Provincial Treasury & Western Cape Gambling and Racing Board 2022/23 Annual Reports

Meeting report

Opening comments

The Chairperson outlined the agenda for the meeting and stated that although the first part was closed off from the public [for a session with the office of the Auditor-General], the remaining part would be open for public participation as per the advertisement.

Ms Mireille Wenger, Western Cape Minister of Finance and Economic Opportunities, greeted all those in attendance and said she was present to answer any questions on the audit outcomes and financial statements.

Discussion on the Western Cape Gambling and Racing Board Annual Report 2022/23

The Chairperson said that as the meeting would be on the annual reports as presented by the department and the Board, the sections that would be considered are Sections C, E, and F and these would be dealt with simultaneously. He requested that Members first address the Western Cape Gambling and Racing Board and thereafter, the Department.

He highlighted that based on the Auditor-General’s (AG) report received, part of the underspending is because of the filling of vacant posts within the agency. He asked what the positions were, why they had not been filled, and if there were any particular reasons why the vacant posts had not been filled.

Ms C Murray (DA) highlighted page 47, Part C, which dealt with risk management; she asked for a detailed explanation of how Enterprise Risk management (ERM) assists with risk management, what ERM was currently being used, and what are the needs to improve on or expand its functionality so that risks are better managed.

Mr I Sileku (DA) referred to page 49 which states that there is no internal audit unit. He asked whether this was the norm.

The Chairperson asked a question concerning the contingent liability of Grand West Casino and Entertainment World in the amount of R6 million. He inquired whether the issue was receiving any attention.

In addressing the question on filling vacant posts, Mr Claude Bassuday, Chairperson, Western Cape Gambling and Racing Board, said that the entity had procured a service provider that would provide an optimum structure. He said the structure had been served before the Board and recommendations were implemented. Vacant positions that need to be filled were also identified and prioritised and would be filled in a phased matter according to the developed plan. He indicated that after the mentioned process, a presentation would be made to the Minister for the filling of further positions because what is envisaged is that the staffing establishment is going to be increased to give effect to the changes and operations of the Board.

Mr Primo Abrahams, Chief Executive Officer, Western Cape Gambling and Racing Board, said that the Board engaged in an exercise to determine future needs and that is why the appointment of staff members was suspended. He stated that there are currently open vacancies, however, more urgent vacancies would be considered and forwarded to the Minister for approval. He mentioned that the strategy used was to ensure that an established function that would carry the entity for years to come was in place, especially since changes were made within the Board. 

Ms Zoe Siwa, Chief Financial Officer, Western Cape Gambling and Racing Board, referring to entity management, stated that there was no automated system in place, however, there was a recent risk management review process where one of the resolutions reached by the audit committee and the Board was to procure a software risk. This was still under consideration.

Addressing the question on the internal audit unit, she said that the Board was a small entity and internal audits are outsourced from an external party. The Board is considering, as part of the organisational structure review, appointing an internal auditor. She said that the bigger Department does have an internal control unit but the Board does not have one because of the size of the establishment.

Referring to the non-disclosure of the financial statement, she said that when papers were served, there was an understanding and an agreement that each party would pay its own legal fees. The Board is only responsible for the other party’s legal fees when it opposes a legal matter, and only then can a possible outcome be determined.

Ms N Nkondlo (ANC) asked for clarity on page 99, under the annual license fees. She indicated that, as presented, the figure went down between 2022 and 2023, and asked if this meant that fewer people were paying for their licenses.

Ms Siwa said that the decrease meant that accounts were settled prior to the end of the year, and therefore the figures do not allude to the fact that there were fewer applicants. She gave an example and said that if a license holder has money in their trust account, the Board is then able to settle from that particular account. As a result, no trend can be used to make yearly comparisons. 

Ms Murray stated that she was a bit more confused and asked for clarity on what the terms were for the receivables. She said that her colleague had asked whether this came from licensing revenue, and Ms Siwa indicated that it came from a trust account. She asked for clarity on the matter and an indication of the people the funds were received from.

Ms Siwa clarified that there were no terms officially in place, however, according to Sections 32 and 34 of the Act of the Western Cape Governing Racing Act, before any business is conducted with a license holder, there needs to be funds available in a trust account. This account is similar to a lawyer's money trust and money needs to be available in the account. When the Board then conducts work, funds need to already be available and a 30-day period is normally the time used. If the license holder needs to top-up the account, they are made aware and so far, there have not been any issues experienced in this regard. 

She indicated that when a gambling license is approved, the holder needs to pay a gambling license fee and an annual investigation fee, which is payable to the provincial fiscus.

Ms Nkondlo highlighted that the Committee needs a crash course to better understand the fee structure.

She referred to page 112 on the general expenses. She asked for an explanation of the activities around responsible gambling and staff welfare, concerning the money spent between the previous and current year. 

Ms Siwa said that in terms of responsible gambling awareness, the entity appointed a service provider to help with content and media advertising in the year under review. The stipulated amount includes money toward a media campaign done in December 2022. This was a radio campaign that incurred more costs as compared to a newspaper advertisement done in the prior year.
For staff welfare, a monthly fee is paid to the Independent Counselling and Advisory Services (ICAS) for whatever the staff might need, and also included in the costs is the staff breakaway function which could not be held in the prior year due to the COVID-19 pandemic.

Addressing Ms Nkondlo, she said that she would need to look into 1617 in terms of the entry and would then provide a response.

Ms Murray highlighted page 76 under Expenditure on depreciation of Personal Protective Equipment (PPE) and said that she wanted to know about the PPE that is being depreciated.

In terms of average useful life, she highlighted that with computers, the average useful life indicated was between three and 25 years. She said that she understood that government likes to bleed assets but was not clear on the exact asset's useful life. She was especially concerned because it had been seen that when other entities failed to properly declare useful life, this resulted in reports from the Auditor-General.

Ms Siwa highlighted page 101 and mentioned that the entity included all asset categories such as motor vehicles, equipment and furniture, and computer accessories. Under the reconciliation of property, the depreciation recognised for each category was also indicated in the year under review.

Addressing the question on the averages, she stated that what was being disclosed was the average useful life of assets which is between three to four years, and also included in the category is the servicing of assets which has a longer period. Each year, the useful life of assets is re-assessed which might mean that it can be extended. She mentioned that after the COVID-19 pandemic, the Board tried to extend asset useful life because of the difficulties in importing goods.

Ms Nkondlo inquired about the irregular expenditure on page 127, asked what happened that resulted in the stated matter, and asked why the foreign supplier had not been confirmed with something as basic as a TAX compliance status which is a requirement by government. She asked when the investigation would be concluded.  

Ms Siwa clarified that the matter happened during the December holiday and was an isolated case of miscommunication between departments. She explained that what happens when there is a conference that needs to be attended is that there are bid documents that need to be filled out, and the recent conference coordinator indicated that the conference to be attended was not a bid and therefore the documents could not be filled out. She stated that the Board had written to National Treasury and the response received was that conference attendance is not a procurement matter. The Board then came back to the Provincial Treasury and a response was received which stated that the Provincial Treasury awaited a response from National Treasury.

She added that the entity has begun investigations to determine whether the said amount should be an irregular expenditure and until confirmation from the Provincial Treasury, the Board may need to remove the amount from irregular expenditure as it is not a procurement matter as per the National Treasury. She said the Provincial Treasury would be needed for the condonation of the amount.

Ms Nkondlo checked with Ms Siwa whether her response precluded what was written on the document that the service supplier was not TAX compliant. 

Ms Siwa stated that what was indicated in the document specified that the office of the Board failed to check if the supplier was TAX compliant and not that the supplier itself was, at the time, not TAX compliant.

Mr Sileku said it was understood that in terms of the supply chain, there have been a lot of regulations and some of the mistakes that happen tend to be because of human errors as there are a number of things to comply with. He asked, regarding the answer Ms Siwa gave, if it was a norm for an official to overlook one of the criteria or if this was something out of the ordinary.

Ms Siwa said that the issue was previously raised by the Auditor-General of South Africa (AGSA) a few years before, and subsequently, the Board has had no audit findings in that regard. The said irregular expenditure was also not flagged by the AG but was recognised by the office of the Board. She reiterated that this was an isolated event, in the sense that it happened during a period when staff members were on leave. She added that the entity was looking to strengthen its controls to ensure that this did not happen again, however, such things do occur due to human error.

The Chairperson released the Western Cape Gambling and Racing Board and the focus was next on the Department.

Deliberations on the Western Cape Provincial Treasury Annual Report 2022/23
The Chairperson reminded Members that the discussion was based on Sections C, E, and F.

Ms Nkondlo referred to page 81; she noted that most of the issues observed from other departments were in relation to supply chain issues and inquired with the Provincial Treasury about how it dealt with the environment of control.

Highlighting the last paragraph on emerging risks of the increased strain on employees' well-being due to high department vacancy rates. She asked about the internal platforms and/or conversations being held with employees to ensure that issues are picked up and followed through to create an environment where employees can express themselves.  

On page 83, she asked the Department to share details on the case, whether it is the same case that had already been closed because the indicated year still remained as 2022/23.

She indicated that on page 95, under Public Private Partnership (PPP) compliance, it states “Not applicable on developing criteria for entering into partnerships with the private sector.” She said that this linked with the discussion held earlier which highlighted that there are PPPs within departments and some were mentioned. She asked why the criteria had been labelled as not applicable seeing that the Department is engaged in a model that considered the blending of financing with other entities outside of the state.

Mr Sileku said that Laingsburg Municipality needed the systems used in Mossel Bay Municipality, however, due to financial constraints as a small municipality, they could not afford it. This then impacts the audit outcomes of the municipality as processes are performed manually and this has been an outcry. He asked how the Department planned on assisting the municipality because if it is not given the assistance needed, there will always be audit outcomes that are not satisfactory, not because there are no measures in place but because of the pending need.

He highlighted that on page 131, one case had been submitted for condonement on 19  April 2023, and asked for an update on whether the case was still under determination.

The Chairperson indicated that he would ask general questions based on what was specified on the AG report where underspending and/or overspending had been highlighted. One of the areas raised on underspending related to the actual cost of support to the Beaufort West Municipality for the implementation of a mandatory financial recovery plan that was less than the estimated cost.

He highlighted that the Department budgeted R2 million and ended up using R350 000. He asked for progress and if there were any improvements in view of the fact that less money had been used.

Relating to the AG report, he said two programmes were audited, and programme two addressed sustainable resource management. He indicated that the Committee had met with several departments that dealt with not only financial resources but also natural resources, including the Department of Environmental Affairs and Cape Nature. As highlighted in presentations, such entities indicated that in order for them to be able to advance a sustainable development agenda, more funding was needed. He asked whether there were any plans by the Provincial Treasury to allocate more funding to such institutions, as one mentioned that they needed about R134 million to advance their plans. He added that such entities gave compelling and convincing arguments.

On page 137(E), under supply chain management, where it states “Procurement by other means”, the Chairperson asked what was meant by the statement as the monies that had been procured were huge amounts.

In table 3.2, under contract variation and expansion, where it states “Security services of the procurement client center” the Chairperson asked which building this was.

Ms Julinda Gantana, acting Head of Department, Western Cape Provincial Treasury, addressed the question on page 83 which dealt with the number of cases and the progress on such. She said that the forensic unit had concluded on the part it dealt with and there was still progress on the outstanding part.

Addressing the questions related to risks, she said that the Provincial Treasury had been integral in assisting the Department to support staff members, both before and after the global pandemic. The staff faces many hardships, and a lot of interventions have been done in this regard.

Ms Naadia Ismail, Director: Strategic and Operational Support: Western Cape Provincial Treasury, mentioned that a culture journey was initiated approximately five years ago, and this was planned to nurture a positive workplace culture. The goal was to have an ongoing commitment to active engagements from the departmental staff at various levels. These included interventions such as psychological assessments, individual and team coaching, and leadership behavioural training focusing on emotional intelligence. As part of this ongoing journey, the Department collectively agreed and identified three critical behaviours that, when consistently practiced, would enhance the workplace structure. These focused on communication, a commitment by the leadership and staff members to clear goal setting, and involving employees in decision making. She gave examples of the activities the Department has embarked on to uphold the commitment. These include a Provincial Treasury connection where staff members express themselves, which happens approximately twice a year. She said that the goal was to coincide with the second departmental strategic planning session, where staff members are given an opportunity to share ideas and plans for the Department. She added that the Department is about to embark on a modernisation light project for the third floor on 7 Wale Street, and a session is being scheduled with all staff members to give them communication on the topic and to get feedback.

Mr Aziz Hardien, Chief Director: Financial Governance and Accounting, Western Cape Provincial Treasury, responded to the issue of supply chain management risks and said that this particular area always has risks, and as such, the Department has prioritised it. He indicated that the statement made was two-fold, one aspect being the capacity of the local government supply chain management unit, which has never had full capacity over the years. He indicated that there are always vacancies because staff members are taken up by municipalities. The second aspect relates to the plethora of instructions from National Treasury and the fact that the 2017 regulation had been abolished. He said that the mitigations put in place by the Department were that a district approach had been taken which meant that beam municipalities are combined and sessions are held at a district level. Reference groups have also been established across the municipalities, for instance, reference groups on supply chain governance, capacity building, supply chain technology, and strategic procurement. These groups are led by municipalities and the Provincial Treasury plays a supporting role. If there are issues of a policy nature, all reference groups are pulled together and through them, communication is channelled to municipalities. He added that such initiatives have contributed to the audit outcomes in the prior year, which are quite good. The current year would be closely monitored because of the change from the 2017 to the 2022 regulations which might have a negative impact.

On the second issue relating to the security lease on the client centre, he indicated that the Department occupies a single floor in the building. The security it is responsible for is mostly linked to access control because of suppliers. The security is not for the entire building but for that single floor.

A representative from the Department addressed the question on underspending in Beaufort West Municipality and said that the question was raised in the morning session and he reasons that it is consistently being raised because it is a surprising situation in that the work was delivered at a less cost than what the private sector consultants had originally quoted. He indicated that all the project milestones were met. 

He addressed the question on the system used in Laingsburg Municipality. He said following an engagement that the Select Committee on Local Government had in Laingsburg, a team from the Department went back to the municipality for an onsite demonstration of the problems but for whatever reasons, the municipality chose not to give a live demonstration but showed screenshots and spoke through the experienced problems. The Department also had a follow-up with the service provider based in Cape Town and the provider explained the issues faced. The service provider stated that the system used in Laingsburg Municipality is fully functional and operational, and according to their view, the municipality needs to move to a cloud-based system but may require IT upgrades which come with additional fees. The service provider further indicated that the system was also used in other municipalities, particularly those in the Eastern Cape. He said that the Department was planning, during November, together with the service provider, to visit the municipality for an onsite demonstration.

Mr Hardien said that the Department received a similar question from the Bank the previous day regarding how small rural municipalities are supported. He said that when the National Treasury writes laws, it does not consider the size of an institution, but the same law is written for 275 municipalities. He said that there are metros that have big staff establishments and are able to delegate, however, in cases such as Laingsburg Municipality things are bottlenecked within the Chief Financial Officer’s (CFO’s) office. The risk for the Laingsburg Municipality, should the CFO leave, is that there will be a need for someone who is IT competent and understands both accounting and system requirements to be appointed. In totality, the risk for rural municipalities is finding qualified staff in the locality which is not easy. Ideally, it is better to appoint staff that reside within the municipality because there is a sense of pride when one comes from the local municipality. The issue that remains is getting people with the right credentials when it comes to the laws and regulations as well as the technical standards that need to be complied with. He added that the Provincial Treasury does ramp up its support, especially to rural municipalities, and specifically with Laingsburg Municipality. The Department offered to review the municipality’s financial statements. 

A representative addressed the question raised on page 137 which refers to procurement by other means. She said the procurement was not done via the Department but by another entity such as National Treasury. She indicated that there is a memorandum of agreement used by the Department for services procured by the other entity. She indicated that the highlighted procurement is IT-related and this service within the Western Cape is centralised within the CAC which is responsible for negotiating the contracts.

On page 95, under the development criteria for entering into partnerships with the private sector, she said that the Provincial Treasury conducts oversight but does not enter into agreements with the service providers or the private sector.

The Chairperson asked if the representative meant that the Department was piggybacking.

A representative clarified that this was not meant by his colleague. In such cases, what is meant is that there is a partnership as they are part of the agreement. He said that in a municipal environment, there are regulations that talk about deviations.

Minister Wenger said that the Chairperson seemed to be a lobbyist for the Department of Environmental Affairs and Developmental Planning when it comes to their budget. She said that she was sure that most departments would have said the same thing and as it stands, the Department is currently in a fiscal emergency, meaning there will be deep budget cuts. She indicated that the current budget process meant that each Department is looking at how to respond to budget cuts, and there are unlikely to be any increases in the budget. It is more likely that things will go the opposite direction given that the provincial share is being cut in terms of the allocations.

Ms Nkondlo referred to page 172(F) and asked for an explanation about the increased number of consultants.

She asked about the money paid on legal services. She requested the Department to explain more about the services received from the senior council on tax and other matters related to the drafted Western Cape 20th and 21st Gambling and Amendment Bill. She asked for details on the mentioned tax and other matters and if it had anything to do with what is under contingent liabilities on page 181.

She inquired about the R46 million case, what the progress was, and if the Department has this amount of money to pay Sun West International should the case be concluded in favour of the opposition.

On page 179, under receivables, 10.4, she highlighted it was mentioned that the increases on other receivables were due to an employee who took leave to which she was not entitled. She asked how this happened and how the matter was resolved, if at all.

Ms Murray asked how the cloud technology would be funded because Beaufort West Municipality and Laingsburg Municipality were dealing with unfunded budgets. On a visit through the local government, she said that Members were informed that the previous system versions were insufficient and too expensive to fund. Even if the system could be upgraded, the municipalities lacked staff capacity. She asked for clarity on the matter.

Ms Shirley Robinson, Chief Director: Public Policy Service, Western Cape Provincial Treasury, responded by saying the tax and legal matters were around the provisions of the 20th and 21st Gambling Amendment Acts which are money bills. The Departments awaited the concord judgment on whether the matters needed to be an amendment or a regulation, and she added that tax and legal opinions had been sought. Given the complexities of the matters at hand and to ensure that robust approaches are taken, she said that the Provincial Treasury in conjunction with the legal services sought both legal opinion and tax legal opinion. 

On the Sun West International matter, she clarified that it refers to Sun West International launching an application in the Constitutional Court to appeal a misjudgment. This matter had been taken to the Supreme Court of Appeal regarding free play credits that should not form part of TAX Gross gaming revenue (GGR). The Supreme Court favoured the Western Cape Gambling and Racing Board and Sun West International launched an appeal.

Ms Gantana added background on the court case and said the matter was in the Department’s financial statements. She explained that the argument put up by casinos is that the tokens provided to customers for free play should not be part of the drop and therefore not part of the payable tax to the provincial government. When the case was initiated, the Department did calculations to make provisions to cover costs in case it lost the case. However, when the case went to court, the judgment went against the industry, and the Department was proven to be correct in its assumptions and the application of law. She added that the industry had appealed the judgment and went to the Constitutional Court. She stated that one could argue that this is not a constitutional matter, but the Department opposes the appeal and has submitted an affidavit. She said that the amount would remain until the last court of appeal.

The Chairperson asked where the money was and it was clarified that the money is still with the Provincial Treasury.  

A representative addressed the question on receivables. She said that when an employee needs to take leave, leave forms need to be submitted before the leave is taken. However, in this case, the employee simply left. She said that CSC did the leave audit and some of the forms were captured late but the money was recovered from the employee’s pension fund. 

Mr Hardien, in addressing the cloud system costs, said a few years ago, the Department had a negotiation with a service provider concerning Laingsburg Municipality because the municipality was deficient in preparing financial statements. The negotiation was for the service provider to assist in preparing the financial statements. In doing so, it would see the debtor's book, collect the debt and whatever was over-recovered would be paid back to the municipality. He indicated that the Department could have negotiations with the service provider and come to an agreement.

He indicated that the Department guides municipalities in the supply chain process before they change systems to consider the impact of implemented changes. He added that this was a reiterative process where the Provincial Treasury constantly works hand in hand with the service provider and Laingsburg Municipality to lower costs.

The Chairperson noted that members of the public were not present and said that, in the current year, the Portfolio Committee has been unlucky in this regard. He thanked the Department for their time and engagement and mentioned that when Members ask questions, they do not want to trick the delegates but are seeking answers to questions. Members are also trying to play their role of holding the executive to account and are doing this in a very cooperative manner. He thanked the representatives for their responses and continued cooperation.

He also thanked the AGSA and audit committee and said they were dependable allies in an accountability ecosystem.

He indicated that the Committee has decided to deal with resolutions at the end of each meeting and that the Minister and the HOD should not be surprised if any clarity seeking questions are forwarded.

[The meeting was adjourned.]