still good, it is nowhere near to what it should be. There was continued and phenomenal growth in the betting sector, particularly in sports betting.
A Member expressed concern about a casino operator’s application to move a casino licence from Overberg to Somerset West. A major concern is that the Caledon Casino was the business hub of the Overberg region, and many other businesses and the community will be impacted by a relocation. The WCGRB will look at implications such as job losses, the broader fiscal and socioeconomic implications, and how the surrounding community would be impacted. The Board had adopted a very cautious approach to the relocation application.
Provincial Minister’s introductory remarks
Minister Mireille Wenger, Provincial Minister of Finance and Economic Opportunities, said that the Provincial Treasury continues to be a critical and integral driver of good governance in the Western Cape, which is done by implementing and constantly improving on processes and systems which underpin maximum impact on the ground for every cent of public money spent. This was made evident by the Western Cape Government (WCG) audit outcomes for the 2022/23 financial year, in that every single department and entity received an unqualified audit. This is the WCG’s best audit outcome in five years.
Provincial Treasury Annual Report 2022/23
The Chairperson informed the Committee that she would table the report in three parts. Part A (page 3 - 26), Part B (page 27 - 76) and Part D (page 97 - 128).
Mr A van der Westhuizen (DA) referred to the overview of the Department’s financial results (page 14 – 15). He observed that the Provincial Treasury used inconsistent decimal separators for big numbers. He advised the Provincial Treasury to be consistent when using decimal separators. He believed that the official standard in South Africa is to use the decimal comma (not a full stop) to separate whole numbers from decimal fractions; and to use spaces to separate groups of three digits.
He said that several Western Cape municipalities were in severe distress, such as the Beaufort West Local Municipality. He noted that one of the reasons for under-expenditure was that the actual cost of support to the Beaufort West Municipality for its mandatory financial recovery plan was less than the estimated cost. He questioned why there was an under-expenditure, considering that some distressed municipalities could always use that support.
He referred to the section on virement and rollovers. He sought clarity on how the leave gratuities were provided for. He asked about the extent to which employees were expected to take their annual leave.
On page 18, he noted that the Constitutional Court judgement regarding the finalisation of the Preferential Procurement Regulations, as well as the Circular by National Treasury had resulted in serious challenges in supply chain processes across all provincial departments. He asked if the National Treasury had any communication with provincial treasuries prior to sending out Circulars that have such a significant impact.
Mr I Sileku (DA) asked Minister Wenger about the challenges and successes of supply chain management (SCM) in local municipalities. He hoped to see more compliance amongst local municipalities. He asked about the Provincial Treasury’s role in the business between contractors and provincial departments, especially in terms of the Preferential Procurement Policy Framework Act (PPPFA). He informed the officials that he had recently received a phone call from the owner of a small, medium and micro enterprise (SMME) who told him that one of the departments had appointed a contractor who was not meeting the 30% subcontracting requirements. He asked if the Provincial Treasury did any monitoring to ensure that the requirement that 30% of public procurement contracts are subcontracted to the relevant designated groups.
The Chairperson asked for more detail on the net underspending of R1,770 million at the end of the 2022/23 financial year, which was mainly as a result of a later than anticipated commencement of the projects related to improving value for money in SCM and to improve infrastructure asset management at 12 municipalities. She asked for more detail on the virement of R1,666 million that was shifted from the various programmes to accommodate for the Gartner subscription fees and leave gratuity of officials that left the service of the Provincial Treasury.
Minister Wenger referred to the question on the PPPFA developments and the role that Provincial Treasury plays. She replied that the Provincial Treasury publishes a quarterly procurement disclosure report, which provides an analysis of procurement across all provincial departments. It also provides some insight into the gender and racial specifics of the companies that do business with the government. Provincial Treasury also has a Procurement Client Centre (PCC) in Century City, that continues to provide support to suppliers so that they can be competitive in doing business with the government.
Ms Julinda Gantana, Acting Head of Department (HoD), Provincial Treasury, said that officials are expected to take all their annual leave within a specified period. The officials are normally not allowed to accumulate leave, so there is a cut-off which is towards the end of June. Officials would either take their leave or lose it. However, the leave gratuity normally dates back to the dispensation prior to the new rules that came in. The Provincial Treasury need to honour that commitment in cases where a person resigns or leaves within a particular period, and they have accumulated leave. Some people that retire have been in the system for a long time, so they have capped leave.
On the SCM related questions, she said that the Provincial Treasury provides a lot of support to municipalities. Some municipalities are provided with continuous support throughout the financial year, such as the Beaufort West Municipality.
Mr Steven Kenyon, Chief Director, Local Government: Public Finance, Provincial Treasury, agreed that the Provincial Treasury provides extensive support to the Beaufort West Municipality. He said that at the end of the 2022/23 financial year, Beaufort West was the only municipality under a formal intervention, in terms of Section 139 of the Constitution. The Provincial Treasury is extensively involved in the municipality. For instance, the officials mentor the municipality through cash flow meetings three times a week. This is further supplemented with support from consultants. The Beaufort West Municipality also received a grant to purchase smart meters, as part of the revenue enhancement initiatives.
On the project that resulted in the underspending, he explained that the Provincial Treasury provided revenue enhancement support for the Beaufort West Municipality, through a team of consultants called “Thuso Consultants”. The contract was mainly for data cleansing. Thuso Consultants went through the data and found errors and inconsistencies in the valuations and billing et cetera. This is one of the rare cases of a genuine saving on a consultant project. The consultants had delivered the work on less than what they had originally tendered for. It was a useful project, but the challenge is to ensure that the municipality acts on the recommendations.
Mr Isac Smith, Chief Director: Asset Management, Provincial Treasury, referred to all the questions on SCM. He said that the role of the Provincial Treasury is to provide guidance, instruction and oversight over the provincial departments. The Provincial Treasury has a different role in the municipal space, in that it provides guidance and support, but it is not able to instruct. The Provincial Treasury developed a SCM strategy about ten years ago, which is revised accordingly. Part of this strategy is to provide support to the departments and municipalities.
On the question about the Circulars, he explained that the Provincial Treasury liaises with the National Treasury on a quarterly basis, which ensures that it is up to date with any developments. This is then communicated to the provincial departments and municipalities.
On the Circular relating to the Preferential Procurement Regulations, the Provincial Treasury had many engagements with the Office of the Chief Procurement Officer (OCPO) and the Department of Trade and Industry and Competition. Because of this involvement, the National Treasury withdrew the initial Circular and sent out a revised Circular. Although the Circular led to a lot of confusion in the Western Cape, it ultimately led to the province being in a better position to immediately implement preferential procurement in line with the Constitutional Court judgement.
He referred to Mr Sileku’s question about the 30% subcontracting requirements. He replied that the 30% subcontracting requirement was included in the Preferential Procurement Policy Framework Regulations, 2017, but when the new regulations were issued by National Treasury it was abolished. The Western Cape is not led by the 30% subcontracting requirement, but part of its responsibility is to create an enabling environment for small businesses. Hence, the Western Cape will always exceed the 30% subcontracting requirement. He believed that it was important for the Provincial Treasury to perhaps facilitate more sessions with the supply community so that they understand the changes in the Regulations.
On the value for money outcomes, he reiterated that part of the Provincial Treasury’s responsibility is to assist departments. One of the projects was to assist the Western Cape Education Department in identifying all its commodities and to assess the extent to which there could be improvements in SCM. The Provincial Treasury appointed the Government Technical Advisory Centre (GTAC) to assist the Western Cape Education Department, but this project took longer than anticipated. The full amount was paid, but some of it was paid in the new financial year (hence it was recorded as an underspending for the 2022/23 financial year).
The Chairperson invited Members to raise follow-up questions.
Mr van der Westhuizen asked if the Provincial Treasury were also assisting the Cederberg Local Municipality with its database. He had been informed that the Cederberg Local Municipality database was also in need of review and data cleansing.
He said that over the last few years, the Committee have heard horror stories about the prices of items being procured through SCM processes. He asked if the SCM unit had some type of price benchmarking to ensure that the officials had some idea of how much goods and services cost. If so, he asked if this openly available for people to access.
He believed that the drafting of specifications for bids and quotes is extremely important. He asked if the smaller entities had the creative skills to formulate such documents.
Mr G Brinkhuis (Al Jama-ah) noted that the Provincial Treasury had vacancies for the position of Infrastructure Director and Director: Local Government Supply Chain Management. He asked if the vacancies had been filled.
Ms N Nkondlo (ANC) referred to page 13. She asked for an explanation of what was meant by “leveraging strategic opportunities for economic growth and sustainable development”. She asked how this would be measured.
She asked about the Provincial Treasury’s role in developing funding models for efficient infrastructure investment, especially considering the financial constraints.
She referred to page 15 on the reasons for under-expenditure. She asked for more detail on the cost of support to the Beaufort West Municipality for the implementation of a mandatory financial recovery plan that was less than the estimated cost.
The Chairperson referred to page 15. She sought clarity on the later-than-anticipated commencement of the projects related to improving value for money in SCM and the improvement of infrastructure asset management at 12 municipalities. She asked the officials to specify which 12 municipalities were assisted. She asked about the reasons for the delay, and whether the delay resulted in an increase in cost due to inflation.
Ms Gantana referred to Mr Brinkhuis’s question on the vacancies. She replied that the Provincial Treasury will host interviews for the position of Infrastructure Director on 16 November 2023. The recruitment process for the Director: Local Government Supply Chain Management have been finalised, so an appointment will be made soon.
Mr Smith referred to Mr van der Westhuizen’s question about price benchmarking. He said that during the Covid-19 period, the Provincial Treasury had published a list of unit prices for goods and services, due to the exorbitant prices during that specific period. This was published publicly so that the public could have insight into the expenditure. The Provincial Treasury subsequently continued publishing its Procurement Disclosure Reports, but due to the number of commodities that it deals with at this particular time, it does not publish the unit prices. However, the Provincial Treasury has started to revamp its SCM system, with a focus on value for money. The aim is to make as much information available as possible, not only for the users within the departments and municipalities but also for the private sector. The process is underway, but the only challenge is to correlate all the information across different financial systems. The departments and municipalities would eventually have a list of benchmarked prices, but a decision would have to be made on whether to publish this in the public domain.
He explained that one of the most challenging areas is the development of specifications. On the project related to improving value for money, the specifications had to be developed in conjunction with the Western Cape Education Department, which took some time. Due to the depth of what the private sector supplier had to engage with, it took a month longer than anticipated. The project related to the improvement of infrastructure asset management assisted all the municipalities within the province, but it was done in two processes. The second process took a bit longer, as it required approval and support from municipalities. Some municipalities responded later than other municipalities, which led to a delay in concluding the contract.
Ms Analiese Pick, Director: Provincial Government Finance, Provincial Treasury, referred to the question on infrastructure investment. She explained that for the year under review, the Provincial Treasury had substantially increased its infrastructure investment by around 14% in comparison to the previous financial year (from R8,6 billion to R10 billion). The increase is mainly for the education portfolio. It was realised that in order to ensure a credible project pipeline, the Provincial Treasury needed to assist departments in establishing bankable projects that will meet all the requirements in terms of funding and SCM and to ensure that the fiscal framework can respond to the growth. Therefore, the initial strategies were focused on project preparation (about R83 million was allocated to various projects to assist departments in preparing a credible project pipeline). The current financial year is now focused on alternative financing.
Ms Shirley Robinson, Chief Director: Public Policy Service, Provincial Treasury, continued with the explanation of alternative financing. She said that the Provincial Treasury is exploring different approaches to draw in greater investment from outside the public purse. It is recognised that infrastructure is a driver of growth, and this will be done through exploring blended financing modalities. The Provincial Treasury has secured technical assistance support from the World Bank and will consider a blended financing instrument that was initially piloted in the energy sector. This is an innovative approach because it had not yet been done at a subnational level. She reiterated that the Provincial Treasury is starting to explore different approaches to innovative financing and to draw on the lessons of the Sustainable Infrastructure Development and Finance Facility (SIDAFF) Programme. This should generate the crowding-in of donor financing, in a way that de-risks private sector financing into infrastructure development.
Mr Kenyon thanked the Members for raising questions about the Cederberg and Beaufort West municipalities, as this gave him the opportunity to explain some of the different types of support that are provided to municipalities that were facing challenges. He explained that the Provincial Treasury had provided grant funding to the Cederberg municipality over a period of three years for a revenue enhancement project. The Cederberg municipality procured these services from PricewaterhouseCoopers Incorporated for database reviews, tariff remodelling et cetera.
He clarified that the underspending on Beaufort West was a saving because Thuso Consultants had delivered the services for the revenue enhancement project for less than the estimated cost.
He said that at times, the Provincial Treasury must be careful of not falling into the trap of “running after our struggling municipalities”, because it also needs to push towards growth.
Ms Robinson informed the Members that it is almost time for the Municipal Economic Review and Outlook (MERO) 2022/2023 to be published. She said that the MERO is a verifiable trove of treasure because it provides an understanding of how growth happens in the municipal space. The Western Cape’s growth is essentially an aggregate of what is happening in the municipal space. She agreed with Mr Kenyon, that the Provincial Treasury should not only concentrate its efforts on the vulnerable municipalities because it is equally important to support the municipalities that are drivers of growth to ensure that they reach their full potential. In this regard, the Provincial Treasury is starting to invest more of its internal capacity to track the “growth municipalities” on a particular dashboard and to look at the capabilities across the Western Cape Government. She explained that it was important to get the basics right because when more people move to municipalities (both at lower and higher incomes) energy, water and sanitation become constrained. It is important for municipalities to have a sustainable approach and plan ahead. The strategic municipal engagements are focused on understanding the fiscal strategies of municipalities, especially for larger municipalities such as the George, Stellenbosch and Drakenstein municipalities.
Ms Gantana referred to the questions based on the information on page 15, particularly on asset management. She said that from a local government perspective, the Provincial Treasury has started a project to support municipalities in understanding their asset base. The municipalities must maintain their assets properly to generate revenue.
Mr Smith clarified that the project related to the infrastructure asset management at the 12 municipalities did not involve a transfer of money to the municipalities. The Provincial Treasury has found that it would be better for this process to be driven on a central level, so the money was allocated to the unit responsible for oversight of asset management within the Provincial Treasury. The project assisted all the municipalities, but the project was divided into two phases. The Provincial Treasury has already finalised the project in the West Coast, Cape Winelands and Overberg municipalities. The 12 municipalities that are referred to on page 15 are municipalities in the Garden Route and Central Karoo District.
Ms Nkondlo believed that it was important to understand what Ms Robinson had said about the blended financing model for infrastructure investment. She asked for more detail on the blended financing model, especially on how it would de-risk private sector financing into infrastructure development. She asked if this model had been formally adopted or if it was still being explored.
She referred to Mr Smit’s comments about the Western Cape not being led by the 30% subcontracting requirement, but that it enabled an environment for small businesses. She asked for details on how the WCG implemented preferential procurement and whether it had a profile of the SMME owners that it procured from.
She asked about the Provincial Treasury’s stance on gender budgeting, and whether the Provincial Treasury and its departments have implemented gender-responsive budgeting.
The Chairperson reiterated Ms Nkondlo’s question about alternative financing, particularly the financing that is being explored by the World Bank. She asked for more information on this, and whether it had any relation to the green hydrogen project that is supported by the World Bank.
Ms Robinson replied that the alternative financing was certainly not a public-private partnership. The Provincial Treasury is looking at an innovative financing mechanism that would essentially draw in development finance institutions (DFIs), donor financing, and eventually crowd in private-sector and pension fund investment, in a way that de-risks financing through partial credit guarantees. Her colleagues in the energy sector are exploring a municipal pool buying facility that would purchase renewable energy from Independent Power Producers (IPPs). So, if the purchase agreement is de-risked then the cost is low.
She said that the annual World Bank meetings have recently concluded, and there is an incredible drive to think out of the box. It is not only about the public purse but to crowd-in alternative ways of engaging. There is currently a huge drive to explore this in the energy sector through donor and DFI funding. It is not completely new to South Africa, but it has not yet been utilised at the subnational level. The World Bank has a trust fund that offers technical assistance, so this is not a loan, or it will not have any implications for the Western Cape. It is about exploring innovative ways to crowd in different ways of financing without increasing the cost to the citizen. The Provincial Treasury are at the design and exploring stage for alternative financing, so it does not have a fully designed concept at this stage.
On the Chairperson’s question, she clarified that it is not yet at the green bond aspect in terms of sustainable and innovative financing through the World Bank. The Provincial Treasury are still in the nascent stage of alternative financing. The aim is to aggregate the smaller municipalities and try to procure from IPPs using de-risking strategies. Partial credit guarantees have been an incredibly innovative way to reduce costs.
Ms Taryn van der Rheede, Director: Provincial Government Budget Office, Provincial Treasury, referred to the question on gender budgeting. She explained that the Provincial Treasury is working with the Department of Social Development and the Department of the Premier to implement a broader approach to gender budgeting and to consider ways of developing policies that are gender-responsive. These engagements are drawing insight from the Department of Women, Youth and Persons with Disabilities because they developed a framework and roadmap that needs to be implemented by national departments and provinces by 2026. The Provincial Treasury has requested various departments to apply the principles of this framework and roadmap. The Provincial Treasury will continue to monitor the key indicators that are reflected in the framework to ensure that the WCG is progressively reaching the targets that have been set nationally.
Ms Nadia Ebrahim, Chief Director: Asset Management, Provincial Treasury, referred to Ms Nkondlo’s question about the SMME’s. She said that when the Preferential Procurement Regulations of 2017 were implemented, part of the discussion was how to achieve the outcomes of meeting the BEE requirements that were intended by the regulations. The Provincial Treasury has implicitly noted that the provisions for “set asides” were unconstitutional and unlawful; this was also one of the reasons why the 2017 regulations were declared invalid. The Provincial Treasury subsequently considered how to enable procurement through direct procurement while achieving the targets. Through the application of preference point systems, the departments were placed in a position where they could access the data to see who they are doing business with and be assured that the companies are certified, in terms of the BEE certification et cetera. The Western Cape had spent 86.09% of its 2022/23 budget via procurement through BEE companies. The province’s departments had collectively spent 50.44% of its expenditure on SMMEs.
She referred the Committee to the 2022/23 Procurement Disclosure Report, which provides information on the provincial expenditures. She said that the Provincial Treasury had implemented an empowerment impact assessment tool for contracts over R10 million. This was piloted by the then Department of Transport and Public Works. The Provincial Treasury had mainstreamed this through the blueprint accounting officer system so that departments can use this tool for procurements above R10 million.
Mr van der Westhuizen (DA) referred to page 34. He asked about the challenges experienced by the Provincial Treasury due to the offline periods encountered by the Government Printing Works (GPW). He asked how the Provincial Treasury had addressed this challenge by releasing National Treasury Instruction Note 12 of 2020/21 through Treasury Circular No. 5 of 2021, which informed accounting officers and authorities about the transition to publish bid advertisements and awards on the Government Tender Bulletin (GTB).
He asked for details on the National Travel Framework. He heard that some officials were travelling to France to study certain practices; he wondered if this was also covered by the National Travel Framework.
On page 35, he had the impression that it was initially the Department of Transport and Public Works (DTPW) that was solely mandated to undertake all the infrastructure projects for the province, but it now seemed as if other departments in the health and education sector were expected to play a bigger role in infrastructure development. He asked if he had the correct impression of this. He asked if the changes in the infrastructure development had any effect on the WGC administration and Provincial Treasury.
He said that since the COVID-19 pandemic, the world has moved away from face-to-face interactions and people have rather communicated online. It seemed that the Provincial Treasury identified the need for more regular interaction and face-to-face communication (page 40). He assumed that this would particularly affect travel. He asked the officials to explain when they preferred to travel and have face-to-face communication, and the extent to which they continue to make use of online interactions.
Ms Nkondlo referred to page 32 on the wellbeing/health and safety of employees. She observed that the Provincial Treasury employees worked in a heavily stressful and high-pressure work environment. She noted that the Provincial Treasury recognised “the challenges of maintaining red lines and a healthy work-life balance” and adopted "New Rules of Engagement" to bridge the gap. She asked what was meant by “New Rules of Engagement”. She asked how the Provincial Treasury intended to ease the strain on its employees.
She asked if it was true that the HoD, Mr David Savage, was no longer with the Provincial Treasury. She said that she would have assumed that Ms Gantana would be appointed as Acting HoD, because that seemed like the “obvious choice”, and this was a repeated phenomenon. She asked Minister Wenger if there were plans to fill this vacant position, and whether the Provincial Treasury ensured succession from within its own department.
She asked about the composition of the Project Preparation Facility.
Mr Sileku referred to page 33 on the main risks. He asked what was meant by “external factors beyond PT’s control, yet within its sphere of influence”. He asked how the Provincial Treasury were dealing with the external factors to ensure that it does not affect the work that it does.
He asked about the Provincial Treasury’s extended aid to municipalities grappling with financial challenges (page 40). He asked if the Provincial Treasury had identified the contributing factors that led to the financial challenges, and how this was being addressed.
He referred to the Quarterly Municipal Performance Assessments on page 52. He said that he struggled to understand why municipalities were struggling financially considering that section 71 and section 72 of the Municipal Finance Management Act (MFMA) provided an avenue for monthly and quarterly monitoring of budgets. He believed that section 71 and section 72 of the MFMA intended to identify the “red lights” to indicate when municipalities needed intervention. He questioned whether sections 71 and 72 of the MFMA were assisting Provincial Treasury in its oversight role and to effect earlier intervention.
The Chairperson noted that there were 26 rather than 32 bursaries awarded, due to six bursaries not being taken up by the successful applicants (page 45). She asked why the successful applicants did not accept the bursary. She asked if the Provincial Treasury incentivised the acceptance of bursaries.
On Sub-programme 2.3: Budget Management, she noted that the MERO was tabled two months later than planned, in order to align it with the tabling of the Medium-Term Budget Policy Statement (MTBPS) and to accommodate the inclusion of the most recent available datasets. She sought clarity on what the datasets entailed. She asked what steps would be taken in future to ensure timeous tabling of the MERO.
She referred to pages 59 to 61 on Sub-programme 2.4: Public Finance. She asked for more detail on the target assessment that had not been completed on the service delivery agreement or protocol agreement.
Minister Wenger said that the Provincial Treasury made a strategic decision to decouple the tabling of the Provincial Economic Review and Outlook (PERO) and the MERO. This was so that the PERO could be aligned with the Public Finance Management Act (PFMA) budget timelines, and the MERO could be aligned with the municipal budget timelines. This will assist municipalities in using the most recent data in their budget process.
Ms Gantana assured Mr Sileku that the Provincial Treasury does use section 71 of the MFMA. She said that the Provincial Treasury have developed a dashboard to indicate when it must be on high alert and at what point it must offer support, this is prior to the formal interventions. The Provincial Treasury is data-led, so it uses the information that it gets from municipalities and monitors very specific issues on the dashboard.
Minister Wenger said that the local government team within the Provincial Treasury do monthly monitoring of municipalities and takes action as soon as they observe declines. She informed the Committee that she regularly writes to municipalities to keep them up to date with the trends that were identified and to encourage them to take action.
Mr Sileku said that the reason why he had asked the question about section 71 and section 72 of the MFMA, was because municipalities do not account to the Committee, although the Committee has an oversight role. He questioned if there was a possibility that the municipalities were providing inaccurate information to serve their own purpose and that this was the reason why issues would only be identified at a later stage.
Mr Kenyon said that he appreciated the way Mr Sileku had structured his question about the risks to municipalities, the Provincial Treasury’s monitoring role and whether the data might be misleading. He explained that there were multiple reasons why municipalities were grappling with financial challenges, but it could be summarised as two broad reasons, which are exogenous reasons and reasons internal to the municipalities. An example of exogenous reasons is that the COVID-19 pandemic had a massive knock on municipal revenue collection. Several municipalities had suddenly accumulated arrears owed to Eskom et cetera. He emphasised that that same knock hit all the municipalities, but the municipalities with a stronger governance foundation were able to push through and did not experience the same problems. So, the exogenous factors play on the internal aspects, like governance. This is precisely why the Provincial Treasury are proactive when engaging with municipalities on governance. If municipalities do not implement and adhere to their mechanisms, policies and procedures then this is a risk for financial troubles.
The Provincial Treasury does extensive monitoring of the section 71 reports and briefs the Minister on the municipalities that are at risk, it is dubbed “municipalities to watch”. Mr Kenyon said that the Provincial Treasury receives two sets of data from the municipalities, that is the Municipal Standard Chart of Accounts (mSCOA) and the financial management reports that are tabled in the municipal council. The Provincial Treasury looked very closely at the differences in the data and would report on the data that is most credible. Some municipalities have numerous problems with the data that is inputted into the system, particularly on the cash flow data. The Provincial Treasury would frequently write to the municipalities to query particular data items. He believed that conflicting data was a warning sign in and of itself.
He referred to Mr Sileku’s question on whether the Provincial Treasury was delayed in its interventions. He replied that the Provincial Treasury works very rigorously and in line with the legal structures. The MFMA is a great piece of legislation, in that it sets relatively clear criteria for when the provincial executive may intervene, in terms of Section 139(5) of the Constitution or Section 139(4) - when the municipality has failed to adopt a budget. However, the Provincial Treasury does a lot of work with the municipalities prior to the legislated interventions. The legislated interventions are additional tools to hold the municipality to the prescripts of the financial recovery plan that has been imposed by the provincial executive. The Provincial Treasury work closely with the municipalities through a mix of grant support and oversight to try and turn around the situation in the municipalities. An additional form of assistance and oversight is through the Municipal Debt Relief Programme, particularly on what the Minister of Finance had announced on Eskom debt relief. Four of the Western Cape’s municipalities that are experiencing debt problems have been approved to be part of this debt relief programme. The debt relief programme has an onerous list of about 40 conditions that the municipalities must meet and report on every month.
Ms Naadia Ismail, Director, Strategic and Operational Management Support, Provincial Treasury, referred to Ms Nkondlo’s question on the “New Rules of Engagement”. She replied that the Provincial Treasury had put a lot of effort into establishing the “New Rules of Engagement” which are new rules for the workplace. Everyone agreed that there were too many meetings, so a lot of work has been done to streamline the frequency of the meetings, ensuring that the meetings are more productive and that the employees are prepared in advance to be more strategic about the discussions and resolutions that take place therein. The rules are also more considerate of the deadlines. The aim of the ”New Rules of Engagement" is to ultimately change the way that management engages with the employees to prioritise a work-life balance and to improve the overall health and well-being of employees.
She referred to the Chairperson’s question about the bursaries. She replied that there are a number of reasons why students may decline the bursary. For instance, the students might have obtained financial stability elsewhere or secured alternative funding sources, such as scholarships that the Provincial Treasury bursary cannot compete with. The Provincial Treasury bursary offers full tuition fees and an amount for textbooks and stationery, but it excludes transport and accommodation et cetera. Another reason is that students might experience changes in their personal circumstances or in their academic choices. For example, the Provincial Treasury had offered a bursary to a prospective student in the financial environment, but she had subsequently been admitted into the medical faculty, which is not part of the targeted fields of study for the Provincial Treasury bursary. The Provincial Treasury would find itself in a situation where students decline its bursary offers, especially for those offered by NSFAS because it is much more lucrative. The Provincial Treasury has reviewed its bursary policy to assist the “missing middle”, which are students of families who find themselves in the middle-income bracket but are eligible to obtain bursaries. The Provincial Treasury also plan to visit schools in collaboration with the Western Cape Education Department to raise awareness about the Provincial Treasury being an employer of choice.
Ms Ebrahim referred to Mr van der Westhuizen’s questions on page 34. She said that the section on page 32 particularly deals with some of the regulatory changes that happened, and some of these changes occurred in the middle of the year. There were two sets of compliance issues that needed to be audited against two separate legislative regimes. The GTB has been intermittently non-functional in terms of tender information, so the National Treasury and Provincial Treasury had to deploy alternative mechanisms to meet the compliance requirements. The Western Cape province identified the need to publish bid opportunities, bid awards, and related notifications on a platform that would reach a wider audience (instead of the departmental websites). It was found that more people accessed the WCG website. A link was created on the WCG website to guide viewers to the tender website of the Provincial Treasury. The other alternative was to access suppliers through the e-procurement system.
The second legislative change had to do with the 2017 Preferential Procurement Regulations which were declared invalid. The 2022 regulations had subsequently been issued, so there was a shift in compliance from the 2017 regulations to the 2022 regulations. Various mechanisms were deployed to maintain consistency and stability in adhering to the 2022 regulations.
She noted that the National Travel Framework was issued in terms of the cost containment measures, in that the National Treasury had looked into price benchmarking for travel and accommodation. This was also linked to a booking tool that needed to be enabled by the travel agents. The Provincial Treasury had requested an extension from the National Treasury on the implementation of the National Travel Framework to ensure that all provincial departments were on board.
The Provincial Treasury was opposed to the National Treasury Instruction Note 08 of 2022/23 on Cession and Assignment of Contracts, because it had various legal challenges and was not in line with common law principles. The Provincial Treasury had drafted a comprehensive paper to convey its position and the National Treasury withdrew the instruction note.
Ms Pick referred to the question on the repeal of the framework for the Western Cape Infrastructure Delivery and Management System (page 35). She explained that the then Department of Transport and Public Works was the preferred agent responsible for capital infrastructure development and maintenance within the WCG. However, the repeal of the framework for the Western Cape Infrastructure Delivery and Management System meant that the client departments (Western Cape Department of Health and Western Cape Department of Education) could have multiple implementing agents and that the client departments were responsible for procuring those services. The Provincial Treasury’s supply chain section worked very closely with the client departments to assist in the skills that were required, as well as the monitoring of the delivery of infrastructure.
She referred to the Chairperson’s question about the target assessment that had not been completed. She explained that the repeal of the framework for the Western Cape Infrastructure Delivery and Management System had meant that the interface between the Western Cape Department of Infrastructure and the client departments had to change, as there had to be new service delivery agreements due to the policy change. The service delivery agreements had to go through a vetting process to ensure that the departments were complying with the regulatory framework. The Provincial Treasury did not receive a final service delivery agreement that had been vetted legally, which meant that the target assessment had not been met. The Provincial Treasury did comment on the draft service delivery agreement to suggest improvements.
She said that the Provincial Treasury had established the Project Preparation Facility during the 2022/23 financial year to build a credible long-term pipeline of infrastructure investment programs and projects. However, the Provincial Treasury’s Infrastructure Director had retired during the year under review, so there was a loss of skill. The Provincial Treasury had also not increased its capacity to assist departments with the Project Preparation Facility. The Project Preparation Facility assists departments by providing funding and direction in terms of identifying the gaps for certain kinds of funding applications, and ensuring that the projects are bankable. The Provincial Treasury will procure a panel of experts in the current financial year for various sectors in order to assist the departments with expertise. This will widen the capacity of the Provincial Treasury to assist departments in building bankable projects.
Ms Gantana referred to Mr van der Westhuizen’s question about the preference for face-to-face or virtual interactions. She replied that the Provincial Treasury made use of the hybrid meeting option, but some engagements are better when people sit across from one another. In some instances, the virtual meetings have been suitable. She explained that when the Provincial Treasury hosts capacity building, revenue enhancement classes et cetera, there is a lot of interest from outside the province, so the hybrid option is most suitable as it saves time and travel costs.
Minister Wenger reminded the Committee that the HoD, Mr David Savage, had left the public service in the Western Cape. Ms Gantana had been appointed to act as HoD, as she was the next most senior official. The vacant position has been advertised and will follow the normal recruitment process. The last time that the Provincial Treasury were in this position was about four years ago, so it is not a regular occurrence.
The Chairperson invited Members to raise follow-up questions.
Mr Sileku referred to page 42 on Programme 3: Asset Management. He noted that 482 SCM municipal queries and 15 supplier complaints had been attended to. He asked the officials to provide some insight on what the queries and complaints were about.
On page 53, he noted that five municipalities had been assisted in crafting Budget Funding Plans. He asked if the Provincial Treasury were happy with the progress made.
He asked about the Provincial Treasury’s stance on municipalities that adopt unfunded budgets.
He referred to page 70 on Programme 4: Financial Governance. He said that the municipal public accounts committees (MPACs) are supposed to have the responsibility of overseeing and monitoring unauthorised, irregular, fruitless and wasteful expenditures (UIFWs). However, he understood that most MPACs within municipalities are not fully qualified to do proper investigations. He believed that there was an avenue for irregularities and corruption within these processes because the municipal councils do not do due diligence. He asked how the Provincial Treasury ensured proper oversight and monitoring of irregular expenditures within departments and public entities.
Mr van der Westhuizen said that one of the complaints from local governments is about the onerous reporting regimes. He asked if there was a way to streamline the necessary information in a format that is applicable to all the users of that information. He noted that on page 53, it speaks of municipalities that render services for which they struggle to recover the costs. He asked about the extent to which the Provincial Treasury studied and made recommendations on the tariffs of municipalities. He believed that the tariffs should critically be reviewed from time to time, to ensure that the municipalities are able to recover the cost of the services, but to also ensure that the consumers are able to endure the costs.
Ms Nkondlo understood that the Provincial Treasury would follow the normal recruitment process to appoint the next HoD. She said that she wanted to raise the point about the extent to which the Provincial Treasury does succession planning to appoint internally from within its own department, especially amongst those that have an understanding and institutional memory of the organisation.
On page 62, she noted that the SCM unit has no dedicated structure in place for strategic sourcing and SCM Technology, as such the unit marginally deviated from the publication of the last Procurement Disclosure Report.
She wanted to follow up on the response relating to the Project Preparation Facility. She asked if the Project Preparation Facility was composed of a panel of experts. She sought more detail on who was responsible for the Project Preparation Facility, and under which programme it belonged.
On page 67, she noted that the Provincial Treasury had continued to play a pivotal role in resolving intergovernmental issues, particularly in cases of disputes between stakeholders and the AGSA. She asked the officials to expatiate on the types of disputes that it had to resolve in the 2022/23 financial year.
The Chairperson asked if the targets for the MERO would be adjusted.
She asked for an estimate of the number of bursary applications that the Provincial Treasury receives. She wondered if it would be possible to award the bursaries to runners-up, especially when some students decline the bursary offer.
She asked about the challenges that the Provincial Treasury had experienced with mSCOA, noting that it had been updated. She asked if the Provincial Treasury had intervened to address the technical challenges.
Ms Letitia Sallies, Acting Director: Local Government SCM, Provincial Treasury, referred to the question on the 482 SCM municipal queries and 15 supplier complaints. She replied that the Provincial Treasury had attended to queries from municipalities on a daily basis. For example, queries on SCM prescripts, queries relating to the disposal and leasing of municipal assets, queries relating to section 33 of the MFMA et cetera. It is a wide range of SCM-related queries that are attended to. In terms of the top five categories, 41% of the queries related to the leasing of assets; 31% related to normal SCM queries; 16% related to assisting suppliers with registering on the supply database; 11.41% related to section 33 of the MFMA; and 7% related to the proposed sale of municipal assets.
On the 15 supplier complaints, he replied that the complaints related to suppliers being aggrieved about how municipalities followed certain procurement processes. The suppliers can submit a complaint in terms of SCM Regulations 49 and 50. If the municipality has not addressed the complaint sufficiently then it would be referred to the Provincial Treasury for investigation. The complaints also related to a wide range of issues, such as the validity period, how the municipality concluded the process and whether this was done in a fair and competitive manner, allegations of maladministration et cetera.
Mr Kenyon said that the Provincial Treasury take the Budget Funding Plans very seriously. The adoption of unfunded budgets is illegal in terms of section 18 of the MFMA. Section 18 of the MFMA sets out how a municipal budget must be funded, either from income or accumulated reserves. The Provincial Treasury work very closely with municipalities to particularly avoid them getting into unfunded budgets. For example, during the most recent draft budget process at the end of March 2023, there were at least two municipalities in the Garden Route that had unfunded budgets. The Provincial Treasury had worked closely with the municipalities to ensure that they made the necessary changes to adopt a budget that was funded. If a municipality does not adopt a Budget Funding Plan that is assessed to be credible, then the National Treasury will withhold the transfer of equitable share.
The Budget Funding Plans are implemented differently on a case-by-case basis. The Budget Funding Plan has about five pillars. For example, the Cederberg municipality is successfully implementing three of the five pillars and making progress on the other two. The Matzikama municipality would be in a much better position, but the National Energy Regulator of South Africa (NERSA) declined to approve their revised electricity tariffs. The Matzikama municipality did a cost-of-supply study for cost-reflective tariffs, but NERSA did not have sufficient time to assess that before the start of the municipal financial year. The Matzikama municipality is in an almost impossible position, as they will lose money on their biggest trading service for another year. Although the Beaufort West municipality was supported through a financial recovery plan, it would take about three years for them to move out of an unfunded position. Once municipalities find themselves in an unfunded position, it can take many years to dig themselves out of it.
The Provincial Treasury look quite closely at the tariffs and each of the services when assessing municipal budgets, especially on whether the service as a whole is funded from the revenue generated, as well as the equitable share for the subsidisation of services to indigent households. The Provincial Treasury try to push municipalities to operate efficiently in order to reduce the cost to consumers. In terms of the municipalities applying more of the costs onto the fixed portion of tariffs and onto property rates, this is something that they have been advised to do because it matches the cost structure of the municipality. The municipalities are encouraged to be more cost-efficient, but there are real exogenous constraints on municipalities, such as the Eskom bulk tariff costs which generally make up a third of municipal budgets. Another third of municipal budgets is made up of staff costs, which is subject to a central bargaining council resolution. So, the wages increase by the consumer price index (CPI), plus the 2.4% notch increment that every staff member is entitled to. This makes it very difficult for municipalities to not get their overall cost structure to grow significantly more than inflation, and this then feeds into tariffs.
Ms Robinson said that the tabling of the MERO will be aligned with the municipal budget timelines. This will enable the inclusion of updated quarter 1 GDP data that is then modelled by Quantec into the municipal data.
Mr Smith referred to Mr Sileku’s questions. He noted that one of the indicators for financial governance speaks to the oversight and monitoring of irregular expenditure within departments and public entities. He said that it was critical to understand that what is in the Provincial Treasury’s control is to have oversight directly over what departments and public entities incur, in respect of irregular expenditure. About two years ago, the National Treasury empowered the provincial treasuries to have direct control over the condemnation of irregular expenditure. So within the Western Cape, the Minister of Finance and Economic Opportunities has that authority; and some of the values are delegated to be signed off by the Accounting Officer. The Western Cape accounts for about 3% of all irregular expenditure in the country. In the first year that this power had come to the Western Cape, the Provincial Treasury had seen more than 1000 cases of irregular expenditure, but there was a significant drive amongst the departments and the public entities to bring irregular expenditure down to nothing.
From an overall governance perspective on municipalities, the Provincial Treasury together with the Department of Local Government has the responsibility to train municipal councillors and officials in relation to irregular expenditure. The audit outcomes show that most of the irregular expenditure happens in the supply chain space. Programmes 2, 3 and 4 are designed to assist the officials to better understand whether the irregular expenditure is in the procurement or Human Resources (HR) space. Mr Smit referred the Committee to the National Treasury Circular 86 and Circular 92, as this details the MPACs responsibilities. He said that the Provincial Treasury have trained MPAC members, as well as the officials of municipalities. The Provincial Treasury has also trained the audit committees. The Provincial Treasury is invited to municipal council and MPAC meetings to further unpack the irregular expenditures. At every sitting where the administration has to present to MPAC, the Provincial Treasury ensures that the information that is delivered to MPAC is accurate and complete so that the opportunity for misguidance is limited to the maximum extent.
Mr Sileku questioned what happens to institutions that lack ethical leadership and have no regard for the rule of law.
Mr Smith replied that the Provincial Treasury ensures that it drives good financial governance. The outcome of the Western Cape speaks to the governance and the agenda that is prioritised by the municipalities. The Provincial Treasury has rolled out misconduct regulations for municipalities that have non-ethical behaviour. The Provincial Treasury ensures that it educates municipal officials about consequence management and issues relating to financial misconduct so that they know the rules of the game and the consequences of not applying those rules.
On the question about the Provincial Treasury that played a pivotal role in dispute resolutions between stakeholders and AGSA, he replied that the disputes were about the technical understanding of the accounting or auditing standards. AGSA is seen as the supreme audit institution in relation to independently auditing the financial statements. The Provincial Treasury would intervene in instances where there is a misunderstanding in terms of the interpretation of accounting or auditing standards. The Provincial Treasury would provide an independent opinion on the dispute.
Ms Pick referred to the question on the Project Preparation Facility. She said that the Project Preparation Facility resides under Programme 2: Sustainable Resource Management, which is under the management of the Chief Directorate: Public Finance. There is an Infrastructure Directorate within Public Finance. The Project Preparation Facility falls within the Infrastructure Directorate. She indicated that the Infrastructure Director had retired during the year under review, but the Provincial Treasury had also made two appointments to the unit. The unit currently consists of a varied skill set of eight people who are quite young in terms of their experience. The delineation of work is divided and aligned to the panel of experts to provide skill sets in the different sectors. The panel of experts are there to assist with more projects and for the transfer of skills. The infrastructure unit is responsible for the oversight and monitoring of the implementation of infrastructure, but they are also part of the budget process for infrastructure. There is very limited time for the infrastructure unit to go on training programmes, so the Provincial Treasury is looking at a panel of experts to assist with on-the-job training.
Ms Ismail said that the Provincial Treasury does have a Talent Management Strategy. The succession planning is intricately linked to the bursary programme that encompasses internal and external initiatives. The Provincial Treasury implement specific qualifying requirements and selection criteria for bursary applications. During the adjudication process, the Provincial Treasury also prioritises designated employment equity groups, which include persons with disabilities. These individuals form part of the talent pipeline, and they work their way through the ranks. The WCG has had a lot of interns who made it through to the management level.
On the question about offering bursaries to runners-up, she replied that the Provincial Treasury receive an average of about 300 applications, but it can only afford to award 30 bursaries. The Provincial Treasury do offer bursaries to the runners-up, should they still be interested in it.
The Chairperson referred to page 102 on personnel-related expenditure. She noted that there was a total of approximately R198 million in personnel expenditure, out of a total expenditure of approximately R317 million. She asked why this was comparatively low to the target. She noted that there was quite a significant decline in personnel expenditure and that the Provincial Treasury only had a 2.9% vacancy rate.
She referred to page 108 on the reasons why staff resigned. She asked what the Provincial Treasury were doing to make it an attractive place to work. She asked for more information on the reasons why staff resigned. On page 113, she asked about the reasons why the 44 terminations took place.
Ms Nkondlo referred to the reasons why staff resigned. She said that one would often observe that there is always a bigger percentage of people who resign with “no reasons provided”. She understood that there was no way that the Provincial Treasury could compel people to provide reasons for their resignation. She asked if the Provincial Treasury conducted exit interviews. If so, she questioned what the HR division’s stance was on the number of people who chose to resign without providing reasons.
She referred to page 120 on the steps taken to reduce the risk of occupational exposure. She asked if the wellness screenings for employees to know their HIV status were compulsory.
She asked about the number of interns at the Provincial Treasury, and which programmes they belonged to.
Ms Gantana said that the bursary programme includes a bursary obligation, so the table on page 102 includes those interns who are “working back the bursaries”.
She clarified that the Employee Health and Wellness services were voluntary, including the wellness screenings for employees to know their HIV status. The wellness screenings do not only focus on HIV and AIDS, but it also includes other health-related issues. She emphasised that this was voluntary participation.
On the resignations, she noted that the Provincial Treasury also deals with internal promotions. She said that the Provincial Treasury were mindful and accepted the fact that it has become a training ground for municipalities, other provinces and the national government. For instance, within the current financial year, the Provincial Treasury lost a total of 16 people within the SCM unit, who have pursued opportunities in municipalities, especially in the City of Cape Town.
Ms Ismail said that the Provincial Treasury had identified the age group of 25 to 35 as a highly qualified and highly mobile group. It was very difficult to retain them. She concurred with Ms Gantana that the local government and private sector “poach” the Provincial Treasury’s staff and attract them with improved salary offerings. She noted that a great portion of the turnover rate comprises graduate interns. Some of the graduate interns are absorbed by the Provincial Treasury, but the Provincial Treasury does not have the funds to accommodate all of them. Some graduate interns do get offers elsewhere. The Provincial Treasury does afford the staff who are exiting the opportunity of engaging in an exit interview, but it is a voluntary process. There are some exit interviews that do take place, and there is some good data that comes out of it that the Provincial Treasury make use of going forward. Some of the reasons for the 44 resignations include personal reasons, family reasons, promotions et cetera.
Ms Nkondlo said that the Acting HoD had raised an interesting point about the Provincial Treasury being a “training ground”. She wondered if the Provincial Treasury’s HR management was invested in understanding some of the reasons for the resignations. She noted that the Provincial Treasury had conducted job evaluations, but it did not seem that any posts had been upgraded (page 105). She believed that finance was a very hectic environment, especially SCM. She said that the high turnover rate in provincial treasuries was not a new thing, which is why she had raised the point about succession planning.
She commended the Provincial Treasury for highlighting its employment equity priorities in the annual report. She found this encouraging because the Provincial Treasury did not avoid the issue of employment equity. She said that other departments seemed to avoid the issue of employment equity and deal with it as a political football rather than dealing with it as a labour relations matter.
She said that the Provincial Treasury had established a lot of projects, which will surely have an additional impact on the functions and responsibilities of its employees, but there might not be an improvement in remuneration. She believed that this might be a reason why staff resigned. She reiterated her observation that the Provincial Treasury has conducted job evaluations, but it seemed as if this did not translate into posts being upgraded.
Mr Sileku said that it was not a good thing that people left departments because of issues with finance. He asked Minister Wenger about her views on the Minister of Finance’s recent pronouncements about budget cuts. He asked Minister Wenger if she was worried about the number of highly qualified people leaving the Provincial Treasury, and how she planned to mitigate this risk in light of the budget constraints. He said that he would love to see how the Western Cape will mitigate that particular risk.
Minister Wenger replied that the Western Cape has had a prudent strategy with respect to the cost of employment over many years. She believed that the Western Cape had the lowest Compensation of Employees (COE) to budget ratio compared to any other province, but the Western Cape are now faced with an unfunded wage bill and have been “left to carry the can”. The Provincial Treasury is going through the motions to see what can be done to ensure that the wage increases are funded for. In addition to this, the Provincial Treasury has noted the cuts through the equitable share and significant cuts through conditional grants, which will put pressure on the system across the board. The Provincial Treasury is going through the budget process and trying to navigate this to ensure that it can continue to deliver essential services as per its mandate. It is a difficult task, but the officials are relying on their experience and good governance practices to make the right decisions that are in the best interest of the citizens.
Ms Gantana replied that the Provincial Treasury will remain a training ground until such point in time that there is one public service. Unless there is one public service, the Provincial Treasury will always be behind in terms of the salaries that it can offer. She noted that things were changing, even within the Provincial Treasury. Some of the legislative changes, such as the Public Procurement Bill, include very specific duties on treasuries. Amendments to the MFMA and PFMA are also in the works. All of these changes would require the Provincial Treasury to respond structurally.
She said that the Provincial Treasury do conduct job evaluations, but the Provincial Treasury have the leanest operations across South Africa, because of the measures that were put in place over time. The Provincial Treasury recognises that things need to change, but this would require additional funding. The Provincial Treasury had noted the importance of concentrating on its employees and information technology (IT), and this was conveyed to the Medium Term Expenditure Committee (MTEC).
The Chairperson thanked the officials from the Provincial Treasury. She invited members of the public to make comments or raise questions.
There were no further questions.
Western Cape Gambling and Racing Board (WCGRB) Annual Report 2022/23
Mr Claude Bassuday, Board Chairperson, WCGRB, thanked the Committee for the opportunity to present the WCGRB Annual Report. He informed the Committee that he was accompanied by members of the WCGRB and the executive management of the entity.
The Chairperson tabled Part A (page 3 – 16), Part B (page 17 – 38) and Part D (page 57 to 63) of the annual report. She invited Members to raise questions.
Mr van der Westhuizen thanked the WCGRB for the work that they do, as it made a huge contribution to the provincial fiscus. He said that it has been wonderful to see the recovery after the COVID-19 pandemic, particularly in the amount of taxes and levies that the WCGRB had been able to generate. He asked how this compared to the pre-Covid-19 performance. He asked if gambling was a growing form of entertainment.
He referred to page 9 on the Chief Executive Officer’s (CEO’s) overview. He asked how some of the WCGRB’s revenue sources had expired.
He said that the issue of responsible gambling was something very close to his heart, and he was grateful that the Board Chairperson had alluded to this on page 7. He noted that the Western Cape Responsible Gambling Committee (a committee of the Board) has replaced the Western Cape Responsible Gambling Forum. He had the impression that a forum was more far-reaching and might be able to consult more widely with other role-players, whereas a committee of the Board was more of an in-house arrangement and probably only consisted of a few members. He questioned why the decision was made for a committee of the Board to replace the Western Cape Responsible Gambling Forum.
Ms Nkondlo referred to page 7. She asked what was meant by “the growth is placing an enormous strain on the Office of the Board to meet the expectations of licence holders”.
She asked the WCGRB officials to highlight some of the issues that were identified in the judgement of the Supreme Court of Appeal (SCA) in the matter of Tsogo Sun Caledon (Pty) Ltd and Others v Western Cape Gambling and Racing Board and Another. She asked how the SCA judgment informed how the WCGRB responded to the licensing conditions.
She noted that the recruitment process for five vacant positions has been put on hold to enable the organisational development consultants to develop and finalise the review of the WCGRB’S organisational structure. She asked about the impact of these vacancies, particularly on the operations and delivery of the services. She asked when the review of the WCGRB’s organisational structure would be finalised.
Mr Sileku referred to page 7. He noted that the Board resolved to undertake a study on gambling prevalence and problem gambling incidence in the province. He asked the WCGRB how far it was with the study.
He asked for details on which Corporate Social Investment (CSI) programmes the WCGRB contributed towards.
He asked how the WCGRB monitored the usage of casinos as a mechanism for money laundering.
The Chairperson commended the WCGRB for the profits made. She asked how the WCGRB intended to invest or use its surplus funds. She asked if the WCGRB anticipated further surpluses in the future, given that there is so much innovation in the technology space and that this will likely happen in the gambling space as well.
She noted that one of the major contributors to the surplus was the influx of licence applications. She asked about the turnaround time for a licence to be processed. She asked if there was a backlog in the processing of licence applications. She asked if the WCGRB anticipated that the high number of licence applications would continue or if it would eventually lull.
Mr R Bennet, Head: Compliance, WCGRB, explained that there are four sectors: the casinos, the limited payout machines (LPMs), the totalisator, and the bookmakers. The growth has unfortunately not been the same for all sectors in the industry. There has been no growth with the totalisator because this has been a declining sector which was exacerbated by the Covid-19 pandemic. There has been a slight recovery in the casino sector, but the figures are not where it was intended to be. There was some decline in the LPMs; while the numbers are still good, it is nowhere near to what it should be. There was continued and phenomenal growth in the betting sector, particularly in sports betting.
During the hard lockdown, people were compelled to stay within the confines of their homes. The people who would frequent land-based gambling establishments were able to do this on their mobile devices. Once the lockdown restrictions were lifted, some people decided that they would stick to the mobile option. This, coupled with the fact that there is no cap on bookmaker licences within the Western Cape, resulted in an increase in the number of licences issued. At this stage, a lot of the sports betting that has been offered appeals to the younger generation (i.e., those over 21 years). For example, from the end of the financial year in 2018 to the end of the financial year in 2023, there has been a growth of 674% in betting taxes.
Mr Bassuday referred to the questions about financial self-sufficiency and income loss. He said that the WCGRB is only allowed to collect legislated revenue and is not authorised to create its own revenue streams. The Western Cape Nineteenth Gambling and Racing Amendment Act (19th Amendment Act) was intended to create revenue streams, but this piece of legislation is in the process of being repealed. The revenue streams which existed in the past included the casino exclusivity fee and route operator fee which have expired. Hence, the WCGRB is dependent on grants from the WCG to fund its budget. There are ongoing discussions between the WCGRB, the Provincial Treasury and Minister Wenger regarding this aspect of funding in future.
Ms Z Siwa, Chief Financial Officer, WCGRB, clarified that the WCGRB are currently collecting the LPM operator fee because the LPM operators moved to a second bracket, which would also be for a period of ten years. The casino exclusivity fee made up a significant portion of the WCGRB’s own revenue, but due to the gap in the 19th Amendment Act, the WCGRB cannot collect this fee.
Mr Bassuday referred to Mr van der Westhuizen’s question about the Western Cape Responsible Gambling Forum being replaced by a committee of the Board. He replied that while the forum was intended to be more of an open invitation, it was felt that there should be a dedicated committee of the Board dealing with responsible gambling, given that this is very much within its focus. The committee of the Board has been constituted in such a way that it is not just comprised of Board members, but also members of the industry. The committee of the Board would have open meetings, where members of the industry can participate and discuss matters with the Board in set intervals, and then the Board has its own closed session.
Mr P Abrahams, CEO, WCGRB, said that the casino sector does not have as much of a growth. A major portion of the growth comes from the betting industry. The major growth also comes with a bit of problems, as the WCGRB has more disputes coming across and more licences being applied for, but does not have the resources to deal with this. He explained that the current staff work overtime in order to process all the licence applications. The senior managers are not paid for overtime, so they work at their own cost. He stressed that this will not be sustainable. He noted that the organisational development exercise had been finalised, but the WCGRB are now looking at a funding model to present to the Minister for approval.
Mr Bassuday said that the WCGRB had given effect to the SCA judgement and adopted a policy, which has now been implemented.
Ms Y Skepu, Manager: Legal Services, WCGRB, said that the court application was launched in 1999 by one of the casino operators, which was subsequent to the adoption of the Broad-Based Black Economic Empowerment Amendment Act (BEE Amendment Act), as well as the amended B-BBEE Codes. In the Board's engagement with the industry, it became clear that there were concerns around the ripple effects and a question of what would be the reasonable level to be achieved in terms of the amended B-BBEE Codes. At that time, the Board resolved to apply one level for each sector of the industry. It was agreed that in subsequent years as and when a licence renews, the Board will apply the individualised process envisaged in section 53 of the National Gambling Act. In terms of the litigation, the court found that the Board having imposed one level per sector of the industry did not adhere to the spirit of section 53 of the National Gambling Act. The court set aside the 1999 licence conditions. She noted that subsequently, each licence holder’s licence was renewed annually, and the Board indeed imposed individualised licence conditions. So, at the time when the judgement was delivered the Board was already adhering to that process, and there were no levels imposed to each sector, but it was imposed for each licensee. The court had simply confirmed the process that the Board adopted, but considering the deliberations at the time, the Board commenced on the same basis for the different sectors.
The Board also adopted a BEE policy, which will guide the requirements for the gambling industry in the province.
Mr Bassuday confirmed that the WCGRB had commissioned a study to look at the staffing structure of the Board. The exercise has been completed. The WCGRB will prioritise the filling of the vacant positions. Representations will be made to the Minister in a phased approach.
Mr Bennet explained that the CSI programmes varied from licence holder to licence holder because in many instances licences were awarded on a competitive basis. For instance, in the case of casinos, they have to submit an application for the Board to evaluate. In the application, they would indicate exactly what they would contribute to CSI, and that would then become a licence condition. In many instances, the casinos have specific trusts which are formed. The Board would then review the trust document and ensure that the monies that are spent are in terms of the trust document. The CSI programmes would generally be about community upliftment and education (particularly bursaries in the science and mathematics field) et cetera. Some of the licence holders would keep a certain amount for what they call a “disaster” - if any type of disaster would occur, they would make those funds available. The Board reviews the CSI expenditures on a quarterly basis. Audits would be conducted to ensure that the money that is spent is in terms of the licence conditions, which is normally 5% of pre-tax profits, and to ensure that the beneficiaries are genuine organisations.
He said that there has always been a concern that money laundering is rife within the casino environment because it is a cash business. However, there has always been strong enforcement in terms of the regulating of casinos within South Africa, even prior to the implementation of the Financial Intelligence Centre (FIC) Act. When the WCGRB’s regulations were originally promulgated, it had already included a provision which states that in the event that a person has a transaction over R25 000, the casino is obliged to report this to the Board. There are also a lot of aspects related to the compliance assessment of the FIC, which sort of overlaps with what the WCGRB does, particularly in terms of the standard regulatory audits. The Financial Action Task Force (FATF) conducted a mutual evaluation which was concluded by early 2022 and thereafter made some recommendations to the FIC. The FIC reviewed these recommendations and made a decision to amend legislation which basically removed all provincial gambling boards as supervisory bodies. The FIC decided that it would do the supervision itself but recognised the knowledge and expertise of the provincial gambling boards and casinos. For this reason, the WCGRB had entered into a memorandum of understanding (MoU) with the FIC, in terms of how it would share information and assist the FIC.
He said that the WCGRB took money laundering extremely seriously. Any contravention of the FIC Act or any issues related to that could result in an organisation losing its licence. He noted that over the years, there were one or two issues raised in terms of the FIC Act, but nothing specifically to do with money laundering. It was generally in instances where the Know Your Customer (KYC) requirements had not been established. The FIC has moved away from a rules-based approach to a risk-based approach, so each licence holder has to submit a document called a “risk management compliance programme”, which basically sets out what their risks are as an organisation and what measures will be put in place to mitigate those risks. The Board also reviews this on an annual basis.
Mr Bassuday confirmed that a tender was advertised for the appointment of a service provider to undertake the study on gambling prevalence and problem gambling incidence in the province.
Ms Siwa referred to the questions on the surplus of funds. She replied that the WCGRB could either request that the cash surplus be retained for a specific reason or surrender the surplus to the provincial fiscus. For the 2020/21 and 2021/22 financial years, the WCGRB had requested to retain the surplus, which was authorised. The money was utilised to purchase office accommodation. The R13.8 million surplus for the 2022/23 financial year was surrendered back to the provincial fiscus. The Board planned further automation of Board processes, but it did not specifically request to retain surpluses for this function. She said that ideally, the Board would not necessarily want to have cash surpluses, because it would want to spend the funds and ensure that the budget process is what it should be. Since the Board is dependent on the industry, it is difficult to budget for the Board’s own revenue. The Board tries to ensure that its budget is based on reasonable estimates.
Mr Abrahams referred to the questions on the increase in licence applications and the turnaround time. He said that the increase in licence applications was mainly by online bookmakers, which is a growing market. The average turnaround time is three months, but the process for new licences could take between 3 months to a year, as it depends on what was submitted and required.
Mr Bassuday recalled that the Chairperson had raised a question about technological trends.
The Chairperson clarified that her question was on whether the WCGRB anticipated any further technological trends that may also contribute to an increase in licence applications.
Mr A Matthews, WCGRB, HoD: ICT, replied that technology will evolve over time. Whatever was introduced in the bookmaking sector has obviously grown in terms of the amount of people who are betting. He said that the Board had a discussion on the use of artificial intelligence (AI) in casinos, but there are no current standards in place for AI. The implementation of AI into any casino would require standards and would need to be legislated. This would also need to be assessed through testing labs. AI is not a consideration for now, but this may come along in the future. He noted that there was an introduction of Decentraland, where casinos are created in the metaverse. He believed that online gambling, especially on the metaverse, should be something that must be looked at from a national perspective and not just from a WCGRB perspective because this will have an impact on the whole of South Africa. The challenge with Decentraland is that there is no responsible gambling standard, and there is no overseer of this virtual environment.
The Chairperson asked if there were any further questions.
Mr van der Westhuizen said that it appeared that the WCGRB had responded to tip-offs about illegal gambling. He asked if the WCGRB also conducted proactive inspections.
He observed that many of the recent online gambling advertisements would make reference to being licenced with the WCGRB. He questioned why it seemed that people preferred the Western Cape’s gambling board versus that of other provinces that may be closer to the general public. He asked if this was because the tariffs were a bit lower in the Western Cape.
He asked if institutions like the WCGRB had access to people's bank accounts, especially with online betting transactions. He asked how the WCGRB ensured that the turnover was an accurate reflection of the businesses in the industry.
Ms Nkondlo referred to page 63 on the employment equity targets. She asked about the WCGRB’s employment equity target for people with disabilities. She noted that the WCGRB only had one semi-skilled male employee with a disability and that the target is to employ one semi-skilled female with a disability. She asked if the WCGRB were trying to provide opportunities for people living with disabilities.
She said that there seemed to be a very weak representation of females in the senior or top management of the WCGRB. She asked how the WCGRB attended to issues of employment equity.
Mr Sileku said that he liked the table on the geographical spread of licensed gambling operations (page 26). He found it interesting that the City of Cape Town, Eden, Cape Winelands, Overberg, West Coast and Central Karoo each had one casino, and that there was appetite in moving the casino licence from Overberg to Somerset West. He informed the officials that he was from Overberg, Theewaterskloof, and he had worked as an account clerk at the casino when it opened. He questioned what would happen when a casino licence goes to another district, as he worried that a lot of money has been invested into the infrastructure.
Mr Bennet referred to the questions about illegal gambling. He said that about eight years ago, the WCGRB were very proactive in conducting follow-up inspections, especially if it had shut down illegal establishments. Due to resource constraints, the WCGRB are no longer able to do this. However, the WCGRB has a list of confidential informers who inform the Board of such information. The WCGRB has an obligation to attend to any allegation within 30 days of when such allegation was made to the Board.
Mr Bassuday referred to Mr van der Westhuizen’s question about online gambling advertisements and the preference of the Western Cape. He said that the Western Cape was the choice for various reasons.
Mr Bennet asked Mr van der Westhuizen if his question related to illegal operators who advertised that they were licenced in the Western Cape.
Mr van der Westhuizen said that his question was about the legal operators who advertise that they are registered with the WCGRB. He questioned why most operators preferred to be registered with the WCGRB.
Mr Bennet replied that the answer was fairly simple, although it might sound a bit arrogant. The Western Cape is regarded to have the best provincial gambling board in South Africa. This is based on all aspects such as the WCGRB’s response to licence holders and the engagement with licence holders, especially on changes to legislation and inviting licence holders to engage in public participation. There are many operators from other provinces that would also want to obtain a licence in the Western Cape. The three biggest casino groups in South Africa (i.e., Peermont Global, Sun International and Tsogo Sun) all have head offices based in Gauteng, but they have decided to apply for Western Cape bookmaker licences. He said that it was also important to note that some provinces have restrictions on bookmaker licences, but he reiterated that the Western Cape is regarded to have the best gambling board in South Africa.
He noted that the tax rate for betting has been consistent throughout the country, it was 6.5% on sport and 6% on horse racing. The tax rate might vary slightly between provinces, but it is generally the same.
He referred to Mr van der Westhuizen’s question on betting transactions. He said that he assumed that the question was based on the bank accounts of the licence holders who receive money from the punters. He said that before any licence holder can transact, they need to have approved software. The software that they use must be tested in terms of certain specific technical standards. Those standards are tested by an independent test laboratory (there are only two in South Africa). The test laboratory sends a report to the National Regulator for Compulsory Specifications (NRCS). The NRCS would check to see if the software meets the required standards, and they then issue a letter of certification. The letter of certification is issued to the WCGRB, which confirms that the software meets the criteria. So, the software must conform to certain standards. The WCGRB has access to the reports, as it conducts ad hoc and scheduled audits to ensure that everything is still working accurately.
Ms S Sixubane, Manager: Human Resources, WCGRB, referred to Ms Nkondlo’s question about employment equity targets. She replied that the target for persons with disabilities is 2% of the total establishment of the Board, which equals one female. All posts are advertised internally and externally to reach the widest possible number of people within the designated groups. The appropriate media for advertising is selected on a cost-efficient basis, with an aim to attract the specific target market. The Board has recently reviewed its employment equity plan and is committed to achieving its targets.
Mr Bassuday said that Mr Sileku had correctly pointed out that the spread of casinos throughout the province in the five areas was in terms of existing policy determinations. However, the SCA judgement had “muddied the waters”, in that an application for the relocation of a casino can be brought forth. The WCGRB had received an application for relocation of the Overberg casino licence. The WCGRB are considering the propriety aspects. He agreed with Mr Sileku that one of the major concerns of this relocation is the effects that this would have on the Overberg community.
Ms Skepu said that there was a national allocation by the Minister of Trade, Industry and Competition for 41 casino licences for the whole country. Five casino licences have been awarded to the province of the Western Cape. Following Tsogo Sun’s application for a declaratory order, the High Court declared that the ten-year exclusivity period is no more and that the Board must consider any application for relocation that is submitted to it. The WCGRB will take a number of considerations into account on the application for the relocation of the Overberg casino licence. The Board invited members of the public and interested parties to comment on the relocation application.
She noted Mr Sileku’s concern that the Caledon Casino was the business hub of the Overberg region and that many other businesses and the community would be impacted by a relocation. The entity holding the licence submitted proposals to the Board in terms of what they will do in that stead. The Board will look at implications such as job losses, the broader fiscal and socioeconomic implications, and how the surrounding community would be impacted. The Board had adopted a very cautious approach to the relocation application.
Mr van der Westhuizen informed the officials that he was Chairperson of the Standing Committee on Agriculture, Environmental Affairs and Development Planning, which is why he had an interest in horses. He said that the horse industry (not only horse racing) was a significant contributor to the economy in terms of job creation. He observed that the 2022/23 annual report, as well as the annual report of the preceding year, showed that horse racing and betting were not growing much. It was also noted that various initiatives were being considered to attract more interest to horse racing as a form of entertainment. He asked the WCGRB about the horse industry’s view of the future and the initiatives to renew this industry.
He noted that the WCGRB had been authorised to use its surplus funds for office accommodation. He asked the officials to inform the Committee of their new office space, especially on the costs and challenges experienced, considering that the WCGRB’s office accommodation lease ends on 31 October 2023.
Mr Bassuday confirmed that the WCGRB’s existing lease ends on 31 October 2023, and the surplus funds had been used to acquire a new building. The WCGRB had extended the existing lease until the end of the year to enable a smooth transition to the new premises, and to attend to necessary repairs and fittings.
Ms Siwa noted that in relation to the acquisition or disposal of a significant asset, section 54 of the PFMA states, “Before a public entity concludes any of the following transactions, the accounting authority for the public entity must promptly and in writing inform the relevant treasury of the transaction and submit relevant particulars of the transaction to its executive authority for approval of the transaction...”. She said that the WCGRB had to obtain approval from Minister Wenger to purchase the building and inform the Provincial Treasury of the details of the transaction. The new address is 24 Fairway Close Parow, which is close to the current building. The Board struggled to obtain a building. The Board advertised the tender in the open market, but there were no responses. The Board went on a limited bidding process in terms of the supply chain procedures and in terms of the Provincial Treasury instructions. For the 2020/21 and 2021/22 financial years, the Provincial Treasury approved the cash surplus to the amount of R35.1 million, the WCGRB purchased the building for R22 million excluding VAT. The total cost of the building was R25.3 million. The remaining funds will be used to fit out the building. Due to the entity’s limited supply chain capacity, the WCGRB are reliant on the Department of Infrastructure to assist the Board with the fit-out of the building. The WCGRB had extended its existing lease because the Department of Infrastructure had indicated that it would take some time to fit out the building.
Mr Bennet referred to Mr van der Westhuizen’s questions about horse racing. He said that the Kenilworth racecourse is occupied with three developments, two developments are aligned with the WCGRB, and the other development involves some commercial agreements. The Kenilworth racecourse has noted that there are certain days during the year when the premises are fully active. The developments are aimed at attracting people to the premises throughout the year. Kenilworth is waiting for the WCGRB to consider the approval of the Type C’s, which is where up to 40 LPMs can be installed at the premises. The WCGRB is also considering an application for the totalisator product, which will increase the footfall at Kenilworth and Durbanville racecourses.
The Chairperson thanked the WCGRB officials for providing all the answers. She believed that the Members had exhausted their questions. She invited members of the public to raise questions.
There were no further questions.
The Chairperson invited Members to propose resolutions or actions.
Mr van der Westhuizen said that he would want the Committee to express appreciation for the annual reports, and to congratulate the Provincial Treasury and WCGRB for the excellent financial results.
He was interested in the WCG website, particularly in the Provincial Treasury’s tender link. He suggested that the WCG should be invited to a committee meeting to demonstrate the various facilities of the website. He believed that it was important for the Committee to be briefed on the efforts to achieve transparency in the business that the government does.
The Chairperson said that she might need clarity on Mr van der Westhuizen’s suggestion because the Committee had visited the Procurement Client Centre and the officials had briefed the Committee on the dashboard and the AI that informs the dashboard. She wanted to be sure that this would not be a duplication, although it would always be good to follow up.
Mr van der Westhuizen suggested that the meeting with WCG could be done remotely/virtually.
The Chairperson replied that it could be done, but it would also be useful to visit the Procurement Client Centre again.
Mr Brinkhuis said that he hoped to be elected to the Standing Committee on Finance, Economic Opportunities and Tourism again because it was very exciting. He suggested that the Committee should facilitate sessions between the Provincial Treasury’s talent management unit and a few matriculants on how to access the bursary opportunities, especially amongst those who are in need.
The Chairperson told Mr Brinkhuis that the Provincial Treasury had a public outreach component. It was noted that the Provincial Treasury did indicate that they would be visiting schools in collaboration with the Western Cape Education Department.
She commended the Provincial Treasury for obtaining its best audit outcome. She suggested that the Provincial Treasury should provide more information on alternative financing, once it is tabled in Cabinet.
She suggested that the WCGRB should specify what technological innovations might pose a risk to the gambling industry because they did mention that there were some red flags for technological innovation that might require regulation.
The meeting was adjourned.
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