Department of Environmental Affairs & Tourism, Marine Living Resources Fund, National Parks Board: interrogation of Audited Fina

STANDING COMMITTEE ON PUBLIC ACCOUNTS (SCOPA)
28 March 2007
DEPARTMENT OF ENVIRONMENTAL AFFAIRS AND TOURISM, MARINE LIVING RESOURCES FUND, NATIONAL PARKS BOARD: INTERROGATION OF AUDITED FINANCIAL STATEMENTS 2005/06

Chairperson: Mr T Godi (PAC)

Relevant Documents:
Department of Environmental Affairs and Tourism (DEAT) Annual Report 2005/06 [available later at www.environment.gov.za]
Marine Living Resources Fund Annual Report 2005/06
South African National Parks Annual Report 2005/06
Department of Environmental Affairs & Tourism (DEAT) Audit Report 2005/06
Marine Living Resources Fund Audit Report 2005/06
South African National Parks Audit Report

Audio Recording of the Meeting

SUMMARY
The Marine Living Resources Fund had appeared before the Committee in August 2006, when the Committee had expressed doubts about whether there still needed to be a separate entity. The Committee had now recommended that the Fund be reincorporated into the Department of Environmental Affairs and Tourism (DEAT) to have proper accounting authority and management. It was agreed that the Department should have until 12 May to obtain the comments of National Treasury and the Accountant General and to report back to the Committee. Members asked questions on the abalone industry levies, the costs of consultants for the long term rights allocation process, the fact that ex-employees were contracted in, the costs of the new vessels and their state of repair. Further questions were asked about the employment of labour brokers, the international trips, and whether the accounting systems had been revised to deal with the qualifications and comments of the Auditor General. This led to discussion of the main priorities, and revision of specific systems was interrogated. Issues of skills and capacity were raised. Approval of the budgets, correction of opening balances, meetings of the audit committee and irregular expenditure were debated.

The Auditor General had raised a number of matters of emphasis in respect of the Department's audit report. Members questioned the existence of strategic plans, the filling of posts, the vacancy rate, the fact that performance information required by the Auditor General had not been supplied, the reasons for the delay in final submission of the financial statements, and the Auditor-General's comment that there was lack of monitoring. The non-compliance with the National Environmental Management Act was discussed and it was clear that the Department had no oversight nor power to force other departments to comply.

South African National Parks Board was asked by the Committee to explain the fact that internal controls were not always effectively managed, and to outline the new disaster recovery and securing plans. The Committee questioned the staff retention problems and noted that a solution had to be found to avoid constant reports on these matters in the audit reports, and asked how the Board would instil better responsibility in staff. Further issues addressed included the physical appearance and state of the rest huts and the park gates, non compliance with National Treasury Regulations, purchase of helicopters, long term finance leases, the holding and sale of ivory, the zoning of the land, the possible integration of national and provincial conservation, the closure of Skukusa airport, the land valuation processes and reflection of values in the balance sheet, compliance with fire control regulations, and the grants.

MINUTES
Marine Living Resources Fund (the Fund): Interrogation of Audit Report
The Chairperson indicated that last year the Committee had expressed some doubts about the need for the entity, and there was a need to re-engage with it. The reports on the Marine Living Resources Fund were not particularly encouraging and there was a poor general perception of it. It was necessary for the entity to focus on its core mandate and operate as expected. Issues needed also to be discussed with the Department of Environmental Affairs and Tourism (DEAT) in order to decide collectively how to move forward.

Mr P Gerber (ANC) noted that this entity had been before SCOPA three times in the last six months. On 16 August 2006 the question was raised whether it should be a separate entity or should be re-incorporated into the DEAT as a directorate, similar to the situation with the licensing authority of the Department of Minerals and Energy. There were further issues around governance. SCOPA had then adopted a resolution, which, in Clause 5, noted that the Fund was being administered by seconded employees of DEAT, and that it was unable to exist independently without a grant. The Committee had recommended that it be reincorporated into DEAT so that there could be proper accounting authority and proper management. Mr Gerber asked for feedback. 

Ms Pam Yako, Director General: DEAT, said that the Department was due to report back to SCOPA in 90 days, which would expire on 12 May. Her view was that there should be adherence to the resolution, but that the question needed to be addressed whether incorporating the Fund into the Department would relate only to accounting, or to all other matters. This was work in progress. The views of the Accountant General and National Treasury (NT) were still needed. A further question related to whether the Fund should merely collect revenue, or ensure there was no over-fishing. DEAT thought its mandate was the latter. She asked that the DEAT be permitted to give a full answer after 12 May.

The Chairperson agreed that this was reasonable. There was a process that needed to take into account a variety of factors in the course of the discussions. He would have expected that subsequent to the engagement in August 2006 DEAT would have had some formal engagement with NT.

Mr Gerber raised questions about the abalone industry. Clause 2.2 of the resolution noted that the average market price for abalone was around R2.2 million to R5.9 million a ton. The companies who had the quotas were charged only R25 000 a ton to take out abalone. The difference between these prices was substantial and DEAT therefore needed to address it seriously.  He noted that South African National Parks (SANParks) were able to fix market-related prices for sales of ivory.

Ms Yako stated that there were two issues. Abalone was but one example of several fish species. The levies charged on an annual basis were reasonable. DEAT was required, in terms of the Act, to set the fees, with concurrence of the Minister and the Fund, which unfortunately could not be obtained in the previous year. DEAT was working on cost-recovery payments and was seeking agreement with the industry in regard to costs and the increase of fees on a number of species. Fair value needed to be determined. The comment in relation to abalone was worth investigating, but there was a process between what was anticipated as a price obtainable on the market, and the gazetted value. She pointed out that the comparison with SANPARKS was not ideal as the latter was regulated differently and was not in the ivory trade business, nor regulated those who did trade. DEAT, unlike SANPARKS, had both a conservation and industry promotion role.

Mr Gerber wondered if there had been a cost-related survey done on the whole abalone industry, including the policing and SARS revenue.

Ms Lilly Zondo, Corporate Executive: Auditor General, said that she could not comment at this stage.

Mr D Gumede (ANC) said that if DEAT could not recoup the costs then this would cost the citizens more in tax.

The Chairperson suggested that this question also should be deferred to a later meeting.

Mr Gerber indicated that people paid per ton for fish and abalone, yet for seaweed the quotas were allocated per geographical area.

Mr Gerber indicated that pages 7, 8 and 51 of the Annual Report had indicated that about R45 million was spent on long term rights allocation processes, covering the costs of external consultants to ensure independence of allocation quotas. However, elsewhere in the report a figure of R29.8 million was given. He asked which was correct. Mr Abdullah Ismail, Chief Financial Officer: Marine Living Resources Fund, said that the total for the consultants was R29.6 million. The R45 million was inclusive of travelling and the whole process.

The Chairperson noted that there was also an amount shown for professional and special services (non-government). He asked if this was separate from the consultancy fees.

Ms Yako noted that the figure given was the sum total of all the figures, which included consultants, temporary staff, and other items.

Mr Gerber noted that the process was costly, and the need for independence was stressed. He asked why, in that case, ex-officials of the Department had received large contracts. He asked how this could be explained, and what guarantees there were that the process was correct.

Ms Yako said the process was designed in 2004. Staff from DEAT were delegated to make key decisions after a process of verification. The initial scoring of the applications was done outside the Department. During 2004 there were many requests for explanation of the policies and how the rights would be allocated, as it was quite involved. There was considerable time spent in explaining the processes, and that was not initially budgeted for. In February 2005 two officials running the process resigned. The Minister had decided that since they were the most experienced and knowledgeable, they should be recruited back in a different capacity, and the provisions on secondment of officials were used. if this had not been done the process would have stalled further. Both of the resigning officials had occupied key posts in the rights allocation process.

Mr Gerber indicated that they had resigned three months before the process started and, as architects of the process, they must surely have known that they would be asked to move into the new posts. This was precisely why the process was criticised. He felt it was completely unacceptable.

The Chairperson commented that this was similar to the Department of Correctional Services where former staff were appointed as directors of contracted-in companies. This was something that the Department could not have foreseen. He felt that measures should have been put in place to try to avoid this. He agreed that this was regrettable and unfortunate.

Ms Yako clarified that the process had cost R45 million but the cost of those ex officials was R2.8 million. Another bid to the value of R14 million did not go to an ex-member of staff. She stressed that not all the consultancy fees had been paid to ex-employees.

The Chairperson said that the problem was not the amount, but the fact that ex-officials were sitting on the other side. He said that perhaps this could not have been foreseen but the practice was unacceptable.

Mr R Mofokeng (ANC) agreed that the principle of paying ex-employees on new contracts was wrong.

Mr Gerber noted that DEAT had given R501 million for the purchase of new patrol vessels and had allocated further amounts to operations and maintenance. He queried the two figures mentioned in the report for Far Ocean Marine and asked whether the amounts paid were in respect of the patrol vessel or the new research vessel.

Mr Ismail stated that R101 million was for the building of the new vessel but this was spread over a two year period

Mr Gerber said that the ship Aghullas would be replaced at an estimated cost of R600 million, and a transaction advisor was appointed. He asked what capacity the Fund had to take decisions on appointment of transaction advisors and whether DEAT had any assistance.

Mr Ismail replied that National Treasury Regulations stated that purchase of capital items in excess of R250 million needed to be investigated as possibly running through public/ private partnerships. National Treasury advised the Fund to contact the PPP Unit, who then advised that a transaction advisor must be appointed to do a proper costing in view of the R600 million involved.

Mr Gerber noted that there were four vessels built but two were in harbour and one had a problem with the deck. He asked what the situation was at present.

Mr Monde Mayekiso, Deputy Director-General for Marine Coastal Management, reported that the vessels were being used. Two had had minor accidents and were de-commissioned for a short while.

Mr Gerber asked if the accidents were due to structural manufacturing defects or negligence.

Mr Mayekiso advised that the vessels were still running. There were no structural defects. The skipper of the vessels had performed an incorrect manoeuvre in the harbour.

Mr Gerber noted that the previous Annual Report had listed "miscellaneous" items that in the 2005 year had risen to R10.9 million. He asked what this represented.

Mr Ismail was not sure off hand what this was but would send a formal report.

Mr Gerber noted that the Annual Report noted that cash held in short-term investments had decreased from the previous year, down to R3.8 million. He asked what had happened to the amounts invested in the previous year.

Mr Ismail replied that capital amounts were paid out on capital projects.

Mr Gerber noted that there was no PAYE deducted from payments made to labour brokers, and no exemption certificates were submitted for them. There were four labour brokers used. He asked what these people did, and why there was a problem.

Mr Ismail said that the qualification had been addressed, and certificates had now been issued. If the relevant information was not received from the labour brokers, then the Fund would simply deduct PAYE at 35%. The appointments by the brokers related predominantly to new sections, where the skills were needed while institutional design was being built. The positions were generally in customer service sections, at level 4.

The Chairperson asked if labour brokers were the same as recruitment agencies. He personally did not approve of these agencies.

Mr Ismail confirmed that this was so.

Ms Yako noted that labour brokers would handle only temporary staff. This was because at the time there was a need to employ staff, but permanent appointments had not yet been made. The best way to recruit at a temporary level was through such agencies.

Mr Gerber noted that there were 65 international trips undertaken during the year, and about 900 working days were spent overseas. He asked if there was a policy on trips, and what were the criteria.

Ms Yako stated that further details on each trip could be determined and forwarded to the Committee. There were four types of trips. Cruise and fieldwork involved patrols, generally between Namibia and Angola, for research or compliance, and was a daily job, although it was performed outside South Africa, and therefore reflected as overseas trips. Capacity building conferences, such as scientific conferences, were attended. There were also bilateral meetings and courses, especially in Norway, with whom South Africa had funding and bilateral cooperation agreements. Finally there was attendance at multi-lateral conferences, such as International Whaling Conventions, or Council on Fisheries, to negotiate quotas.

Mr Gumede stated that Item 4.2 of the Auditor-General's (AG) Report had stated that certain items could not be verified. These included continuous accrual and monitoring of fishing levies, which was run on a manual system, where there were no proper financial statement to support the accrual basis of accounting. He asked if the accounting system was revised in order to cater for correction.

Ms Yako indicated that in August DEAT had reported that it was in the process of revising and moving to the Integrated Financial System. It was on test for three months, up to March 2007, and would be fully implemented from 1 April 2007. It included internal controls, for either a manual or electronic system. The problem had therefore been resolved. All debtors were now on a proper register and DEAT was working on proper reconciliation. Age analysis had been looked at. There were still some other problems, relating to information on debtors. In terms of current legislation, the catches of fish must be landed and verified on site, in order to assess the levies and quotas. This assumed that at all times there would be a Fund official on site. There were some instances where skippers landed outside normal working hours. DEAT did not have sufficient capacity to run a 24-hour service. This led to non-payment of some levies.  The Vessel Monitoring System would give online information, especially for line fish. The industry was complaining that the new system was too expensive, but at the same time this must be weighed up against the current difficulty in verifying information accurately.

Mr Ismail added that in working with the Auditor General it became clear that it was difficult to reconcile the landings to revenue. A change in company policy was needed. Assessment of revenue on landing posed a challenge. If DEAT could change to the levy being charged once a month, after a declaration form was forwarded, this would cater for problems in compliance and the systems would be able to interface on a direct invoicing system. If the declaration forms were not received, DEAT would withdraw the rights. DEAT had integrated the Marine system, which was a portal, and this was also interfaced and under control through those systems.

Mr Gumede noted that he would have expected capacity to be placed where there was the most revenue, and would have preferred more explicit answers. He asked for a specific answer directed to the various points in the AG's report, to assure the Committee that each item had been properly addressed.

Mr Ismail confirmed that debtor systems and procedures had been developed, specifically for licence fees, chartering of vessels, confiscation, harbour and levy income. The Fund had also developed a Revenue Management Unit under the office of the CFO to capacitate that.

Mr Gumede asked for the three main priorities of the Fund.

Mr Ismail said that these were to ensure that funds were collected, that they could be reconciled, and that in order to do so, there needed to be changes to the accounting policy and systems so that the marine administration system interfaced with the financial system.

Ms Yako added that reconciliation meant that there must be updated information. Every levy holder must have the completed forms, the data from the harbours and all receipts, so that all source documents were in place. Once that was done, there must be reconciliation of income to those documents. All systems must interface properly with each other. The permit system was captured on one system and updated to another system, and this too must be reconciled.

The Chairperson said that the AG was of the opinion that all shortcomings were due to the lack of a proper integrated accounting system. He felt that the substantive part of the Fund's report should have dealt with a proper system, before any matters of capacity were raised. He accepted that the systems were now in place.

Mr Gumede stated that the Auditor General had noted that supplier statements for 24 supplier accounts could not be provided as no reconciliation system was in place. He asked whether such a system was now in place.

Mr Ismail confirmed that in November 2006 the new financial system was launched. One of the modules dealt with accounts payable. This was integrated, from the request for a purchase order through to invoice. Individual files were created for each creditor and there were monthly statements. All suppliers were informed that no payments would be made without a statement, which forced a reconciliation.

Mr Gumede said that the AG had noted that the reversal of an accrual for vessel operating costs and a reversal for commission paid, were incorrectly allocated. This was due to lack of systems for preparation, reviewing and approval of journal entries.

Mr Ismail stated that there was previously no system or policy on journal entries. Now there was a policy to sign off on all journal entries. In answer to a further question, he clarified that the Senior Manager would have to sign off before the matter was referred to the CFO.

Mr Gumede reported that the AG had said that the opening balances of the prior year could not be confirmed, hence there was uncertainly on the completeness of the balances for the next year.

Mr Ismail said this had been discussed with the AG. The balances on fixed assets and accounts payable would be restated. There was also an exercise under way for accounts receivable and debtors, and this was an extensive exercise being addressed through the debt management policy. The AG had been asked for his opinion, and had said that if nothing was done and it exceeded the materiality criterion, then he would have to give a disclaimer. The matter was the subject of ongoing discussion and work

Ms A Dreyer (DA) noted that the Fund had been in existence since 1998 and there had been five consecutive negative audit reports, with the last three being disclaimers. DEAT on the one hand expected the entity to increase its own revenue and become less dependent on the Department, yet it appeared that it was incapable of looking after its revenue, and expenses had been over stated. The AG had noted 24% staff vacancies on the old establishment, or 46% on the new establishment. There was inadequate capacity in the office of the CFO. She said that none of the plans would be able to be implemented if there was not sufficient capacity. She asked whether there were staff to implement the plans, and what was being done about the vacancies.

Mr Mayekiso stated that the issues of skills and capacity were raised last year. At the time, it was indicated that there would be three new directors to improve management. Two directors had been appointed and another would be appointed in the new few weeks. Insofar the apparent increase in the vacancy rate, not all the positions in the establishment were funded in the past. Funding was now to be given, and this would address the issues. There had been some resignations, but positions were now being filled more quickly. Staff had been trained in accrual accounting, instead of cash accounting systems.

Ms Dreyer noted that there would be a full complement of senior staff next week. She asked if there was a staff retention policy in place.

Mr Mayekiso stated that there was one, which was the same as that at DEAT.

Mr Mofokeng  noted that the qualifications had also included fruitless and wasteful expenditure. There was non-compliance with laws and procedures. He asked why the Fund was not complying with Treasury Regulations.

Mr Ismail stated that the question related to the Emphasis of Matter, but there were four items listed by the AG. The AG had said that performance information was not listed in the Annual report. This was, however, listed in the DEAT Annual Report. It had been an oversight not to include it also in the Fund's report. The item on the budget related to approval, and he could confirm that subsequently all approvals were obtained, so this matter would not recur. Risk management strategy had now been developed, and this had been adopted by the Audit Committee. In regard to the non- compliance with Generally Accepted Accounting Practices, a Chartered Accountant had been hired to ensure that the Fund was adhering to all the practices so that there would not be recurrence of this matter either. The materiality framework had been approved, and this had now been discussed and agreed with the office of the AG.

Mr Mofokeng asked if staff and management were aware of their non-compliance with Treasury regulations. He noted that Section 65(1) of the Public Finance Management Act (PFMA) had not been adhered to. He asked if there was lack of capacity or of accounting knowledge.

Ms Yako stated that this had been dealt with at a previous meeting.

The Chairperson said there was no need to go into the matter again.

Mr Mofokeng noted that the audit committee should have sat four times, yet had only sat twice in the year under review.

Mr Ismail agreed that the Charter did state that there should be four meetings. During 2006 there were four sittings and dates for the prescribed four sitting had already been set for the new year.

Ms Dreyer reported that the Chairperson of the Audit Committee had noted that the Committee could not meet regularly as management was unavailable. She asked why management was not available, and what priority management attached to such meetings.

Mr Mofokeng said that attendance of the meetings was regarded as a priority, but there had been a problem in the past. That error had been corrected and four meetings had been held this year.

Ms Dreyer asked if this was due to a change of attitude and asked who was attending.

Ms Yako said that attitude had not been the problem. The management of the audit committee, reporting and minuting had now been moved to the office of the Deputy Director General. It was oversight rather than attitude that had been a problem. The management of Marine and Coastal Management (MCM) had not reported to Parliament, and this issue had somehow fallen through the cracks.

Ms Dreyer said that it was vital for DEAT to attend these meetings to ensure that it kept its finger on the pulse of financial management.

Mr Gerber found the non-attendance unacceptable. He pointed out that during the August 2006 meeting Mr Mayekiso had said that it was difficult to say why management was not available, and he could not give reasons for the non-attendance.

The Chairperson noted that this issues had now been corrected. He was concerned that the 2005/6 Annual Report had repeated problems that were raised in the previous year.

Ms Dreyer said that no entity could function without an approved budget. However, the budget was submitted late, and even the extension to 31 January was not met. The budget was only concluded on 3 April and approved by the Executive on 1 June. There was no proof that the budget for 2005/06 was approved in concurrence with the Minister of Finance. If there was no proof of approval, then she would think that any spending then amounted to unauthorised expenditure.

Mr Ismail stated that the Fund submitted a budget to DEAT. At that time there had been an overstated budget of and there needed to be understanding of the real income. From 2002 to 2004 the Fund had received a large capital amount for the building of vessels, and had sold a large amount of abalone. It was effectively spending more than it was generating, although the figures mistakenly reflected that it had a huge earning capacity. The budget was revised three times to try to set the revenue more correctly. A proper budget process was followed this year. Section 10 required the concurrence of the Minister. A letter from the previous Minister had subsequently been traced, relating to exemption.

Ms Dreyer said that the budget process was not something that came from nowhere. The Fund should have been able to get some indication, from the previous six years, of the true figures. She felt that it could have been drawn on time.

Ms Yako confirmed that in normal circumstances it would be possible to use an incremental budget. In 2005 and 2006 the incoming Managers took over. When they took office they realised that the money was overstated, and had then tried to come up with a realistic budget. Technically they should have asked the Minister to approve the overstated budget, but they knew that it was  were incorrect. She agreed that in the circumstances there had, strictly speaking, been no  budget approved.

Ms Dreyer said that the Fund had carried on spending as they could not hold up on their work pending the authorisation. She asked if that spending had been approved, or if it was not unauthorised expenditure.

Mr Ismail said the Public Finance Management Act's statement of unauthorised expenditure related to spending in line with levels of authority. He did not think that such spending where there was not an approved budget  would amount to unauthorised spending in terms of the PFMA.

Ms Dreyer felt that this was a moot point.

The Chairperson said that it would be important to look at whether there had been correction.

Ms Dreyer said that in 2004 there was a disclaimer, and the validity and accuracy of those balances could not be confirmed. This led to uncertainty on the 2005 financial year. She asked if this had been resolved.

Ms Yako said that there was now certainty on opening balances for accounts payable, and  assets. There was still more work to be done on debtors and levies. She referred back to the three priorities mentioned earlier. DEAT was seeking accuracy on the files and the source information. Attempts were being made to resolve all issues.

Ms Dreyer noted that the CFO and the Deputy Director General stated in the Annual Report that the Fund was likely to be a going concern in the year ahead. She asked on what basis that statement had been made.

Mr Ismail said that Generally Accepted Accounting Principles defined a "going concern" as one that was liquid and could therefore fund its activities in the future. It was on that basis that the statement was made.

The Chairperson noted that the liquidity of the Fund was due to the generosity of the Department. The choice still needed to be made whether this should continue as a separate entity, or reincorporated.

Mr Mofokeng said that the Fund had moved from the cash basis to the accrual basis of accountants. A firm of consultants was appointed at a cost of R3.2 million to assist in the process. There were problems and another firm was then employed at a further cost of R1.3 million. Approval was granted by the Acting Director General of DEAT to institute legal proceedings against the first service provider. He asked how far the process had gone, and why the R3.2 million had not been noted in the financial statements.

Ms Yako stated that this had been reported on in the August 2006 meeting. Another report would be made in May, but the matter was still sub judice. The State Attorney was dealing with the matter and a date had been set.

Mr Ismail said that this was not listed as fruitless expenditure at this stage, since the State Attorney had not confirmed that the money could not be recovered. In fact there was a strong possibility that the money to the first service provider would be recovered.

Ms L Mashiane (ANC) asked whether the unauthorised expenditure had been approved at a later stage.

Mr Ismail said that the capital budget was approved and was ring fenced for the building of the vessels. The process to get the executive to sign off on all items was not approved, but the capital expenditure certainly was.

Mr E Trent (IFP) commented that although there were accounting policies, there were a number of variances that appeared without any notes to explain them. Examples were confiscated assets, the cut in the subsidy from DEAT, that resulted in the Fund going into deficit. These should have been explained more specifically. The accounting policies should also be set out in detail. He asked when the Fund had started depreciating the assets, and noted once again that although the depreciation had increased by almost 100%, there was no note to explain this. He asked if the Agulhas had been written off. He asked if the 5% depreciation on vessels was realistic.

Mr Ismail noted the variances and would give written comments. He confirmed that the revenue had dropped by 50%. The depreciation increase related to the four new compliance vessels on the books. The replaced vessels were of a much lower value than the replacement ones. 5% was an acceptable depreciation value. The new accounting standards for fixed assets required revaluation annually, based on impairment, and this was being done. The Agulhas was 28 years old and it could still be used, but after 30 years of use insurance became an issue.

Mr Trent noted that the assets only increased by R50 million in the balance sheet, which did not appear to correlate to the rise in depreciation. He asked if the new vessels were reflected in the balance sheet.

Mr Ismail noted that the 2004/05 year had noted an increase of R113 million, and 2005/06 reflected an increase of R81 million, so the assets were reflected. Depreciation was based on those values. The value of the old vessels was R5 million but now this had increased to R125 million.

Department of Environmental Affairs and Tourism (DEAT): Interrogation of 2005/06 Audit Report
Ms Dreyer noted that there were matters of emphasis in the AG's report on DEAT. The information technology strategic plan to be used as a basis for the upgrade had not been prepared although this was supposedly receiving attention She asked what had been done and if there was a policy framework in place.

Ms Yako confirmed that the Master Systems Plan was in place.

Ms Dreyer asked if there were staff with the required skills and knowledge in place to implement the policy.

Ms Yako said that seven additional posts were required, but the staff had not yet been appointed.
Ms Dreyer commented that if the necessary staff were not in place, then this would affect the process from day one. She asked when they would be appointed.

Ms Yako explained that implementation of the plan was not dependent solely on these eight people. There were additional posts for completeness. Not all the posts had been advertised because at the moment, taking into account the available funding, there was full capacity. The vacancy management committee had met yesterday, to abolish posts over 18 months old, to release further funds. The eight posts were not critical for year one.

The Chairperson noted that there was a 30% vacancy rate and asked how the recommendations of the vacancy committee would affect the vacancy rate.

Ms Yako indicated that the vacancy rate was at 27% as at 28 February, and this included some posts that had been vacant for a long time. A critical analysis had been done on the new responsibilities in terms of the new laws, and who should implement them. Funding was made available. The vacancy management committee was carrying out an ongoing monitoring system.

Ms Dreyer asked if the eight people were still required. If so, they should be appointed and, if not, these posts should not be kept on the books.

Ms Yako said that the plan was a five year plan, costed over the five years. The eight people were not critical in year one, but would be needed as the plan progressed.

Ms Dreyer stated that the AG had stated that certain performance information required under the PFMA was not submitted as requested, and therefore he was not able to express an opinion. She asked why there had not been compliance with the request.

Mr Ralph Ackermann, Acting CFO, DEAT said that this was an oversight. When it was brought to the attention of DEAT the audit period had run out The necessary steps had been put in place to prevent recurrence.

Ms Dryer asked if there had been a lack of policy guidelines, and if employees were not aware that they must provide the information.

Mr Ackermann said that the relevant managers had thought that the information was presented, but it came to the attention of the CFO at a later stage that there had been an oversight and this had not been done.

Ms Dreyer asked what had been done to ensure that this would not recur.

Mr Ackermann said that the process was now included in a schedule, to be provided by the line managers by 16 May, and to be made available with the financial statements on 21 May.

Ms Yako noted that anything required by the AG's office would always now be channelled through the CFO to avoid misunderstandings.

Ms Dreyer noted that the Annual Financial Statements were amended, re-dated and re-submitted on 22 August 2006. She asked what the reason was for the delay.

Mr Ackermann stated that the irregular expenditure was the cause of the resubmission It was addressed by the Department and the resubmission of statements would not appear in the next financial year.

Ms Dreyer said the AG was of the opinion that there was a level 3 failure, where there was lack of officials with appropriate training and capacity to carry out their functions effectively

Ms Yako disagreed with this. The statements were submitted on time. Time had been spent in discussing the issue of irregular expenditure with the AG. DEAT and the AG had agreed on re-submission of the statements. The initial date was complied with. This did not involve any lack of training. Certainly there had been an issue of lack of training on the BAS accounting system, but this was agreed to and sorted out.

Ms Dreyer asked what measures had been put in place to improve the situation.

Ms Yako responded that staff had been trained and this had been resolved.

Mr G Madikiza (UDM) referred to the Annual Report which stated that transfer payments were made but were shown under goods and services instead of transfers, and there was not approval for this in terms of the Treasury Regulations. This therefore amounted to irregular expenditure. The AG had cited the root cause as a typical Level 3 failure, or lack of proper monitoring. He asked what the challenge was, and whether this was due to lack of policy, or capacity, or commitment.

Ms Yako stated that there was a mistake in classifying the transactions. This did not mean that general oversights and payments were not done properly. It was true that this was a transfer payment, not goods and services. The necessary approval from Treasury had now been received. This was a mistake, had involved no loss of revenue, and this was confirmed by Treasury.

Mr Madikiza asked for assurance that there would not be recurrence of this mistake and asked what corrective measures were in place.

Ms Yako confirmed that it had been sorted out and adjustments were made to ensure that there would not be a recurrence.

Mr Madikiza asked who was responsible for this function and what action had been taken against the official.

Ms Yako stated that she had spoken very seriously to the official although there was no written warning given. It was a serious matter, but she noted that DEAT handled in excess of R1 billion transfers.

Mr Madikiza asked if that official had received a performance bonus.

Ms Yako stated that the official had left the Department, and the first performance bonus would only have been considered in March 2007.

Mr Madikiza said that the AG had stated that the additions and disposals had not appeared on the fixed asset register. There was also lack of adherence to policy. He asked if DEAT would agree with the observations of the AG.

Ms Yako said that the observations had covered adherence to policy and there were capacity constraints. Training had been carried out and DEAT was confident that there was now adherence.

Mr Madikiza asked for assurance that at the next audit these emphases of matter should not recur.

Mr Ackermann stated that measures had been put in place from April 2006. The line managers and the CFO had signed off on the BAS and LOGIC systems.  February 2007. The problems should not recur.

Mr Madikiza noted that the AG had noted non compliance with the National Environmental Management Act., concerning submission of environmental implementation plans. Ms Yako said that the plans were supposed to be submitted by various other departments to DEAT. If those departments did not submit the plans DEAT had no recourse as it did not exercise oversight over the other departments. She suggested that the audit of those departments should be assessing the extent of their compliance, so that Parliament should be able to have oversight over them. If reports were not submitted by the extended dates, then there could be no recourse other than mentioning this in Annual Reports.

The Chairperson noted that this problem had appeared as a matter of emphasis in the report of one other Department that had pleaded ignorance of the expectation on them. He agreed that there was lack of clarity. If the Departments had not submitted this should be mentioned by the AG. DEAT's coordinating role did not extend to having any powers.

Mr Madikiza noted that the AG had mentioned a legal opinion on the extension, and asked for further clarity on it.

Ms Yako noted that the Minister could grant extension The legal opinion held that this was only possible for two months. The extension was retrospective from April to March. The other departments still had to submit the plans.

Mr Gerber referred to the Annual Report which noted that the cost of replacing the Sardinops vessel was R105.2 million. Later in the report there was reference to R121 million incurred for replacement. The Marine Living Resources report was referred to R107.7 million for the same replacement, yet later also referred to R110 million for the rebuilding. He asked for clarity on the correct figure.

Mr Ackermann stated that R110 million had been made available by National Treasury for the replacement.

Mr Gerber noted that page 83 of the Report had noted a figure of 200 hours spent at sea. He asked whether this was correct.

Mr Mayekiso said that the 200 hours was an error; it should have been 200 days.

Mr Gerber asked if there were also other errors in the report. He noted that there had been 334 permits inspected, 130 on board inspections, 26 fines, 21 apprehensions of poaching divers and four arrests. The costs were stated at millions of rand and he queried whether these figures were correct, and if there were other inaccuracies in the report.

Mr Mayekiso stated that any mistakes were regretted. He would check up on this.

Mr Gerber noted that the Director General's annual statement said that a service provider had been appointed for integrated financial management and procurement, to provide better control in management of Marine Living Resources Fund. This was not been mentioned in the Fund's report. He asked how long this contract ran and if it involved any ex-officials.

Ms Yako admitted that there were some mistakes but did not agree that these affected the financial system. In the previous briefing the performance information of the Fund was included in the DEAT report. This would be corrected. The financial system was being implemented fully from 1 April 2007. Some staff members had been trained and others still needed to be trained.

Mr Gerber said that the question was not answered. He asked who the service provider was and if there were any ex employees involved.

Ms Yako said the company was New Dawn Technologies and to the best of her knowledge there were no ex officials involved. The cost was R7 million.

The Chairperson asked how long the contract was.

Ms Yako stated that it ran to 31 March 2007.

South African National Parks Board (SANPARKS): Interrogation of Audit Report 2005/06
Ms Dreyer noted that the Committee had visited the Kruger Park to check up on the physical appearance of the Parks. She noted that DEAT and Department of Water Affairs and Forestry (DWAF) each gave a grant but that SANPARKS were expected to generate their own revenue. The income from tourism, retail and concessions was thus vital. SANPARKS wanted to focus on the middle income to affluent markets. Internal controls would be increasingly important as more income was generated. The AG had noted that internal controls were not always efficiently managed. Particular focus was put on the disaster recovery plan and information systems recovery. She asked how these had been secured.

Dr David Mabunda, CEO: SANPARKS, said that the 3.9 million hectares of National Parks consisted of 141 revenue collecting centres and 1 256 cost centres, which required a high level of visibility and alertness on controls. The systems were in place but the staff would change from time to time. These were not glamorous positions and younger brighter people would often move on to the cities. SANPARKS had a major challenge in building and training an efficient staff network. It now had a disaster recovery plan and an IT contingency plan, that had been rolled out. It had identified areas for improvements on the continuous plan, which included fire extinguishers,  the server room, wide area applicability and continuous testing to the system. Even in this area staff were being lost as the environment was not glamorous. They were also head hunted by other departments. SANPARKS was trying to address this through retention policies and training programmes. He noted that although it appeared that the same points were being raised each year, the reality was that the area of coverage was huge, and it was not possible to centralise the systems as this would hamstring their efficiency.

Ms Dreyer noted that there was an attempt to upskill people, which was positive. However, the AG had noted that other issues of internal controls over day to day operations were lacking, as also controls on bank reconciliations, fuel, and back ups. She asked if these were due also to staff capacity, or if there were other reasons.

Dr Mabunda said that the initial response applied here too. There were now sign off schedules that had now been implemented to ensure scheduled control on the reconciliations. SANPARKS had looked also to all regional financial managers' roles. There was enforcement of controls so that there was no necessity to wait for regional manager or head office structures to rectify errors. There were specific schedules for sign-off,  particularly on bank reconciliations.

The Chairperson said that SANPARKS must find a way to manage the challenges, as these problems would otherwise continuously appear in reports. It could not be excused simply by reason of the situation of the Parks.

Ms Dreyer noted that decentralised control could also be a problem. The problems were often at Parks level, where staff were not prepared to take responsibility for the implementation and adherence of internal controls. She asked how SANPARKS would instil better responsibility at this level.

Dr Mabunda stated that this involved discipline. Some staff had been disciplined and some were relieved of their responsibilities. They were expected to do work and if they did not perform, action would be taken. Specific areas of operation were clearly defined so action would be taken.

Ms Dreyer was pleased to hear of this stance. She noted that there was a declining and ageing infrastructure that had been highlighted by the Chairperson in the Annual Report. More reliance was being placed on tourism. Kruger Park in particular was generating 66% of revenue. The Committee, during its site visit, had been worried about the seeming neglect of the rest huts, evidenced by thatch falling apart, chipped tiles in bathrooms and kitchens, poorly maintained grounds, and a feeling of general neglect. She asked what were the plans to improve.

Dr Mabunda stated that this was part of the infrastructure upgrading plans. Over the next four years R574 million had been allocated to address the issues. This included R747 million to look at various areas of infrastructure upgrading through poverty relief. There was a technical services department that served well and was managed in a cycle. There was always a fixed life to infrastructure. Whenever infrastructure was raised in the cycle, the repairs and revamping would be done. There had been models of cross-subsidy from one park to another until 2003, when DEAT began to give allocations. Even these allocations for infrastructure were not able to address the issue properly. There were 12 small camps, 10 gates and 12 large camps the size of Skukusa. SANPARKS had managed to address some areas. Golden Gate was one of the oldest rest camps but was one of the best maintained, as there was a strategic plan.

The Chairperson noted that SANPARKS relied heavily on well rested and happy workers. He noted that the emphasis must also be on workers' residences.

Mr Madikiza noted that there had been non compliance with Treasury Regulations, in that a finance lease had been entered into without approval of the Minister of Finance. He asked whether the person signing the lease was aware of the Regulation, and if not, he queried whether there were sufficient skills.

Mr Themba Mabilane, CFO: SANPARKS, noted that there had been various agreements in respect of office equipment. It was felt that the margin was too low to trouble the Minister of Finance to give approval. Therefore SANPARKS had debated the issue, and National Treasury then issued a practice note that gave general approval for entities to enter into contracts of a certain amount. Condonation had been made of the past errors.

Mr Madikiza asked if the official was aware of the requirement, or had simply disregarded it.

Mr Mabilane stated that the official had been aware of the limits, and this was the reason why the letter had been written timeously to NT to obtain the permission of the Minister. However, by the time the vehicles were required, there had been no response. If SANPARKS had not entered into the lease, it would have had to cease certain operations. Treasury had agreed that the practice and limits needed to be reviewed as SANPARKS was not the only entity to face this challenge.

Mr Madikiza asked if the finance arrangements referred to the purchase of the two helicopters. .

Mr Mabilane replied that the helicopters were purchased for cash, so there was no finance lease needed. The finance leases referred to by the AG were for the motor vehicles and other office equipment.

The Chairperson asked for further explanation on the practice note.

Ms Retha du Randt, Chief Director of Public Finance: National Treasury, said that there was a difference between financial and operational leases. NT agreed that there should a practice note that the Minister should not be required to approve certain long-term leases. It had taken longer than anticipated to bring out this practice note and this did cause some problems. This was now regularised. She was surprised that this was not taken into account by the AG for the report.

Mr Madikiza noted that there was an arrangement for delivery of the helicopters, and asked if they had been delivered.

Dr Mabunda said that the first was delivered in six weeks. They had been used extensively, as they were an essential tool of the trade.

Mr Gerber said that during the site visit the Committee had been shown a safe holding about 50 tons of ivory, worth about US$ 700 per kilo, or about R250 million in all. In view of the proposed  culling of elephants, he asked whether there was a need to increase the safeguarding, what plans had been made, and whether the current stock of 50 tons of ivory would be sold, and if so, how this would be done.

Dr Mabunda said that the space would be increased as another building had been prepared to house additional tusks if necessary. There would not be a wholesale culling, and any culling would be carried out to ease pressure where there was serious degradation or negative socio economic impact on communities. The proceeds of the tusks would provide additional accommodation and security. Nothing had been lost from the safe building since the 1960s. The department was taking the lead in any selling, subject to compliance with certain procedures, which international bodies had confirmed were well managed, both in relation to the culling and to the trading in ivory. Problems in Asia had delayed the introduction of the ivory into the market. The process would not be managed haphazardly. A single  sale outlet would be identified and then the normal supply chain management processes would be followed to determine market value. As a benchmark, SANPARKS would not accept less than US$750 per kilo, the international market value.

Mr Gerber said that SANPARKS were looking after 60% of the South African parks and 40% were taken care of by provinces. It apparently cost double per hectare to look after provincial parks. He asked if there were any discussions to integrate conservation to ensure that it was properly managed in a cost effective way.

Ms Yako responded that this was a concurrent function between national government and provinces. National Department had limited oversight over provinces. The Protected Areas Act had introduced a performance management system for all parks, to be examined by the Minister or MEC. That was being implemented although not yet fully finalised. Guidelines on park management plans had been drawn, and there was work on the systems. It was difficult for national government to prescribe but there were collaborative forums, an intergovernmental forum and a protected management forum

The Chairperson wondered if this should not be considered again by Parliament. If the performance related approach did not address the costs, then it was not dealing properly with the issue.

Mr Gerber asked whether the closure of Skukusa Airport to regular flights had affected the visitors to the park.

Dr Mabunda replied that the Board was approached by the Airport Management Company. In 2001 SANPARKS was earning in excess of R2 million from landing fees, entrance fees, conservation levies and a kiosk at the airport. There was also a multiplier effect on percentage of revenue from car rental companies. The airport needed upgrading in terms of security and safety, and SANPARKS had already been looking at this, as the airport was a unique selling point and advantage for SANPARKS, and did not pose an environmental problem. The initial response was that SANPARKS would be happy to continue to run the airport. It was a political issue, however, and pressure was exerted on the Board with the result that SANPARKS had to submit to an agreement that was uncompetitive and took away the rights of tourists. It was not a happy decision.

Mr Gerber noted that R1.57 million had been received from Marine Coastal Management. He asked for details as it did not seem to appear in the MCM report. Mr Sydney Soundy, Chief Operations Officer: SANPARKS, replied that certain protected areas fell under  management of SANPARKS, including the coastal areas.

Ms Yako noted that it was not funding per se, but remuneration under a contract for work done by SANPARKS. It was not spelt out in the MCM report, but was listed under contracts.

Mr Gerber asked how much had been spent on the land acquisition. He noted that SANPARKS had spent R60 000 on offices at Westlake, and wondered if there were not other buildings that could be occupied.

Dr Mabunda replied that SANPARKS were already preparing to move from Westlake to offices at Cecilia /Tokai, but there were certain issues still to be finalised in terms of cutting of timber. The offices would be upgraded to accommodate staff and make savings on expenditure.

Mr Gerber asked how the market valuations would be done.

Dr Mabunda replied that SANPARKS would generally go through a market evaluation process, which was carried out by experts. In some areas it was possible to determine value based on the last sale that had taken place. The gathering of information was ongoing.

Mr Mabilane noted that the value was reflected in the balance sheet only if acquired after a certain date. Kruger, for instance, had not been valued as there had been no changes in ownership. 

Mr Gerber noted that there was a fire disaster in the Kruger National Park in September 2001. He asked if SANPARKS was fully compliant with the National Forest and Veld Fire Act regarding fire breaks and appropriate measures.

Dr Mabunda said that the 2001 September fire disaster was unfortunate. The fire ecology management systems and policies had been revamped after this and SANPARKS did now comply with the relevant legislation. There was collaboration with fifteen agencies in each area to try to avert disasters.

Mr Gerber asked what the general zoning was of SANPARKS' land, and if any of the land was zoned for agriculture.

Dr Mabunda confirmed that the land was zoned as conservation. Some of the parks needed to go through the proper proclamation and the zoning would follow. There was no dispute about the intended use. If there were mining interests, then SANPARKS would be happy to accommodate rezoning of that land. 

Dr G Koornhof (ANC) asked if there were plans to encourage more black visitors to enjoy the parks.

Dr Mabunda said that there were continuous plans to grow the number of black visitors, and this  needed to be encouraged. Environmentally correct behaviour was being inculcated in young children and environmental education programmes were being run in the parks. The Parks were growing their own timber to encourage staff to work and live in the parks.

Mr Trent congratulated SANPARKS on its comprehensive notes to the Financial Statements. He noted that there were special project grants and donations and government grants He asked if the government grants were conditional grants. He had also noted that there was an operational grant from Government, and that SANPARKS was showing an operating surplus of R39 million. He asked whether there were set policies, and why SANPARKS needed an operational grant if it was able to generate sufficient income.

Mr Mabilane replied that the operational grant was received from DEAT. The capital expenditure grant was funded by donors or other Departments, like DWAF. These were conditional grants linked to the purchase of land and necessary equipment.

The meeting was adjourned.