Department Sport & Recreation & Boxing SA: Interrogation of Audit Reports 2005/6
Public Accounts (SCOPA)
23 February 2007
Meeting Summary
A summary of this committee meeting is not yet available.
Meeting report
STANDING
COMMITTEE ON PUBLIC ACCOUNTS (SCOPA)
23 February 2007
DEPARTMENT SPORT & RECREATION & BOXING SA: INTERROGATION OF AUDIT
REPORTS 2005/6
Chairperson: Mr
T Godi (PAC)
Documents handed out:
Sport and Recreation Annual Report (available www.srsa.gov.za)
Boxing South Africa Annual Report (available later www.boxingsa.co.za]
Audio Recording of the
Meeting
SUMMARY
The Department of Sport and Recreation were asked to explain the staff
situation and acting appointments, and to clarify the amalgamation of the
Sports Commission into the Department. Members noted that this showed poor
planning, and asked what steps had been taken to address the vacancy rate. The
level of monitoring was questioned. Further questions related to the
functioning of the audit unit, the pay disputes of the auditors, the lack of
proper reporting on money sent to municipalities, the steps taken to improve
the situation, the steps to improve asset management and control, and the
number of cars used by the Minister. The Department was interrogated about an
amount under investigation by the Police.
Boxing SA were asked to explain whether the position
of Chief Financial Officer had been filled, whether the skills were adequate,
and reasons for the delay in the process. The Chairman of the Board was asked
to clarify a possible conflict of interest in his own position. Questions were
asked about the fraud attempts in the Leila Ali matter, whether the entity
would be able to meet the deadline for reporting and what steps had been taken
to rectify the poor situation of boxing.
The Committee asked National Treasury, the Financial Services Board, South
African Reserve Bank and the Transport Education Training Authority to clarify the
circumstances and their respective positions in relation to the investigation
currently under way into Fidentia, and in particular
to shed light on the investment by the Training Authority. National Treasury
were asked to clarify their investment policies and whether the Authority had
the power to invest in Fidentia. The Financial
Services Board clarified the way in which funds were mingled. The Reserve Bank
stated that its involvement was restricted to any foreign investments.
Questions were asked why it took the Board so long to investigate the matter,
whether the financial statements had been audited, whether it had the power to
demand reports, and whether the investigations were directly the result of the
tip-off. The circumstances for extending deadlines were queried. Further
questions related to the costs of the curator, the findings in the 14-day
report, the reasons why the Training Authority stated the moneys were safe, the
terms of the agreements with Fidentia, the lack of
proper mandate, and the likelihood of recovery. The Committee was of the view
that no blame attached to Treasury, the Reserve Bank or the Financial Services
Board.
MINUTES
Department of Sport and Recreation (SRSA): Interrogation of Audit Report 2005/6
The Chairperson asked the Acting Director General how long he had been acting,
and how long he would be in office.
Dr Joe Phaahla replied that he began his acting
appointment in July 2006 and his term was going to end in March 2006.
The Chairperson asked why there was a serious depletion of staff as according
to the reports SRSA were operating on half capacity.
Dr Phaahla replied that the high vacancy rate was due
to the fact that the former Sports Commission and the Department of Recreation
had been amalgamated. As a result the revised organogram
created a new Department that was bigger than the two organizations, hence
creating more jobs and more responsibilities over and above those in which the
two organizations had formally engaged.
The Chairperson asked for details of the complication of the amalgamation since
personnel had apparently retained their previous positions.
Dr Phaahla replied that the complication resulted
from the fact that the former structure of the Sports Commission had to be
repealed by new legislation that took a long time to pass through parliament.
The Chairperson asked how this had affected administration, since most of the
staff was temporary.
Dr Phaahla replied that because of legal
complications the staff could not be placed permanently. The Department had
entered talks with the unions directly after the repealing legislation was
passed.
The Chairperson remarked that this showed lack of planning, as this should have
been one of the first processes to be dealt with.
Dr Phaahla conceded that it was indeed poor planning.
The Chairperson asked what SRSA intended to do with the vacancy rate of highly
skilled workers which stood at 53%.
Dr Phaahla replied that the process was in motion and
by the end of 2006 all horizontal placement of internal staff occupying
managerial positions was put in place. By May 2007 all positions should have
been filled.
The Chairperson asked if the horizontal placement of staff reflected on the
vacancy rate.
Dr Phaahla replied that it did not reflect on the
vacancy rate, as there were more temporary than permanent staff.
The Chairperson asked what steps SRSA intended to carry out in order to make
sure that the temporary staffing issue had been resolved.
Dr Phaahla replied that advertisements had already
gone out externally and SRSA had already filled some senior staff posts, such
as the chief directors, one of whom was appointed in February
and one who was going to start in March. Moreover interviews were being
conducted to fill in the last remaining positions. This should be done by May.
The Chairperson asked whether this shortage of staff had affected the level of
monitoring.
Dr Phaahla agreed that it did.
The Chairperson asked whether the Department’s audit unit was now functioning.
Dr Phaahla replied that governance issues had
improved since the beginning of the current financial year and the audit
committee had met four times during the year, even though SRSA lost some
auditors due to remuneration disagreements.
The Chairperson asked if the auditor’s pay disputes had been revised since the
loss of the other members.
Dr Phaahla replied that SRSA tried to negotiate new
packages with the members who had left but since they were guided by National
Treasury (NT) parameters it was not possible to come to an agreement. New
members had now been appointed to the audit committee.
The Chairperson asked why SRSA had hired two external audit firms.
Dr Phaahla replied that the audit firm now appointed
was a consortium of an old firm and a new firm and SRSA had had no setbacks.
The Chairperson noted that the reporting of the money that was sent to
municipalities and provinces was not being done properly.
Dr Phaahla replied that indeed SRSA had problems when
it came to reporting and the provinces had had problems meeting the requirements
of the grant.
The Chairperson asked what measures SRSA had taken to ensure that reporting was
done in time.
Dr Phaahla replied that SRSA had called a number of
meetings and workshops where it had invited the heads of department and the
Chief Financial Officers (CFOs). SRSA would then take them through the process
of how to report and time management. It also deployed some of its own staff,
and had suggested that funds be withheld from the provinces if conditions were
not being met.
The Chairperson remarked that SRSA’s internal control was insufficient, owing
to lack of personnel. He could not understand why it managed to under spend by
5% when its vacancy rate was at 50%.
Dr Phaahla replied that he agreed that lack of staff
raised question of value for money, hence SRSA were working expeditiously to
fill in vacant positions.
The Chairperson asked what SRSA had done to improve asset management and
control which was clearly insufficient.
Dr Phaahla replied that SRSA had appointed managers
in the supply chain who had been reviewing policies to ensure that they were
comprehensive enough.
The Chairperson requested an explanation as to why the Minister was using three
instead of the prescribed two cars.
Dr Phaahla replied that the third car used to be
owned by the former Minister and had not yet been disposed of. Instead of
hiring a car to chauffer the current Minister it was decided to cut costs by
using the previously owned one. Nevertheless, SRSA was told that it had to
dispose of this vehicle.
The Chairperson remarked that it seemed as if the amalgamation had actually led
to the deterioration of the management of the Department.
Dr Phaahla replied that this was true. However, the
measures now being taken were aimed at creating a more stable ground and to
ensure that everyone was aware and certain of their duties.
Mr P Gerber (ANC) asked for the remuneration package of the Chair and members
of the audit committee who had left.
Dr Phaahla replied that he did not have the figures
offhand, but noted that these were in line with the stipulations of Treasury.
The former Chair and members had wanted a higher figure.
Mr Phakamani Hadebe, Deputy
Director General, National Treasury replied that there was a stipulated tariff
of about R1300 per hour, and the transport costs were fully reimbursable.
Mr Gerber asked why there had been the addition of family members of key
personnel in the Annual Report.
Dr Phaahla replied that these were intended to be
declarations by key personnel as to any family members working in their
departments.
The Chairperson asked if there were any who made such an admission.
Dr Phaahla replied that there were none at all.
Mr Gerber asked why there was an account being investigated by the South
African Police and why it was taking so long.
Ms Elsie Cloete, Financial Administration, SRSA
replied that this was money which was deposited in an incorrect and most
probably fabricated account, and SRSA were informed late that there was nothing
that could be found concerning the account.
The Chairperson asked for better clarification.
Ms Cloete replied that around two years ago there
were funds transferred into an account but SRSA later discovered that the bank
details had been fabricated.
The Chairperson asked whose account it was.
Ms Cloete replied that it was supposed to be an
amateur boxing account but the money was never received.
The Chairperson asked to which bank the funds were transferred.
Ms Cloete replied that this was Standard Bank
The Chairperson remarked that it was surprising that
the bank could not assist the police by releasing the required information of
the account.
Ms Cloete replied that they did attempt to get the
details but since the money could not be traced SRSA were convinced that the
documents were false.
The Chairperson asked how much was lost.
Ms Cloete replied that it was R154 000.
The Chairperson commented that this happened because there was improper
management and a high vacancy rate, which had led to a loss of public funds.
The Chairperson asked Dr Phaahla if SRSA had
advertised his post.
Dr Phaahla replied that it had been advertised and
interviews had taken place. The process was now in the hands of the executive.
Mr VG Smith (ANC) asked if Dr Phaahla’s predecessor
was still in the employ of the state.
Dr Phaahla replied that he was not.
Mr Smith asked whether he was familiar with the Boxing South Africa Annual
Report.
Dr Phaahla replied that he was not.
Mr Smith gave him a brief overview. He noted that in 2003/04 the Auditor General
(AG) could not express an opinion on the financial statements. In 2004 there
was not sufficient information to perform an audit. In 2005 the AG had serious
concerns and he could not express an opinion as to the correctness of the
statements. In 2004 and 2005 Boxing SA were allocated R1.4 million and R1.7
million respectively. He suggested that in future Boxing SA should not be given
any further funding until it had sorted out the maladministration.
Boxing South Africa (BSA): Interrogation of Auditor General’s report 2005/6
The Chairperson asked if the Chief Financial Officer (CFO) vacancy had still
not been filled.
Mr Dali Mpofu, Chairperson, BSA Board replied that
BSA had filled the post and the new CFO was starting on 1 March 2007.
The Chairperson asked if BSA had a general manager.
Mr Mpofu replied in the negative.
The Chairperson asked whether the person BSA had appointed as the CFO had the
requisite skills.
Mr Mpofu replied that BSA had appointed Mr Jos Steyn as the CFO, and was of
the opinion that he had the requisite skills since most of the improvements
that have been made occurred under his Acting CFO appointment. He further said
that BSA was aware that since the inception of Boxing South Africa in 2002 it
had not had a clean audit. The Committee should, however, be aware that new
Board was appointed last May, which was trying to rectify the situation by
appointing a new CFO. This process was taking longer than anticipated as BSA
was waiting on the SRSA and the Minister’s confirmation.
The Chairperson asked SRSA the reasons for the delay.
Ms Noma Kotelo, Director
SRSA replied that the submissions were still in the process and it was taking
long because BSA were having to engage with the resources of SRSA whilst it was
also dealing with its own human resource problems.
Mr Smith asked Mr Mpofu if he did not perceive there
to be a conflict of interest, since he was Chair of SA Boxing as well as the
CEO for SABC.
Mr Mpofu replied that he had raised this situation up
with the Minister and with the rival network SuperSport.
It seemed that there were no objections and everyone was comfortable with the
situation.
Mr Smith asked how it had been possible for the fraudulent actions to have
taken place in the Leila Ali matter.
Mr Mpofu replied that he found out about the forgery
when the Minister pointed it out to him. In this case there was no requirement
that the Minister should give a guarantee. What was required was that the Ali
camp be in agreement with the promoter of the match, which was not the case.
This was the cause of the controversy.
Dr Phaahla replied that the matter was under
investigation.
Mr Smith asked if BSA were going to be on time with their submissions of
reports.
Mr Mpofu replied that all the indications were that,
for the first time, BSA would indeed be on time with their reports. It was
working hard to improve the record keeping.
Mr J Steyn, Acting CFO, BSA replied that BSA were
going to make the deadline.
Mr Smith asked what steps had been taken to rectify the poor situation in
boxing.
Mr Mpofu replied that the process of putting a proper
management system was in place, starting with the appointment of the CFO, and
afterwards directing energies to the rest of the staff. BSA had also
established provincial representatives without slowing down the momentum of the
sport.
Mr Steyn added that the record keeping system had
been revised, BSA had appointed a bookkeeper and now
had internal auditors. Gwenyani auditors were helping
out with an independent review. BSA had also computerised the payment system.
Mr Gerber remarked that one of the ways to improve would be to make sure that
documents were signed.
Mr Mpofu indicated that his signature did appear on
page 20.
Fidentia Investigation: Discussions with
National Treasury (NT), Financial Services Board (FSB), South African Reserve
Bank (SARB), Transport Education Training Authority (TETA)
The Chairperson asked what happened to the public money that was invested
in Fidentia. He asked if National Treasury had
prescribed investment policies for public entities like the TETA and if these
were properly regulated.
Mr P Hadebe replied that the Public Finance
Management Act (PMFA) indicated that NT could prescribe investment policy for
public entities, and they had done so for TETA
The Chairperson asked if NT would monitor compliance.
Mr Hadebe replied that this responsibility lay with
the accounting authorities.
The Chairperson asked if TETA was aware of the regulations and if they had
conducted the investment in compliance with the regulations.
Mr Piet Botha, CFO, TETA replied in the affirmative.
Mr Hadebe explained that NT could exempt public
entities in terms of the required regulations. He clarified that NT had in this
instance written a letter exempting TETA, but had not specifically approved the
investment. The exemption was subject to TETA investing in an investment-rated
institution.
The Chairperson asked the FSB about the events at Fidentia
and to give an indication how this had affected TETA. He noted that FSB need
not respond to any sensitive issues that might jeopardize the ongoing
investigation.
Mr Rob Barrow, Chief Executive, FSB replied that the essential findings about Fidentia were that the investor funds were co-mingled with Fidentia’s own funds to such an extent that it could not be
determined which funds belonged to Fidentia and which
belonged to the investor’s. As a result the investor liability could not be
established. This was because Fidentia did not adhere
to the requirement that the investor manager should act in a position of trust.
The only funds that were supposed to be in the investor manager’s account were
fees. The likelihood of recovery was difficult to assess, as FSB and investors
would have to wait upon the curator’s findings. Moreover, when FSB had
discovered the co-mingling it was apparent that the curators must be involved
to determine the potential recovery. This would be a lengthy process. It was
unlikely that there would be a full payout, and it was fortunate that there
were no very large investments.
Mr Chris Grove, Deputy General Manager, SARB replied that SARB’s possible
involvement was restricted to the foreign investments and an investigation of
whether Fidentia followed all the right procedures.
Mr Gerber asked why it took a long time for action to be taken from initiation
to the time that Fidentia finally responded in
October. During the six months of investigation, about R2 million rands were moved from the Fidentia
account each day. On 31 October there were R135 million but 62days later there
was only R14 million left. This money could have been appropriated if the
investigators had not dragged their feet.
Mr Barrow replied that FSB dealt with about 14 000 entities, each in a
different manner. The documents that FSB were given did not show that there was
anything suspect with the entity. Moreover, the way in which the financial
statements were drawn did not enable easy detection of the matter.
Mr D Gumede (ANC) asked if the financial statements
were all audited.
Mr Barrow replied that only the 2004 statements were audited. It had been made
more difficult to pick up the matter because Fidentia
gave different reports to different entities. The information had only recently
been able to be correlated by FSB.
The Chairperson asked for the period of time that Fidentia
did not submit financial reports.
Mr Barrow replied that the annual 2004/5 reports were received in 2005.
Mr Gumede asked if FSB did not have the power to
demand the reports and to remedy the situation.
Mr Barrow replied that FSB did not have the power to remedy the situation, but
conceded that when it realised that there were financial statements still
outstanding they should have looked into the matter.
Mr Gumede asked if the 2004 reports were qualified.
Mr Barrow replied that because of the fact that Fidentia
had not consolidated its subsidiaries the real financial position was not
apparent.
Mr Gerber asked what would have happened if a tip-off report had not been
received, as there clearly was no system in place designed to pick out such
issues.
Mr Barrow replied that there was an anonymous tip first before FSB was
approached by an individual. However, because anonymous tips came from nameless
people they had to be treated with caution and discretion in respect to the
company. Moreover, the person who had reported on Fidentia
was also to be treated with caution as he had ongoing litigation with Fidentia, and one of the few things FSB was concerned about
was that complaints were often used to try to bolster a case.
Mr Gerber asked when the anonymous tip-off had come through.
Mr Barrow replied that he was not sure or the exact date but it was about six
weeks before the named investor came forward. During this time Fidentia was in the process of acquiring businesses that
required it to renew approval licenses from various financial boards. It was at
this stage that questions about the entity began to crop up. FSB approached Fidentia who offered full cooperation to an investigation,
but at every step of the way FSB had actually been challenged by legal teams,
which was very expensive. In addition to this the time taken to set up an
investigating team was about four to six weeks.
Mr Gerber asked if extending deadlines for reports was the same kind of service
FSB would offer to other service providers.
Mr Barrow replied that if the entity requested an extension and the reasons for
the extension were valid then the extension would be granted. If not the late
submissions would attract a fine. .
Mr Gerber asked what was the cost of involving curators since
previous experiences had shown that their fees could be astronomical.
Mr Barrow replied that the cost was difficult to determine, but to date about
R500 000 was already used. The curators had advised that they had reduced
overheads and cut some staff. The costs of the curators were not too high
compared to what they would save.
Mr Gerber asked what was in the curator’s 14-day report.
Mr Barrow replied that this contained no sensitive issues and it showed that
there were a number of issues being investigated, as well as the slashing of
the overhead costs.
Mr Smith asked why a TETA spokesperson had misled people by informing them that
TETA money was in a different account and therefore safe, whilst the funds were
co-mingled and were awaiting the curator’s findings.
Mr Botha replied that the money was supposed to have been in a different bank,
according to TETA’s agreement with Fidentia. It had
realized after seeing the FSB report that the money formed part of the
co-mingled funds.
Mr Smith wanted to confirm that the funds were not secure.
Mr Botha corrected the amount owed, but said that the funds were not secure.
Mr Gerber remarked that the mandate that set up the asset management between
TETA and Fidentia had single signatures only and no
signatures of witnesses.
Mr Botha replied that the first agreement was signed on 10 April 2003 and the
second agreement was signed in December 2003.
The Chairperson asked if there were different records as the information seemed
to be contradictory.
Mr Botha replied that the wording of the document referred to by Mr Gerber was
the same as the document that was signed in full, and he would make this
available to the Committee.
Mr Dawood Seedat, Head:
Inspectorate, FSB added that there was supposed to be an initial mandate that
should have been renewed every year by TETA. FSB did not find any such
document, since the renewal was merely given by way of letters from TETA to Fidentia.
Mr Gerber asked that if there were no documents how could the
business be conducted.
Mr Seedat replied that FSB’s initial observation was
that Fidentia was trying to hide the fact that TETA
was a client, even though there were documents bearing TETA’s name. It was
later in October that FSB discovered that TETA was indeed a client, and an FSB
team had searched TETA and discovered, within three weeks, that there was no
asset management agreement. TETA could not provide information as to why not,
and neither could Mr Brown of Fidentia. FSB had
questioned him but he claimed that Fidentia was
negotiating with TETA.
The Chairperson asked if the lack of a proper mandate was the underlying reason
for the search and seizure.
Mr Seedat replied that this was indeed so. In
addition Fidentia had not cooperated in the way that
FSB had expected.
Mr Smith commented that TETA was not disputing anything and it could be clearly
understood how the matter had happened and what actions TETA had taken. No
blame lay with the Reserve Bank or FSB, who had performed their duties
satisfactorily. He believed that their information had been useful. He
suggested that TETA be held accountable for its actions.
Mr T Bonhomme (ANC) remarked that this would be a
massive court case that involved lots of money. To him it seemed that Fidentia had intentionally misled investors in an area
where they knew that there was no legislation allowing for the better control
and arrest of funds. He asked how this situation could be prevented.
Mr Barrow replied the curator’s findings would control the situation. The
curator had the power to retrieve what he could and make sure that the
responsible people were held accountable
Mr Gumede asked what the potential recovery was for
other parties.
Mr Barrow replied that FSB had to identify whether there were any parties who
profited irregularly from investor funds, and it would then try to recover
these profits.
The meeting was adjourned.
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