DEDAT; Wesgro, Saldanha Bay IDZ & Atlantis SEZ 2022/23 Annual Reports

Meeting report

Opening remarks

The Chairperson welcomed Members, the Department and its entities. The Committee was briefed earlier in the meeting by the Auditor-General (AG) regarding the Department and its entities’ audit outcomes – this session was closed to the public. This portion of the meeting would allow the public to ask any questions they might have.

Minister opening remarks

Ms Mireille Wenger, Minister of Finance and Economic Opportunities in the Western Cape, thanked the Committee for hosting the Department and entities. They looked forward to presenting the financial statements and audit outcomes of the Department of Economic Development and Tourism (DEDAT), Wesgro, Saldanha Bay IDZ Licensing Company (SOC) LTD and the Atlantis Special Economic Zone (SEZ) for the 2022/23 financial year. Wesgro had turned around its audit outcomes significantly and had moved from a qualified audit opinion to an unqualified audit within a space of one year. Atlantis was the youngest SEZ, fully fledged, responsible for its own corporate affairs, and had received a clean audit. The Department and Saldanha had received a clean audit.

Discussion: 2022/23 Annaul Report of DEDAT Entities

Ms M Maseko (DA) congratulated the Department and the entities for the clean audits.

On Saldanha IDZ- one of the challenges was the issue of maths being a requirement for employment. What were the skills required for the Saldanha IDZ? What other challenges was Saldanha facing? To what extent was the investment paying dividends? Were the students being groomed for the Saldanha IDZ and could there be a report on the synopsis of that? The issue of the BBBEE needed to be discussed.

On Wesgro – one of the issues identified by the AG was the interpretation of the incorrect understanding of National Treasury requirements for the Public Finance Management Act (PFMA), Section 5 (11) (B2).. Could that be explained?

Ms N Nkondlo (ANC) referred to Part C [of the Annual Reports] for the entities. On Atlantis IDZ, on social responsibility, the Department needed to share what it was doing around social responsibility with the Committee. Could more information be provided on the solar water geyser project?

On Saldanha – could there be more information on the social responsibilities that the entity was undertaking?

On Wesgro – the lack of information on social responsibility was very disappointing. Why was the BBBEE compliance information? There was very limited information provided.

Ms A Cassiem (EFF) referred to page 4 of the AG report for Saldanha. On expenditure, there was an unspent amount for not complying with the conditional grant – what were the reasons for the non-compliance? Could there be more information on that?

Mr I Sileku (DA) referred to page 85 on the incorrect application of the quorum regarding Wesgro – that finding was worrisome. There needed to be more explanation on why the Department presented a finding. What could be done to get a similar audit outcome to the one received or one better?

On page 86 – was the ‘condonement’ of big amounts worrisome to the Minister? Could there be an understanding of that?

On fruitless and wasteful expenditure on speeding fines of R4 400 – there needed to be a Standard Operating Procedure (SOP ) in place and the ticket needed to be paid by the person fined. Those were small things that needed to be dealt with. How would the entity deal with all those issues moving forward? On the former CEO who did not return the gadgets – what was the update with that? On instances when rental was paid late – those were issues the Committee did not want to see in the Annual Report.

Ms Maseko referred to Wesgro on page 62 – what were the key performance indicators on the film and media declarations signed? There had been over-achievements on that. Why was the target set low on that? Did the Department not invest enough in that? Could the Committee get more information on that?

Ms Nkondlo referred to Saldanha IDZ on page 77 on procurement by other means – what qualified as single source? Were there deviations for that kind of procurement?

On part E of Wesgro on page 87 – what was the relationship of the resignation of the CFO with the relation of the disciplinary processes on irregular expenditure?

On page 89, on the investigation of the matter related to National Treasury, what were those issues? How would new management address all that?

Responses

Atlantis Special Economic Zone

Mr Matthew Cullinan, CEO, Atlantis Special Economic Zone for Green Technologies (ASEZ), responded to the questions directed to Atlantis. He thanked the Members for recognising the special investment and inclusion work. That was an effort to expand the impact of investment into the zone. On the solar geyser project, he said that project was an attempt to see if the entity could provide hot water to residents in informal settlements. The project was designed knowing that previous geyser solar projects resulted in water heaters that could not be fixed or maintained by the community and fell out of use. That project was designed so that the members of the community could maintain and repair the geysers with the resources available to them and the training received on that by the entity.

Ms Waheeda Saib, CFO, ASEZ, said, on the unspent conditional grant, that the grant money received went into liability. As it was spent, it got matched and when the conditions were met, the liability was reduced. R90 million was unspent, which was due mainly to the Department of Trade, Industry and Coopertion (DTIC) funding received through the latter part of the year. The single source procurement was a new section for the annual reports and it needed to include the building that the entity purchased. The building had to be purchased within the designated area and was procured with the permission of the Minister. All others below R1 million were events, activities and so on for marketing purposes.

Saldanha Bay IDZ

Ms Kaashifah Beukes, CEO, Saldanha Bay IDZ, responded to the questions on Saldanha regarding the impact and the outcomes of the mathematics programme, the BBBEE and the social responsibility impact. When programmes were developed, the outcomes were presented to the Department. The mathematics programme was one that the entity was proud of and targeted to Grade 8 and 9 educators in high school. 19 teachers had graduated and were actively using the skills and tools learnt to teach mathematics. For 2022/23, there was no formalised programme because the funding was not put in place by the Department. The 19 teachers, on their own agency, supported by the University of Stellenbosch and the Witwatersrand, shared their skills gained with others within the mathematical sphere across Saldanha and created their own community. The focus for the next financial year would be to deepen that mathematics programme and introduce the Grade 10 educators. That would be done in a way that would not disrupt the teachers and their schedules.

Mr Dale Paulser, Supply Chain Manager, Saldanha Bay IDZ, responded to questions on BBBEE. On the AG findings on the BBBEE information submitted late, he said the entity had submitted information on time for the current financial year, and that had been addressed. On the BBBEE rating received – that did not reflect the work and money spent on things such as skills development, procurement and so on. Records showed that the entity did spend money on skills and enterprise development. The breakdown and the verification had not matched. The entity had a long discussion with the verification agency and there was an agreement on how to take the matter forward and gain an improved rating.

Wesgro

Ms Wrenelle Stander, CEO, Wesgro, responded to the questions on Wesgro. She said COVID had impacted the organisation, resulting in attendance, performance, and discipline issues. Areas of weakness were the finance team, the governance team and the investment team. The rebuilding of the investment team and the process of the monitoring and evaluation team took place. The qualified audit opinion also took place and a lot of work had been put in to address the issues within Wesgro. The board played a pivotal role in the progress of the entity. The CFO and team had helped the entity immensely. The finance team was refreshed and areas within had been strengthened. Policies were refreshed, such as the asset management policy, the travel policy, supply chain policy and so on. The supply chain delegations were reviewed and the whole system had been improved. There was diligent consequence management. On irregular expenditure – that went back to two periods and consequence management had taken place and two people were dismissed. Before dismissal, the CFO at the time had resigned. A lot of work had been done to result in the unqualified audit.

Mr Sandiso Gcwabe, CFO, Wesgro said, on the ‘condonation’, on page 85 of the annual report, that the composition and quorum of the Bid Ajudication Committee (BAC) contributed significantly to the irregular expenditure and the last incident had been during November 2022. National Treasury had recommended clearing that and since then, there has been no irregular expenditure. EPS was implemented and had affected the procurement processes. The policy said the CFO was the chair of the meeting for the quorum. The CFO was responsible for safeguarding the procurement process; if he was not there, then the entity could not quorate. The second issue was that the quorum – with the new policy, the committee members were fixed, and three had to be present in a meeting. The CFO was still the committee chair and was held responsible for anything regarding the procurement processes.

Regarding the speeding tickets, there was a policy in place for when the ticket was issued and when the staff member paid. The entity noted down the ticket and the staff member paid within 3 months.

On the rental issue – there were systematic issues that needed to be addressed. Rent was paid late, and interest had to be paid due to that. That issue had not been repeated. National Treasury only approved the ‘condonation’ when certain conditions were met, such as no fraud involvement, value for money, internal controls to prevent re-occurrence, etc. There had been a turnaround.

On BBBEE – the implementation of EPS allowed the tracking of what the people’s money was spent on, which affected the score. The score was affected by international suppliers as well. The entity was discussing how to show BBBEE progress from one year to the next.

Ms Stander, on the matter of the former CEO, said invoices raised were in the process of recovering money.

On social responsibility, better write up would occur moving forward and the entity aimed to do more in that area. The KPIs were achieving more than expected and there was a possibility of those increasing.

Mr Gcwabe said the targets and baselines were affected by COVID, and that better baselines and targets had been achieved since then.

The Committee thanked the entities and bid them farewell. The Committee then proceeded with discussion of the AG report of the Department and Sections C, E and F of the DEDAT annual report.

DEDAT 2022/23 Annual Report

Discussion

Ms Maseko congratulated the Minister on the progress. On the investment of the Department with the Department of Local Government for the LEDs of the municipalities – had there ever been investment in marketing tourism? If so, could more information be provided on that? Which municipalities had been invested in? What could be the fiscal challenges with that?

Ms Nkondlo referred to page 183 and asked why the irregular expenditure had not been condoned and removed by the CWC. Could there be more information on the Growth for Jobs (G4J) programme? Could there be more information on fruitless and wasteful expenditure and the cases? On page 125, section C, it was commendable to have no fraud and corruption cases. On the risks – what were they and was there a risk management system in the province? How were risks being mitigated?

Ms Cassiem asked about the under-expenditure in programme 5 –  what were the technical requirements, and could there be more information on the under-expenditure? She said government needed to account for the non-compiled human resource policy and the irregular expenditure of R4 000 (page 10).

Mr Sileku said the Committee had been dealing with SEMs for a while now. People could not be trained in terms of integrity and doing what was right. What could the Department do to ensure that people did what was right and what was expected of them? People needed to understand the seriousness of compliance and the seriousness of consequence management.

Minister Wenger responded that the values and culture within an organisation were very important. Accountability and integrity were very important. The Western Cape Government was now in the running to be an employer of choice, competing with the private sector.

When talking about energy and energy resilience, the AG said the technical expertise was still emerging, and that work was highly complex. As the industry matured, then the expertise would be more available. The Western Cape Government had been lucky to find the technical expertise it needed.

Mr John Peters, Chief Director: Integrated Economic Development Services, on work done in the regions concerning tourism, said there was a tourism development fund and R7.6 million was spent on regions outside the metro. 15 projects were conducted. Some have helped entrepreneurs to sustainably source their produce and products. This has led to job creation as well. There had been training on tourism – such as helping local people to be guides for tourism.

Ms Jo-Ann Johnston, DDG: Strategic Economic Accelerators and Development, on the G4J risks, said numerous projects were identified as transversal or delivered by a particular project and one of the ways to do the risk mitigation was to make sure that co-planning was done. On oversight, there was a HOD Steering Committee, which essentially had all the heads of departments connected to the G4J. The HODs had oversight of all those projects and their reporting system was transversal and there was oversight on the progress made in the projects. The information was transversally shared, and the departments could comment on the various projects.

Mr Velile Dube, HOD, DEDAT, on the R4 000 over expenditure, said that matter was still under investigation and once it was concluded, the details would be provided to the Committee. That expenditure came from an employee using travel expenditure to travel between two sites and there was no clarity on the policy regarding that. Hence, the policy needed to be resolved.

Ms Mymoena Abrahams, CFO, said the irregular expenditure not condoned and removed, was handled by the PT Condonement Committee. That Committee had decided that the expenditure was not irregular and had asked the Accounting Officer to remove it. The AG had felt that there should have been three bidders and the lack of that made it irregular. The salary fruitless and wasteful expenditure was a result of the fraud that occurred within the Department of the Premier. Since the budget was with (DEDAT?), that expenditure needed to be carried forward.

Through the Department of the Premier’s consequence management process, the staff member who allowed the fraudster to get the salary in his bank account was put through a whole disciplinary process. The case was made with the SAPS and was still open and had amounted to R69 000. The case had to be written off by the Department because there was no one that that money could be recovered from.

Ms Maseko asked about the policy within the centralised system and the three quotations.

Minister Wenger said the EPS system allowed for as many bidders to apply. Since the procurement was small, only two bidders had come forth and that was the problem for the AG. Provincial Treasury (PT) felt that because it went through the EPS system, it went through an open process that allowed all potential bidders to apply and as a result, the requirements were met.

Ms Nkondlo asked who the final arbiter was on auditing matters?

Ms Maseko asked if National Treasury condoned something, did the AG audit that decision of ‘condonement’?

Ms Abrahams said when the irregular expenditure was raised, it was acknowledged and disclosed by the Department. The ‘condonation’ process was with the PT Ambit. The AG would audit the ‘condonation’ process. For the PT, the critical things were where the services were rendered and whether there was value for money. Issues were raised by the AG if they were not happy with the processes.

Ms Nkondlo asked: “who gets to make the call on whether it was irregular expenditure or not?”

The Chairperson said that irrespective, if the Provincial Treasury disagreed with the AG, the matter still had to go to the AG at the end.

Minister Wenger said there were certain processes where certain issues could be condoned if they met certain criteria. Since there was no fraud, the issue could be reviewed for ‘condonement’. Once condoned, it would get audited again by the AG.

Ms Abrahams said PT did not go to the Condonement Committee until the processes were completed. Hence, consequence management had to take place.

Minister Wenger said the condonement processes would have been followed and the findings would have been raised if there were any issues.

The Chairperson said the Committee was under the notion that the final say on audit matters was with the AG as it was the supreme audit institute of the country. He said when there were disagreements with the AG’s final say, certain departments wanted to take the AG to court, which was not the right way to do things.

Ms Nkondlo said the Committee had the right to ask for clarity on issues and it was the responsibility of the Department and Minister to provide transparency. On page 237, there were three beneficiaries. One was the Pick n Pay Township Revitalisation Programme, which the Department had summonsed through the state attorney, and there was a plea during June of 2023. To two other beneficiaries, the Department had transferred funds, but they had failed to provide supporting evidence. Could there be more information on that?

Ms Abrahams said for any funding or transfer paid through the supply chain management, service delivery needed to be ensured. The funding fair project was a supply chain process. The service provider was supposed to project manage an event for the Department. COVID had hit during that period and the event had been postponed. A few months later, when the service provider was to repay the money, he said that he had used the funds and could not repay the money. The Department went into a legal process with the service provider and one of the options was for him to still deliver on the event but he was not able to. The service provider agreed to repay the Department following the legal proceedings. Similar cases were for the Township Revitalisation Programme. The R77 000 and the R46 000 were for cases where the service providers had not honoured their agreements with the Department. One of the cases was paying the Department back as well.

Mr Peters said that for the Pick n Pay programme, one entrepreneur was provided funding for refurbishment of infrastructure. He used a part of the money and then abandoned the concept of the store. The Department requested for the balance of the money to be repaid and he disputed that. The Department was suing two entrepreneurs from Oudtshoorn who had not honoured their agreements on purchasing machinery for which they were given funding.

Ms Nkondlo said that resolutions could be provided in writing.

Ms Maseko said that there needed to be an engagement with the Department and Treasury to further investigate the issue of condonement.

The meeting was adjourned.