Tourism Portfolio Audit Outcomes; Department of Tourism & SA Tourism 2023/24 Annual Report; Instability at SA Tourism

NCOP Economic Development & Trade

09 October 2024
Chairperson: Ms S Boshoff (DA, Mpumalanga)
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Meeting Summary

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In a virtual meeting, the Select Committee received a briefing from the Auditor-General of South Africa (AGSA) on the audit outcomes for the national Department of Tourism (NDT) and South African Tourism (SAT) for the 2023/24 financial year. This was followed by presentations by the Department and SAT on their annual performances.

The AGSA told the Committee that the audit results for the NDT had improved to an unqualified opinion with no findings, while the results for SAT had regressed to a qualified opinion with findings on compliance, which showed a decline in the control environment. The NDT had met 93% of its performance goals, and had successfully achieved all targets related to service delivery. At SAT, although there had been progress in meeting targets -- improving from 54% to 78% -- there was still room for improvement in performance. The organisation had fallen short of reaching its goal for the grading of tourism establishments.

While the Committee congratulated the NDT for its audit results and the target achievements, serious concerns were expressed by Members on the situation at SAT. These included the instability brought about by the constant changes at the board and senior management level, the key vacancies that remained unfilled, and the lack of action to deal with the Auditor-General’s findings of irregular, wasteful and irregular expenditure at the entity. The Committee requested that it be furnished with written reports on progress to remedy the situation.

Meeting report

Department of Tourism audit outcomes

Mr Siphesihle Mlangeni, Senior Audit Manager, Auditor-General of South Africa (AGSA), said that while the audit outcomes for the National Department of Tourism (NDT) improved to unqualified with no findings, the audit outcomes for South African Tourism (SAT) had regressed to a qualified opinion with findings on compliance, and depicted a deterioration in the control environment. The NDT had achieved 93% of its performance targets, and all service delivery-linked targets had been achieved. At SAT, while there was an improvement in the achievement of targets, from 54% to 78%, there was still an opportunity to improve performance. The entity did not achieve the target relating to the grading of tourism establishments.

The SAT saw material findings on compliance with key legislation, with the most common area of non-compliance being the poor quality of financial statements and the non-prevention of irregular expenditure. There were also material findings on fruitless and wasteful expenditure, and there had been no consequence management related to all these findings. Leadership stability at the NDT had been a key attribute that had resulted in the Department attaining a clean audit and achieving a higher percentage of performance targets.

The Auditor-General (AG) recommended that the accounting officer of the Department should enhance its oversight over the performance and governance matters at SAT, and monitor the crafting and implementation of a strategy to improve the public entity’s performance, accountability, transparency and institutional integrity.

The presentation further delved into the progress on the "Working for Tourism" infrastructure projects, the root causes and impact of delays. It concluded with an outline of the issues the AG believed the Select Committee should monitor and engage on through regular follow-up with the executive authority and the accounting officer/ authority.

(See attached for full presentation)

Discussion

Mr N Pienaar (DA, Limpopo) enquired about the number of reported resignations of board members and senior managers, and if AGSA was privy to the reasons for these. He also asked if the R7.4 million irregular expenditure was for the facilitation of rights for a rugby event, or to get the actual rights. He expressed concern that no investigations and disciplinary processes had been instituted, which indicated that there was no consequence management and accountability at SAT.

Mr H van den Berg (FF+, Northern Cape) sought clarity on the ineffective action plan that had been mentioned -- was it for the NDT or SAT? If the latter is not available, he would recommend that it be shared with the Committee.

Mr M Modise (ANC, Gauteng) asked if there was anything the AGSA believed that the Select Committee could focus on to resolve the challenges reported on, that could also assist the AG in their processes.

Mr S Mabilo (ANC, Northern Cape) sought clarity on the targets set out and achieved by the SAT. The 54% achievement of targets was concerning. Were the targets as set out based on "smart" principles? On management reports, what were the responses received from the entity? He also enquired about the reported payments that were made while goods and services were not delivered -- what explanations had been given by the accounting officer and the team for this malpractice?

AGSA's response

Ms Nompakamo Matanzima, Business Unit Leader, AGSA, responded that the resignations were related to the chairperson, deputy chairperson of the board, and chief financial officer (senior manager). The AGSA had engaged the Minister, and she had taken them through the reasons, which were mainly related to the payment of the board's fees. She advised the Committee to further engage with the Minister, as she would be in a better position to expand on them.

She said that the R7.4 million in irregular expenditure was related to obtaining the actual rights to advertise at the event.

She explained that an action plan was expected from auditees at the end of the audit process, when the AG issued a management report on issues found during the process to improve the control environment. The auditees were expected to draw up a root-cause action plan, which would be reviewed to ensure that remedial actions addressed the findings. The Department had structures to monitor the plan, as did the board. In the case of SAT, there was an action plan, but it did not address the issues or findings of the auditor.

Responding to Mr Modise, she advised the Committee to focus on the filling of key vacancies at SAT and stabilising the board, to address the material irregularities and the recovery of monies, as well as the investigations. The implementation of infrastructure projects should see them delivered on time and of the right quality.

Ms Matanzima clarified that the 54% achievement of targets by SAT related to previous recommendations from the prior year. That percentage had improved to 74%. The AGSA had found that the current targets were set according to smart principles and were useful and reliable, with no significant or material errors.

The accounting officer had to institute an investigation that would look into the reasons for the R4.1 million incurred in dome activities without services being rendered, which still needed to be undertaken.

Mr Mlangeni explained the role of the Accounting Officer in dealing with material irregularities. AGSA would observe those actions, and if not followed, they would move to the next step, which would see the AG issuing remedial binding actions within a timeframe -- a process that may end with the issuance of a Certificate of Debt, as per the Public Audit Act. At this stage, the Accounting Officer would be given the space to institute the investigations and effect the resultant consequence management.

Department of Tourism 2023/24 performance report

Mr Victor Tharage, Director-General, NDT, said the Department had achieved 93.48% of its targets overall for the 2023/24 financial year. It had spent 96.4% of its allocated appropriation, with a 3.6% variance of R88.3 million.

The presentation outlined the Department’s achievements under each of the programmes:

Programme 1 (Administration)

The NDT achieved an unqualified audit opinion with no findings and a clean audit outcome on financial statements and performance information. Against a 40% target, 57.97% expenditure on procurement of goods and services from small, medium and micro enterprises (SMMEs) was achieved because of targeted procurement through awarding points. Against a similar target for procurement spend from women-owned businesses, 41.58% was achieved. The annual target for a vacancy rate below 6% was not achieved, and stood at 11.5% as of 31 March 2024. This was due to the natural attrition of employees coinciding with cost containment measures imposed in the public sector, resulting in a gradually increasing vacancy rate. The backlog created by the cost containment measures had exerted pressure on the human resources' (HR's) capacity to manage bulk recruitment when the restrictions were lifted.

Programme 2 (Tourism Research, Policy and International Relations)

The National Tourism Statistics Plan was developed, and the Tourism Skills and Employment Portal and the Tourist Guide Information System were implemented. The target was reached on the output indicator for the number of outreach programmes to the diplomatic community. Two programmes with prioritised countries were hosted in Kenya on 20-22 November 2023, and in China on 17-23 November 2023.

Programme 3 (Destination Development)

The integration of developed tourism concepts from long-term tourism master plans into the Tourism District Development Model (DDM) "One Plan" was facilitated for the OR Tambo District, the eThekwini Metro, Pixley Ka Seme, and the Namakwa Districts. Against the annual target for the facilitation of two investment promotion platforms, the NDT had facilitated 13 of these, as some platforms were existing structures where the Department was invited to participate and play a meaningful role in the organising and participation in panel discussions. Most of these did not require additional resources from the NDT. Township and rural tourism was supported through the use of one event in one township and one rural area. The Department also had a target to create 4 133 work opportunities, and 4 234 had been realised.

Programme 4 (Tourism Sector Support Services)

The Green Tourism Incentive Programme was implemented. Service Excellence Standard (SANS:1197) was implemented with a focus on small towns and tourism product support. Against a target to train 2 500 unemployed youth on norms and standards for safe tourism operations, the total number of trainees reached 3 908. The overachievement of the target was due to the response to the massification of skills development and job creation initiative by the Minister of Employment and Labour. The recruitment of tourism safety monitors also contributed to the number of youths exposed to norms and standards training. Similarly, 276 SMMEs were trained (against a target of 250) on norms and standards for safe tourism operations in all nine provinces. 1 905 unemployed youth were trained (against a target of 1500) on identified skills development programmes. The initiative targeted existing skills programmes according to the annual performance plan (APP) programmes dealing with food and beverages, professional cookery, and food safety quality assurers.

(See attached for full presentation)

Discussion

The Committee agreed that if there were any questions for the Department, these would be communicated to them, and responses would be expected in writing within seven days.

South African Tourism 2023/24 performance report

Ms Nombulelo Guliwe, Chief Executive Officer, South African Tourism, said that in the latest fiscal year, South Africa had experienced a significant increase in the number of international tourists, which had reached a peak of 8.8 million arrivals. This marked an impressive year-on-year growth of 30.1% compared to the previous financial year. Although this figure was 11.5% lower than pre-pandemic levels, it indicated substantial progress in the sector's recovery. In the fiscal year ending 31 March, 2024, total foreign direct spending grew by 27.5%, reaching R95.1 billion, up from R74.6 billion in the previous fiscal year. The biggest spenders when visiting South Africa continued to be tourists from Africa and Europe, who collectively made up 90.4% of visitors. However, despite African tourists representing a large proportion of visitors at 75.9%, they accounted for only 46.2% of the total spending.

Ms Guliwe reported that the revenue from domestic operations in 2023/24 amounted to R123.8 billion, which marked a 19.2% increase compared to the previous year. During 2023/24, the total number of domestic overnight holiday trips stood at 12.6 million, accounting for 33.5% of all domestic overnight trips (37.7 million) taken. Holiday spending saw a 19.3% increase, reaching R56.5 billion. The significant growth in total overnight domestic spending was primarily driven by holiday trip expenditure, which comprised 45.7% of the total overnight expenditure.

South African Tourism had five budget programs, which were used to inform the APP and the annual report. The performance of the SAT had improved by 17% from the previous year, reaching 78% of its targets for 2023/24. It had achieved 36 of its 46 targets, with significant progress made on five of the annual targets, while five targets were not achieved.

Of the total revenue of R1.576 billion earned, R1.495 billion was used across SAT's five programmes, leaving an accounting surplus of R81 million. It had released a surplus of R229 million for 2023/24 in accordance with National Treasury Instruction Note No. 12 of 2020/21. A request to retain R194 million of the surplus had been submitted to the National Treasury for consideration on 30 August 2024.

Ms Guliwe said the SAT board had been dissolved on 21 April 2023, and a board was appointed with effect from 21 April 2023 until 28 February 2024. A new SAT board was appointed with effect from 8 March 2024.

The entity had received a qualified audit opinion for the year. Amongst the findings by the AG was that numerous material misstatements were identified, which led to the modification of the auditor's opinion, as a result of inadequate internal controls implemented by management to ensure the preparation of accurate financial statements. Senior management had also failed to establish and implement sufficient procedures to prevent irregular expenditure.

(See attached for full presentation)

Discussion

The Chairperson commented that it was time for the entity to get into action to deliver on its mandate to create growth and jobs. The Committee was prepared to extend its assistance to ensure that this board would remain and bring about much-needed stability. That this was the second board in 18 months did not augur well for the organisation. She directed that the management look at the recommendations made by the Auditor-General, as she thought the SAT’s presentation was misaligned to the findings reported by the AG. The entity’s work was very important, as the sector contributed highly to job creation. She also requested that SAT submit a report to the Committee on how they would respond to the challenges and take themselves forward, as well as another on subsequent actions related to the R3.8 million in irregular expenditure.

Mr Pienaar echoed the sentiments of the Chairperson, saying that there was a shocking contrast between what was presented by the entity, and the earlier report by the AGSA. He expressed concern at the irregular and wasteful expenditures reported to the Committee, and said such use of public funds should not be allowed to happen. That there had been no investigations undertaken on the malpractices was a serious concern, and he asked for an explanation for this. Concerning the resignations, he requested to be furnished with the resignation letters so he could understand the reasons behind them. The status quo at the entity was not acceptable, and the Select Committee would keep a close eye on the situation and ensure that there was accountability.

Mr B Farmer (PA, Western Cape) sought further clarity on the irregular expenditure incurred on rugby. The explanation given had not been clear and was not satisfactory.

Mr Mabilo remarked that SAT had a huge potential to address two major issues facing the country -- joblessness and the cost of living -- through its tourism activities. The Committee expected these to be used maximally, and for there to be a complete crackdown on the reported malpractices. He wished the new board chairperson well in his duties.

SAT's response

Ms Guliwe responded that they intended to improve the situation at the entity, so they would give a better report the next time they came before the Committee. She committed to furnishing the Committee with a report, not just on the R3.8 million, but on the total R24.8 million in irregular expenditure. She noted that Members had observed a disconnect between the AG report and that of the entity. She said that one of the reasons for this was that the audit report was at the end of July, while some of the reports by independent investigators were dated August, even though the processes had started earlier. These could be provided to the Committee, and those investigators could be engaged, should the Committee wish.

Ms Guliwe also agreed that the situation, especially on the finances, was unacceptable, and took responsibility for this as the accounting officer. She would ensure that things were turned around by the time they had to report to the Committee next year. Information and reports on the investigation would be included in the promised reports. She had the former CFO's resignation, which could be provided. A report of the action plans to turn the entity around, and the tracking of the recommendations by the AG, would be included in the documents to be submitted.

The head of finance submitted further clarity on the irregular expenditure amounts. The R2.5 million emanated from activities with the South African Rugby Union, which was the contracting party, and the irregularity arose because there was a breach of the entity’s supply chain management policy, and a breach of the procurement regulations, as well as Treasury Regulations as far as procurement was concerned. An official of SAT had made a commitment by concluding the finalisation of the contract without following the proper procedure. The amount was not paid, but SAT had accrued for it and was then subjected to an investigation, which saw a report handed over on 15 August 2024. Management was in the process of implementing its recommendations.

NDT's comments

Mr Tharage told the meeting that the Department had briefed the Portfolio Committee the day before. In that meeting, the Minister had indicated that in some of the matters, there was a process that had started in terms of investigations by the Special Investigating Unit (SIU) on a secondment basis. The Minister had said she would also seek a Presidential Proclamation to ensure the matters were looked into. It would be easier for the entity to report on investigations when they were completed to protect its rights and those of the other parties involved.

The Chairperson requested that a report on how the subversion of supply chain management policies and Treasury regulations would be avoided in the future.

Mr Modise expressed his dissatisfaction that the Minister could not be present because Cabinet meetings are taking place on a Wednesday. He requested that the Minister be engaged on how best this could be resolved.

The Chairperson said she would write to the Minister on the matter, and would request that the Deputy Minister be available when she could not attend.

The meeting was adjourned.

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