Department of Land Affairs, Land Bank, Department of Water Affairs and Forestry: Hearings on Audited Financial Statements

Meeting report

The Chairperson noted that it was the first time in recent years that a meeting of the Committee had been graced by the attendance of the Minister of Agriculture and Land Affairs, Ms Lulama
Xingwana, and welcomed her. The Chairperson congratulated Mr T Gwanya, Acting Director-General of the Department of Land Affairs, on his promotion, and welcomed him and his colleagues. The Chairperson welcomed Mr S Abram (ANC) of the Portfolio Committee on Agriculture and Land Affairs.

Department of Land Affairs. Hearings on the Audited Financial Statements
(1) Asset Management
Mr G Madikiza (UDM), leading the Committee’s interaction with the Department, said that his area of focus would be asset management. He said that the Auditor-General’s report showed that the Department did not know or was not sure what assets it owned in terms of assets. He asked how, under such circumstances, the Department could begin to attempt to account for itself.  From 102 audit samples of assets amounting to R4.7 million on the assets register, 69 of these assets, amounting to R3.9 million, could not be located.  These constituted 68% of those assets, but the Department was not sure whether it possessed them or not. In terms of those findings, out of the R4.7 million worth of assets that were sampled, the Department and the Auditor-General agreed or verified only about R800 000 worth of assets. Mr Madikiza asked Mr Gwanya what, in the Department’s view, were the underlying causes for this huge discrepancy. 

Mr Gwanya explained that it had been an historical problem that the Department had been working upon. The initial uptake of assets in 2002/2003 had a number of serious flaws. There had been non-compliance with the Department’s policy and procedures. Furthermore, there had been the issue of capacity. The Department had done much to address the problem. The Department had examined the reconciliation of the information that it had retrieved from the period 2002/2003, and tried to do the proper classification and capturing of the order numbers, which had not been done before. 95% of the source documents had already been retrieved and analysed. The Department had a project to correct the register of assets which the Department was using to reflect the true record of assets in the Department’s possession. A robust process of investigation of non-verified assets had started in July 2007.

The Chairperson interposed to say that, in terms of the question, sufficient information had been given. He asked what was the cause.

Mr Madikiza said that the Auditor-General’s observation was that the assets register was not regularly updated with disposals and lost assets. Mr Madikiza said that it seemed that managers were not managing and supervisors were not supervising. He asked Mr Gwanya for his comment thereon.

Mr Gwanya responded that, as he had indicated earlier, he had identified the issue of insufficient capacity and the issue of ensuring that the managers adhered to the Department’s policy. The Department had called all managers to ensure that there was an updated register of assets.   Mr Gwanya admitted that it had been the case that managers had not been managing, but, since July 2007, the Department had exerted itself to call managers to account.

The Chairperson acknowledged Mr Gwanya’s reply.

Mr Madikiza asked if the Department’s managers had received performance bonuses, and, if so, on what basis.

Mr Gwanya responded that from the exercise that the Department had undertaken the previous year to make sure that performance was actually assessed according to actual performance, only one or two per cent of the managers had obtained their bonuses.

Mr Madikiza said that the Department’s asset register had not complied with the minimum requirements of the asset management guidelines issued by the National Treasury. That had given rise to the potential either to undervalue or overvalue some of those assets because they had no identity references. He asked the reasons for this shortfall in what would appear to be a straightforward administrative routine.

Mr Gwanya responded that the process of reconciling was intended to address that. When the Department had discovered weaknesses in the implementation of the asset management of the asset register, it was the reconciliation process that was helping the Department to address that problem. As Mr Gwanya had said earlier, the Department, Mr Gwanya said, was 95% towards addressing the problem.

The Chairperson asked Mr Gwanya if by the end of the financial year the Department would have covered the remaining 5%.

Mr Gwanya responded that the Department was working hard to do so.

Mr Madikiza said that he was not sure that his questions had been answered fully. Giving reference numbers to assets, a purely straightforward administrative routine, which any clerk of grade one or two could surely have done, had not been done. Mr Madikiza said that he required a further explanation.

The Chairperson said to Mr Madikiza that, in one of his earlier questions, he had already alluded to the fact that managers were not managing and supervisors were not supervising as required by the PFMA. Thus the Department might well have a policy but be faced with issues of non-compliance with that policy – in that sense managers were not managing and supervisors not supervising. Thus those mundane and routine tasks were left undone. The Chairperson said that ensuring sustainability of the monitoring process was of critical importance.  

Mr Madikiza said that in terms of the general power of attorney signed in April 2000 by the Minister of Agriculture and Land Affairs, in favour of the agriculture MECs and deputies directors-general of all provincial departments of agriculture, delegating the management of certain state land in the provinces, all monies collected in terms of this power of attorney were to be transferred to the Department of Land Affairs. The provincial departments of agriculture were to submit six-monthly reports that would indicate revenues receivable for disclosure in the annual financial statements. Contrary of the above, the provincial departments of agriculture had not transferred any of those funds to the Department, because the Department did not have approved and documented policies and procedures to deal with such collections. He asked Mr Gwanya to comment.

Mr Gwanya responded that this was an area of concern to the Department. The Department had accepted that there had been a lack of approved policies between the Department and the provincial departments of agriculture.

The Chairperson asked why there had been no approved policies for relations between the Department and the provincial departments of agriculture.

The Acting Director-General responded that there had been a general assumption that the Department would be using the same policies that were used in the Department of Land Affairs. When it came to implementation, it became clear that additional policies were needed for such things as service level agreements. This additional policy would be linked to the reporting policies of the provincial departments of agriculture on the power of attorney.

The Chairperson asked what happened when it became clear that such policies were needed.

Mr Gwanya responded that the Department thought that the agreement was clear and that provincial departments should prepare the six-months report and give the Department those reports on a six-monthly basis. The Department had since developed a database.

The Chairperson interjected to say that this is the information that the Committee was seeking.

Mr Gwanya continued that the Department had developed a database for data on which the provincial departments of agriculture were going to report frequently.

The Chairperson asked Mr Gwanya to focus his response in relation to policy. The issue was the lack of approved policies and procedures for which the Department acknowledged the need. He asked what the Department was doing to ensure that policies were put in place.

Mr Gwanya responded that the Department had developed a specific policy with regard to the reporting system, but it had not obtained the approval of the two parties concerned.

The Chairperson asked when the approval would be effected.

Mr Gwanya responded that the Department would wish to obtain that approval before the end of the current financial year (2007/2008).

The Chairperson observed that there was apparently no firm date that the Department had set.

Mr Gwanya responded that he had been informed that the end of March 2008 was the date by which all provinces should have agreed to this policy.

The Chairperson observed that there was therefore a firm commitment to a deadline. That was what the Committee specifically wanted to hear.

Mr Gwanya replied to the Chairperson that that was so.

The Chairperson hoped that when the Auditor-General would audit the Department’s books at the end of the financial year, this particular issue would not therefore recur.

Mr Gwanya responded that he hoped that the policy would be signed by all the provinces that had been given that power of attorney.

The Chairperson said that it really behoved the Department to push a little harder in order to resolve the matter. Without defined policies, it was not possible to fulfil the Department’s mandate or objectives.

Mr Madikiza asked what had delayed the establishment of policies and procedures.

The Chairperson said that he was not sure that Mr Gwanya could correctly answer that question. He observed that the import of Mr Madikiza’s question was that it was a long-standing matter that should have been resolved long ago. It was to be hoped that by the end of March 2008 it would have been resolved. One could not afford to have such a matter left outstanding for so long.

Mr Madikiza said that the same situation prevailed with the six-monthly reports by the provinces to the Department of Land Affairs, and also related to the lack of policies and procedures.

The Chairperson asked Mr Madikiza to clarify that his question was concerning the non-completion of the six-monthly reports in accordance with expectations.

Mr Madikiza said that the six-monthly reports had, contrary to requirements, not been forwarded to the Department of Land Affairs. There was no firm policy to deal with those six-monthly reports from the provinces.

The Chairperson asked Mr Gwanya how the reports were to be handled in the absence of a framework and to what extent this was included in what the Committee had just been discussing in relation to the policies of interaction between the Department and the provinces.

Mr Gwanya said that the issue of a centralized data control was central to the agreement. In Mr Gwanya’s view it would be the only policy that would address that problem.

The Chairperson accepted Mr Gwanya’s reply.

Mr Madikiza said that the Auditor-General had been reporting on the issue for three consecutive financial years. Mr Madikiza asked the Department how serious it was about its work. Secondly, he asked how serious the Department’s commitment to the Committee was.

Mr Gwanya said that the Department took that question very seriously. One of the achievements that he had recorded was that the Department had almost completed the state land audit, since proper asset management was not possible without a complete register of assets. The Department was very close to addressing that matter. The Department might not complete it by the end of the current financial year (2007/2008); however, it had prioritised the matter.

The Minister said that she was sure that the Members were aware, that there had been a change of leadership in the Department of Land Affairs. Mr Gwanya had been in his post for only two months. In her view, it was unfair to make him take responsibility for things for which he was not responsible. It had been necessary to act because of poor leadership and poor management of the Department of Land Affairs for a long time. Mr Gwanya, in the two months since he had been appointed, had tried hard to clean up and reorganize the Department. That in itself indicated that one was serious about looking into these problems and correcting the inefficiencies that had existed in the Department.

The Chairperson hastened to assure the Minister that the accountability to which the Committee referred was not personal: it was organizational. It was the organization that was held accountable. It was unfortunate that Mr Gwanya was new. Such questions that related to past events were not necessarily directed to him as an individual.

The Minister said that one had acknowledged poor management and lack of leadership: that was why the previous director-general had had to be removed from office.

Mr Gwanya said that he had forgotten to mention that the Department had appointed about 100 people to work especially on the clean-up, and that was why he was confident that the Department, on its next visit to the Committee, would have a better Auditor-General’s report.

The Chairperson said that if the Department had a better Auditor-General’s report, it might not even have to appear before the Committee.

Mr Madikiza said that the Auditor-General had identified that the Department had initiated a project for land audit, for which the Department was to be commended.

The Chairperson asked Mr Gwanya when the audit was likely to be completed.

Mr Gwanya said that the Department had set the end of March as the date for finalization. They had given an interim report but the Department had set the end of March as the date for the final report.

The Chairperson said that it had taken much too long.

Ms L Mashiane (ANC) said that the comment that Mr Gwanya was new in the Department was not acceptable, because the high turnover of directors-general observed in departments meant that SCOPA would not be able to do its work. It meant that SCOPA would not be able to call any director-general. Therefore she requested the Department to own the report, whether not Mr Gwanya had been in his post for two weeks or not.

The Chairperson said that he did not think that that was a point of dispute. If an official were not in post at the time something was done or not done in the past, it might not be objectively possible to say why it was or was not done. Because if something was not done, it was merely symptomatic of the problem. It was necessary to go to the root of why something had not been done. Accountability was, however, indeed structural and organisational. The Chairperson indicated that he wanted to close that part of the discussion.

Mr E Trent (DA) asked if it was possible to get clarity on the land asset register. He asked if it included all land vested in the Department. Other departments had authority over some of the land. He asked if the register would identify who had authority over all the various pieces of land and if it would be a complete exercise. There were problems when authority over land was disputed. Unless one had a complete picture, that problem would be perpetuated. It was necessary to have a complete record of all land owned by government in South Africa.

Mr Gwanya said that was the Department’s aim; he hoped that the report would clarify that.

The Chairperson said that the Committee would interact with the report once it was released for public consumption.

Mr P Gerber (ANC) said that he would like to ask a question or two on the land and the asset register. In terms of the computer systems, the properties registered in the name of the Department of Public Works and the properties registered in the name of the Department of Land Affairs, did not relate to each other. He asked if there was one system for tracing the ownership of property.

Mr Gwanya said that the exercise of state land audit was an attempt to establish such a system. To that end he had met the Director-General of Public Works and the two departments were co-operating to reconcile the registers.

The Chairperson noted the response.

Mr Gerber recommended an integrated approach. There was an integrated departmental approach to border posts. Land reform it involved justice, education and public works. There had been heavy backlogs in land reform. He called for an overarching interdepartmental body to oversee and expedite land reform, otherwise it would proceed slowly.

Mr Gwanya said that in 2006 the Department had been called to the Portfolio Committee on Defence chaired by Professor Kader Asmal. There was an inter-departmental committee to examine the availability of state land for land reform purposes. That committee has reported to the Defence Committee about the availability of land for land reform.

Mr Gerber said that in the Department’s report, it was mentioned that part of its mandate was to ensure delivery of 30% of white-owned agricultural land by 2014 for agricultural development. He asked what agricultural land was involved and if it was actually being farmed. If rural land was not specifically zoned for something else, it was deemed to be zoned for agriculture.

Mr Gwanya said that the Department was referring to all agricultural land. It was assumed that any rural land was agricultural land unless it was zoned for something else. If its purpose was to be changed, one had to follow a procedure with the Department of Agriculture.

The Chairperson clarified that he understood that all rural land was deemed to be agricultural land unless otherwise zoned.

Mr Gwanya confirmed that was correct.

Mr Gerber asked if Mr Gwanya knew how many notarially linked properties existed; and if he knew how many undivided shares there were in terms of agricultural properties or consolidations. If the information was not to hand, it might be supplied to the Committee later. Property consolidations reduced the number of properties available.

Mr Gwanya said that he did not have that information. He would have to consult with the Department of Agriculture to get that information.

In the last week’s tender bulletin, Mr Gerber said, the Department had advertised for five different tenders for delivery of vehicles, since when the state bought vehicles, it asked manufacturers to give quotes. An integrated approach to purchasing equipment and vehicles would save much money.

Mr Gwanya said he would take note of that and investigate. He could not comment because he had not seen the tenders.

The Chairperson asked Mr Gwanya to talk to Mr Gerber after the meeting.

Mr Trent said that everyone supported the 30% target. He asked if the Department had records of transactions between individuals in buying and selling of agricultural land. Such transactions should surely be part of the target. He asked if the Department could the department identify such transactions.

The Chairperson interposed to say that that question should be excluded since it related to policy. He hoped that Mr Van Niekerk (DA) could raise it when the Department visited the Agriculture and Land Affairs Portfolio Committee. Mr Trent’s point was valid but should not be entertained here, since it was not within SCOPA’s jurisdiction.

Mr Trent said that the Committee wanted to help things along. Most departments realised that SCOPA was not a policeman. SCOPA wanted to see things getting better.

The Chairperson said that it was a policy issue to be talked about in the Portfolio Committee.

Mr Gwanya said that the answer lay with the banks, such as Standard Bank and Absa.

The Chairperson clarified by saying that his understanding was that private transactions were not part of the 30%.

Department of Land Affairs. Hearings on the Audited Financial Statements
(2) Vacancies
Mr D Gumede (ANC), leading the Committee’s interaction with the Department, queried the Department’s analysis of vacancies in its Annual Report 2006-2007, pages 211-212.

Mr Gwanya said that the Department had a vacancy rate of about 27%. In the past three months, however, the Department had made significant progress towards its aim of filling vacancies promptly. The vacancy rate had been a chronic problem: in the last financial year, the Department had made about 800 appointments against 1 045 vacancies. However, as new staff members were being appointed, others were leaving, with the result that at the end of the period the Department still had a similar number of vacancies. ‘It was like filling a leaking bucket.’

The Chairperson noted Mr Gwanya’s reply.

Mr Gumede noted the seemingly worsening trend of vacancies at levels one and two, which were low-skilled categories, and asked why there was such a high vacancy rate at that low-skilled level, even though the mandate of government was to create many jobs.

Mr Gwanya offered the phenomenon of internal promotions as an explanation for this problem, which Land Affairs shared with other government departments.

Mr Gumede asked how long posts remained vacant.

Mr Gwanya admitted that it took six to eight months, a long period, to fill posts, because of the process of recruitment that the Department was obligated to follow.

Mr Gumede asked if, in the light of the prevailing high levels of unemployment, government really took eight months to employ an applicant.

Mr Gwanya said that the Department of Public Service and Administration was reviewing the problem, which was general across government departments.

Mr Gumede referred to table 3.2, in which the vacancy rate was 26.76%.  He asked whether the problem was attracting applicants, retaining or motivating staff.

Mr Gwanya said that there was a special challenge in with filling vacancies for posts requiring high levels of skills, such as in surveying and planning. For less skilled posts, the problem was more related to the mobility of staff from one department of government to another.

Mr Gumede asked, with regard to such mobility, if the Department had set itself a threshold target that vacancy rates should not exceed.

Mr Gwanya said that management had committed itself to reducing the vacancy rate to 10%.

Mr Gumede asked what specific steps the Department had taken to attain that target of 10%.

Mr Gwanya said that his Department had a two-pronged strategy. Firstly, it was sharpening its recruitment strategy, by engaging a service provider to fill vacancies. In the past three months the Department had seen a significant change in regard to recruitment. Secondly, the Department had introduced its graduates programme, linked to its existing internship programme, whereby the Department was appointing 450 graduates on four-year contracts, from which permanent appointees would subsequently be selected.

Mr Gumede referred to the 2006/2007 Annual Report, page 211, table 3.1. At an administrative level, these were the employees who were tasked with delivering capacity, planning, implementation and control. There was a vacancy rate of 32.6% at this level. Mr Gumede asked why there was such a high vacancy rate at this particular level.

Mr Gwanya replied that it was the same problem of recruiting candidates with the necessary skills. He suggested that perhaps the Department should relax some of the entry requirements at the lower levels.

The Chairperson inferred that Mr Gwanya had implied that while the Department had recruited about 800 individuals, another 800 individuals had left the Department. This was an instance of the revolving-door syndrome. Even if the service provider assisted the Department with recruitment, as new staff were recruited others would leave. He asked if the Department had a human resources retention strategy, without which he saw little prospect of reducing the vacancy rate to the Department’s 10% target, and the same problem would persist year after year. 

Mr Gwanya said that the Department had developed a retention strategy, one of the fundamentals of which was to examine organisational culture, motivation, personal growth, and job satisfaction.  Since adoption of the strategy, the Department had reduced the turnover rate to about 10%. From a study of the annual reports of government departments, it appeared that the Department faced a problem similar to that faced by other departments.

The Chairperson asked if the Department experienced ‘poaching’ from other departments, a consequence, it seemed, of improved training.

Mr Gwanya agreed.

Mr Gumede asked if that explained the high vacancy rate at land reform and restitution level.  He asked about the Department’s plans to fill those vacancies.

Mr Gwanya offered the same explanation, even for those two components, as before. Employment contracts had been extended, where applicable, and permanent positions offered in some cases.

The Chairperson asked about the role of the Department after land had been handed over in cases of land restitution. He was troubled by the wastage of public money when land was misused. Such misuse discredited the whole programme of land reform.

Mr Gwanya said that the Department had, in co-operation with the Department of Agriculture, introduced a post settlement support programme, which addressed matters of implementation and the proper use of land.
 
Department of Land Affairs. Hearings on the Audited Financial Statements
(3) Deeds Registration Trading Accounts
Advocate M Stephens (DA), leading the Committee’s interaction with the Department, referred to page 185 of the Annual Report. He commended the Department for having an unqualified opinion from the Auditor-General.

Advocate Stephens asked for particulars of the Department’s debtors.

Dr N Makgalamele, Deputy Director-General, said that, to avoid the problem of debts on the deeds account, the Department was introducing a system of prepayment, so that by the time a property was registered, no monies were owed: this enabled concentration on the core business of registration of deeds, rather than chasing debtors. Some debts would have to be written off, since debtors could not be traced.

Advocate Stephens said that was an excellent intervention, and said that he did not expect to see any mention of outstanding debtors in the next annual report. He asked about the control of assets. There was a report that assets worth about R1.01 million was stolen from the deeds offices at Johannesburg and Bloemfontein, and another R7.6 million worth of assets was reported stolen by the end of the year.  He asked about the nature of the assets stolen.

Mr Gwanya said that these assets were mainly computers stolen during a break-in, a very worrying factor. On one site investigations were in progress. On the other site, a security system was in process of installation.

One of the offices that was heavily targeted was the Johannesburg office, partly because of its location, and partly, perhaps, because the landlord owned the security firm. The office had been burgled just after the Department had submitted its financial statements at the end of June 2007. The Department had now moved to new premises with a higher level of security. Since the move, no breaks-in had occurred.

The Chairperson asked if the Department was insinuating a link between the landlord and the break-in. Members laughed.

The Department could not commit itself to an answer; only admit that it did not have control over the security firm, even though it was paying them for its services. The investigation, by the South African Police Service (SAPS) was still in progress.

Advocate Stephens asked if the Department had short-term insurance. Apart from the loss of the equipment in terms of its value, he was concerned at the loss of data and damage to information systems.

Mr Gwanya appeared not to consider that there had been any irreplaceable loss of data.

The Chairperson asked Mr Gwanya if he was certain how much data, if any, had been lost.

Mr Gwanya said that the Department had no record of any information lost.

The Chairperson asked Mr Gwanya to confirm if he had no record or if he did not know of any information lost.

Mr Gwanya said that there was a back-up and to the best of his knowledge no information had been lost. He did not know if there were any title deeds that may not have been captured and put on microfilm before the break-in, but if any missing information was discovered, it would be possible to recapture it.

Advocate Stephens said that, according to the Auditor-General, there were no documented back-up procedures. Moreover, back-ups were not stored offsite, and were not periodically tested to verify their restorability. That seemed to discredit the whole operation as far as the possible loss of data was concerned.  He asked if that was still the case.

Mr Gwanya said that the Department did have a back-up. The deeds office had reported that SITA had been assisting the Department to ensure that the back-up systems were working. The only work that might remain to be done would be to copy again onto microfilm any title deeds that had been copied (in the interval between last back-up before the break-in and the time of the break-in).

The Chairperson said that it was his understanding, from what had been said, that the Department did not have an adequate process of verifying back-up data. He wanted to know if the Department could be confident that it had not lost any information. Alternatively, he wanted to know what information had been lost, and if, by any means, it could be recovered. The Department’s reply so far had been at a conceptual level. He wanted a complete reply at a practical level, in terms of exactly what steps had been taken, and the exact status of data, whether intact, recovered, or recoverable. Advocate Stephens was raising a point raised by the Auditor-General, who had noted deficiencies in the back-up procedures. In his (the Chairperson’s view) these deficiencies called for rectification.

Mr Gwanya asked leave from the Chairperson to undertake to examine the verification of data backed-up in that period. Under normal circumstances, however, if there had been no break-in, the Department did have a functional back-up system. In view of the break-in, he would have to examine the matter in consultation with the staff in the deeds office in Johannesburg.

The Chairperson observed that the matter of the back-up procedure returned the Committee in its discussions to the issue of management and supervision, because once one experienced a break-in, it involved the possible loss of information and lost equipment. He asked if a report had been presented to management. If so, he asked what information did Head Office ask for in order to ensure that the work of those officers had not been compromised. If now the Department had to request information from the staff in the deeds office, it indicated to him (the Chairperson) that that information should have been submitted to Head Office within a week or two of the break-in. It was not a personal issue, but an organisational issue: somewhere within the Department’s hierarchy that information should have been presented. The Chairperson wanted to know how the Department would cover up for those losses.

Dr Makgalamele said that the computers lost were normally used just to process deeds registrations. They were not used to store data. The data itself were stored on the servers. As Mr Gwanya had said, SITA would then assist the Department to store the data on servers offsite.

The Chairperson acknowledged these responses, and confirmed his concern for verification of data: ‘Trust is good, but control is better.’

Advocate Stephens asked if the Department was disputing the Auditor-General’s findings, or saying that the back-up deficiency had been fixed.

Mr Gwanya said that the deficiency noted by the Auditor-General had been fixed. The Department had spoken to SITA, who had advised them that an offsite back-up was essential.

The Chairperson acknowledged Mr Gwanya’s response and said that these were the kind of answers that the Committee preferred. He said that the Committee did not expect departments, having received remarks from the Auditor-General, to come before the Committee to say that the department would rectify the matter. The Committee expected that the department concerned would come before the Committee to inform it how it (the department) had rectified the problem.

Mr P Gerber said that he had a question on the deeds register. In the European Union, if one visited a deeds office, one could obtain information about properties owned by an individual or entity all over Europe. However, a similar, centralised system was not in operation in South Africa. He asked if the Department envisaged such an integrated system for South Africa.

Dr Makgalamele responded that the Department had such a plan, and all deeds office records would be integrated and accessible from all over South Africa.

The Chairperson asked when.

The Department was now examining tenders. It would then be in a position to indicate an exact timeframe. It was estimated that the project would be underway within a year or two.

Mr E Trent (DA) asked when the Department would have a permanent director-general. With due respect to the Department’s staff, it had to be stated that constant migration of staff and appointments on an acting basis, across government departments, impacted on accountability.

Forward planning was essential. Land was finite. Land use planning was essential. The Department had a 68% vacancy rate in its planning section.

The Minister said that interviews had been conducted for the post of director-general, and recommendations would be submitted to Cabinet. A full-time permanent director-general was expected to be appointed within a month. Interviews had also been conducted for the chief financial officer post, which was also a Cabinet decision. Within a month a permanent appointment was expected.

The previous day, the Ministry had submitted to Cabinet the Land Use Management Bill, which she felt would address the Members concerns. After endorsement by Cabinet, it would be tabled in Parliament.

The Chairperson commented that he hoped that Mr Trent would support the Bill to ensure its quick passage through Parliament.

Mr Gwanya said that it was the Department’s target to fill the senior management positions within six months. The 68% vacancy rate referred to a section requiring very specialised skills. In the meantime the Department was buying skills from service providers.  The outsourced service providers would not become permanent. He thanked the Members.

The Chairperson thanked Mr Gwanya and wished him and his colleagues all the best in his efforts for the Department. The Chairperson trusted that the permanent director-general would not ‘jump ship midstream’, before completion of the turnaround strategy.

Land Bank. Audited Financial Statements
The Chairperson noted that the current Acting Chief Executive Officer, Dr Phil Mohlahlane was unable to attend because of ill health, and that Mr Saki Zamxaka, who held a permanent position in the Bank as General Manager for Operations, had been appointed (Acting) Chief Executive Officer in the absence of Mr Mahlalane from Monday 18 February 2008. The Chairperson welcomed Mr Zamxaka and colleagues, and asked if he was confident that he could handle the matters under review.

Mr Zamxaka replied that he considered that his colleagues and he would be able to respond to the Committee’s questions to the best of their abilities.

The Chairperson clarified that the presence of the Minister did not replace the presence of the chief accounting officer of the Land Bank. Executive accountability was of utmost importance to the Committee. The Minister was present in her own capacity of minister, and it was her own choice to attend the meeting.

The Minister explained that she was present because she had confidence in the management team of the Land Bank. The accounting officer had unfortunately been booked off by his doctor; the Minister was confident that the team could competently answer all the Committee’s questions. Moreover, the chief financial officer, who had served with the Land Bank since 2005, was present. Also the general manager had been in post for a number of years. The Minister also wished to explain that the Ministry had been busy working on the composition of the Bank’s board. She was confident that by next week Cabinet would have approved a full board of the Land Bank. The Ministry was working closely with the Minister of Finance to appoint a permanent chief executive officer. The Minister herself was willing to answer Members’ questions.

Mr P Gerber (ANC), leading the Committee’s interaction with the Land Bank, referred to the briefing notes that the Auditor-General had given to Members of the Committee, and noted the Auditor-General’s comments on the 12 positions in the Land Bank in which the officials were appointed in an acting capacity, and asked when these officials would be replaced by permanent appointees.

Mr Zamxaka said that the Minister had already referred to one of the positions. Other positions were related to pending disciplinary procedures. One position was held by an individual appointed on a contract basis so did not correctly warrant being described as an acting position. Also the Bank was awaiting the appointment of its board, which would approve the Bank’s corporate plan, its strategy – already drafted - and budget. However, currently the Bank was operating within the corporate plan that had been submitted the previous year.

Mr Gerber asked if the Bank had given an outside company the task of drafting a turnaround strategy.

Mr Zamxaka said a company had been appointed and paid.

Mr X Ncame, the Chief Financial Officer, said that the Bank had paid them about R4 million, but there might still be outstanding invoices. 

The Chairperson assured the Minister that it was his responsibility to ensure that the Committee’s proceedings did not lose their focus, which in the current case were the issues arising in the Land Bank’s Annual Report 2006-2007, and he would not allow side issues to divert the Committee’s purpose.

The Chairperson advised that members of the public, while allowed to attend, were not allowed to take part in the Committee’s proceedings.

Mr Gerber wanted to put on record that SCOPA dealt with tax payers’ money, and when dealing with such money, one could never ask too many questions. He queried the Bank’s use of single sourcing for scarce skills. There had been so many turnaround strategies. He asked why the Bank had used that one company, when there were other companies that could equally advise on a turnaround strategy. He referred to various items in the Annual Report that had been signed but undated including the report of the Acting Chief Executive Officer, Mr P Mohlalane, on page 13, and the report of the Minister on page 4.

Mr Gerber said that it helped the Committee in its deliberations if documentation was fully signed and dated; and, moreover, the Committee required to be sure that concerned officials had read the documentation before endorsing it.

Mr Gerber also questioned apparent discrepancies in the figures for officials’ salaries, benefits and bonuses. He asked if the Land Bank could account for such discrepancies.

Mr Zamxaka said that he imagined that the discrepancies were the result of figures having been rounded up.

Mr Gerber said that the Committee worked only with exact figures. If the Land Bank made silly mistakes with figures such as these, then it cast doubt on all its other figures.

Mr Gerber drew attention to the apparent poor record of attendance of senior officials at board and committee meetings.

Mr Zamxaka said that verbal warnings had been issued to such violators.  

Mr Gerber asked why there was an increase in the Bank’s investment in three particular companies, but not in two other companies.

Mr Zamxaka said that the investment committee of management at the Land Bank reported to the audit committee and to the board on how the Land Bank insurance company money was invested. Decisions on how money was invested were taken by the Land Bank’s insurance company’s board. The increase was partly that performance of those funds had improved, whilst the board was not satisfied with the other two companies.

Mr Gerber said that a number of financial entities had reported applications from clients who wished to move away from the Land Bank. He asked the Land Bank about its strategy to win back such clients. 

Mr Zamxaka said that there were financial reasons for such moves. He did not mention a strategy to win back clients.

Mr Gerber asked for details of the cost of the forensic audit.

Mr Zamxaka said that the cost was paid by the Land Bank. Since it was a sensitive subject, single sourcing had been used, rather than putting it out to tender. About R6 million had been paid.

Mr Gerber asked if the Land Bank had shortened the period of time after which unpaid debts would be handed over to debt collectors, and what proportion of the monies paid by the Bank’s debtors to debt collectors were retained as debt collectors’ fees.

Ms N Mofokeng, General Manager in the Chief Executive Officer’s office, said that in most cases a lengthy process was involved before debts were handed over. The average amount paid to debt collectors was about 25% of what they collected.

Mr Gerber requested further information to be supplied to the Committee at a later stage on the Land Bank’s role as administrator for MAFISA (page 106 of the Annual Report).

Advocate Stephens referred to page 108 of the Annual Report and asked if the Bank still had any moratorium on attachments in sales in execution.

Mr Zamxaka said that on the development lines there was still a moratorium.

Advocate Stephens said that such was not quite a moratorium. He asked if the Bank would not make any sales on attachments at all, or after a process.

The Chairperson, on the basis of Mr Zamxaka’s response, opined that it was not really a moratorium, but rather something in between.

Advocate Stephens, referring specifically to credit risks, also asked the Bank if it hedged any part of its creditors or if it sold part of its book in the market to limit its exposure.
Mr Zamxaka replied that the Bank did not really do any complicated derivative transactions. The Bank followed the Treasury Manual. The National Treasury decided which activities could be entered into. The Bank did not do hedges for credit risks.

Advocate Stephens asked if the Bank knew how to do them.

Mr Zamxaka said that the Bank did not want to know how to do them.

The Chairperson ruled that that was not a good answer.

Mr Zamxaka said that according to instructions from the National Treasury, there were certain activities into which the Bank was not allowed to enter, because once one entered into derivative transactions, it would change completely the risk profile of the Land Bank.

Advocate Stephens said that he was worried about this reply, because when Mr Zamxaka said that the Land Bank staff did not know how to offset their credit risk, then they would not know if it was one of the permitted transactions or not. Agriculture was a high-risk business, so Land Bank loans were inevitably high-risk, and charged interest up to 5% above the prime lending rate.

Mr Zamxaka said that was the case in some instances, but not in general.

Advocate Stephens said that on the basis of Mr Zamxaka’s reply, he did not observe any essential differences between the Land Bank’s lending practices and those of an ordinary commercial bank.

Mr Zamxaka said that if the Land Bank was to be a developmental institution, with all the responsibilities that entailed, then its level of capital should be increased to avoid the Bank’s having to resort to the capital market, where there was need of assurance that money would be quickly repaid without high risks.

Advocate Stephens said that since the Land Bank was a developmental institution, it should be lending at a much lower rate than the commercial banks. A capitally poor person who borrowed money faced as his greatest initial cost the cost of capital. The Bank was not helping him by lending at a high rate of interest. He asked whether it was part of the Bank’s turnaround strategy to offer loans at much lower rates of interest than those of the commercial banks in order to actually help such people.
 
Mr Zamxaka said that the issue of interest rates was partly immaterial because MAFISA existed to help emerging farmers with low cost loans, and a major part of initial costs was the capital costs of infrastructure and land.  Grants from the Departments of Agriculture and Land Affairs in part made the Land Bank sustainable. The issue of the interest rate was somewhat immaterial because it depended on how much cash the business could generate and whether that cash was sufficient. So, if from the first day the business was not viable because of the amount of money that must be used for the cost of infrastructure and land, the business would never be viable, irrespective of the interest rate. The advantage of the MAFISA microfinance scheme was that it had an interest rate of up to 8%, so that was the instrument of preference to benefit emerging farmers.

Advocate Stephens said that the Bank’s existing auditors were not willing to continue in that role unless certain conditions were met, including the  presentation of a highly convincing turnaround strategy to stabilise and sustain the Bank approved by the board and submitted to the National Treasury by the end of November. He asked if the Bank had prepared that plan.

Mr Zamxaka said that the Bank had such a plan, subject to the board’s approval. Meetings had been held with the external and internal auditors to explain to them the existing difficulties occasioned by matters of governance. The outcome of the Bank’s engagement with the external and internal auditors was that they wanted to see the things that the Bank was promising by the time that they would do their audit. Biweekly meetings would be held with them to update them on progress.

Mr Trent asked the Minister if the person appointed as permanent chief executive officer would be a person with banking skills.

The Minister replied that for this reason the Ministry was conferring with the Ministry of Finance.

Mr Trent asked for a progress report on prosecutions of offending Land Bank officials, and for details of alleged conflicts of interest.

The Minister replied that, as Mr Trent had correctly said, the Ministry had received the forensic audit report in September 2007 and tabled it in Cabinet. Recommendations had been made in Cabinet regarding what had emerged from the report. Cabinet had advised the Minister to take the report to the South African Police Service and to the National Prosecuting Authority, after looking internally and seeking legal advice. The process of the internal investigation was still taking place. The Ministry would work with the new board to see that the investigation was completed quickly. If there were criminal matters, the law would take its course. If there were internal disciplinary matters, the necessary measures would be taken.

The Chairperson said to Mr Zamxaka that he (Mr Zamxaka) would appreciate the Committee’s concerns about the state of the Bank, a strategic institution of South Africa. The Bank had been in an unsatisfactory state for some considerable time. In all the Committee’s engagements with the Bank, there had been firm commitments to improve, but these commitments had never been fulfilled. The Committee would be happy if the forensic audit report was processed quickly, and those that were guilty dealt with firmly, so that they would not be allowed to profit from their wrongs at the expense of the whole country. 

Department of Water Affairs and Forestry Audited Financial Statements
The Committee questioned the Department of Land Affairs and Forestry on its audited financial statements, with particular reference to asset management, loans, governance, expenditure trends, material corrections to financial statements submitted for audit, and non-compliance with applicable legislation.

Ms Hlangwana, leading the Committee’s interaction with the Department, referred to the Auditor-General’s report, page 115, in regard to property, plant and equipment, whereof there had been incomplete recording of fixed assets by the end of the audit. Secondly, the physical verification of assets in the register could not be performed. Lastly, some assets procured during the course of the financial year could not be traced to the asset register. She asked if the Department could confirm that next year’s audit would be adhered to on time. She asked also for clarity on the matters raised by the Auditor-General in the paragraph referred to.

Dr M Rampedi confirmed that the Auditor-General’s observations were correct, and the Department had begun to address the matters that had been raised. The Department had appointed service providers to assist it.

Mr O Ayaya, the Chief Financial Officer, gave further details of the substantive actions that the Department had undertaken. After the audit, the Department had conducted a debriefing session with the Auditor-General’s staff, and expressed agreement with the findings that left much to be desired. In order to ensure that an asset register shall be properly maintained in future, the Department had taken the following measures: the regional managers had taken ownership in their respective regions; by 01 March, service providers would have completed their assistance to the Department in compiling a register of moveable assets; a second team of specialists were assisting the Department to compile a register of fixed assets, such as dams, by the end of April; these assets would be linked to the service levels detailed in the Department’s strategic plan for the water  trading entity. The same team would assist the Department to fill its other positions, and compile asset management plans that would be reviewed every three years.

Ms Hlangwana inferred from the Department’s response that in the next Annual Report the same problems would not recur.

Mr Ayaya said that unfortunately the problem would still exist with regard to fixed or immoveable assets such as dams, because the interim register of such assets would come into operation only on 30 April 2008 or soon thereafter.

The Chairperson failed to understand why it should be so difficult to compile an asset register of items such as dams.

Mr Ayaya said that the challenge was that there were some 265 dams in various parts of the country, some of which were over 60 years old. The problem was that there were various components, which had to be listed individually, within these assets. Such components included underground tunnels. Furthermore the problem was to value them in accordance with Generally Accepted Accounting Practice.

Ms Hlangwana asked about an amount of R2.1 billion disclosed as property, plan and equipment, also an amount of R53.2 million disclosed as intangible capital assets, which could not be substantiated in the assets register, and for which adequate assurance could not be obtained. Ms Hlangwana asked what the Department had done to remedy the challenge.

Dr M Rampedi said that Ms Hlangwana would note that her question had already been partly answered in the response provided by Mr Ayaya. Because of the lack of a complete fixed assets register, it was not possible to confirm the amount of R2.1 billion. The Department, however, was taking measures to address the observations of the Auditor-General.

Mr Trent asked about the mandate of the Caledonian Tunnel Authority, which, he understood, was responsible for the supply of water throughout South Africa. In order to plan effectively, it was essential to know first of all what one possessed already.

Dr Rampedi said that the mandate of the Caledonian Tunnel Authority (TCTA) was clearly stated in the Department’s Annual Report. The current position of the Department was that it sought to establish an infrastructure agency for the country. A bill to this effect was currently in process through Parliament. The bill would enable the Department to consolidate its infrastructure and have it managed by a single agency. The Department envisaged that as the solution to Mr Trent’s concern. As things stood, the mandate of the TCTA was that it did not include the total asset base of the Department. Some of these functions remained with the Department as part of the water trading account. That trading entity would have its business totally separated from that of the Department.

The Chairperson observed that the Auditor-General’s reports on the water trading account were unsatisfactory. There were huge challenges with regard to availability of skills.

Dr Rampedi said that the Department had progressed to a better position than that it had held on its previous meeting with the Committee. To date the Department had dealt with the issue of skills. The Department had appointed a chief financial officer; a deputy chief financial officer; the Department had examined the water trading account and decided that from the beginning of the new financial year the water trading account would be conducted fully in accordance with applicable legislation and transformed into a trading entity. She said further that the Department’s challenge in obtaining sufficient skilled personnel was exacerbated by the non-recognition of financial skill as a scarce skill. The Department had no option but to undertake a recruitment drive.

Dr Rampedi said that the Forest Trust, as per advice of the Treasury, did not qualify to be a separate entity.

The Chairperson observed that there were many challenges arising from that non-separation.

Dr Rampedi said that the Chairperson’s observation was correct. The expenditure of the Trust’s money was related to the National Forest Act that allowed the National Forest Advisory Committee to use the money. So the money could not be spent by the Department, but only by a council appointed by the Minister. The Department ought to ensure that the council had proper mechanisms to enable communities to derive benefits from the forests. The council had been established; met four times a year and was aware that the funds were available. The council was however not yet using the funds.

The Chairperson said that on this basis the council was not functional and might as well not have met. One had to ask why they had met, and why there were funds if not used. He asked what the Department was doing to ensure that the money would be used.

Dr Rampedi said that she took note of the Chairperson’s concern and said that it would be addressed.

The Chairperson said that it was a common theme in the Auditor-General’s reports that departments or entities had funds that remained unused, year after year. It was a serious matter. He asked for a commitment from the Department to ensure positive movement.

Dr Rampedi said that the Minister had made the water trading account a priority. The status of the water trading account should, by the next year, be substantially improved.

The Chairperson noted that Dr Rampedi was in her position in an acting capacity. He asked if she had any idea how long her period in an acting capacity would last.

Dr Rampedi said that the Department had taken steps to ensure that a permanent director-general would be appointed soon.

The Chairperson said that ‘soon’ was not a sufficient answer for the Committee, but he understood that an answer to that question was perhaps outside Dr Rampedi’s domain. Moreover, her Minister was not present to answer.

Mr T Bonnehomme (ANC) asked what steps had been taken to ensure that the Department’s internal audit would be completed, and if the internal audit unit was fully capacitated, and its function fully effective.

The Department was able to report that it had taken corrective action with regard to governance. A chief director for internal audit had been appointed. Capacity remained a difficult area for the Department.

Mr Ayaya said that expenditure in the first part of the year tended to be less than in the second part of the year. This was not fiscal dumping. It was occasioned by awaiting approval for procurements and payment of invoices.

The Chairperson said that delayed approval of payment of invoices was an instance of laxity in management.  He would not rule out fiscal dumping.

Mr Bonnehomme asked why material corrections to financial statements submitted for audit (page 117, paragraph 24) were necessary and what was the root cause of corrections to financial statements; he further asked what impact the Department’s skills shortage had on the quality of financial statements submitted to the Auditor-General.

Mr Ayaya said that there were certain regions that were not on LOGIS, so some commitments could not be captured. Every month, his office received a list of commitments. A number of staff in the head office monitored commitments.

Mr Bonnehomme asked if there was still a skills deficiency.

Dr Rampedi said that a lower level skills deficiency remained a challenge to the Department. At higher level it was no longer a problem.

Ms Mashiane asked if the Department had calculated the interest that it had to pay on late settlement of invoices, and if the Department could pay its accounts on time to ensure value for money and to ensure service delivery. 

Mr Ayaya said that there were no interest penalties paid on overdue accounts. Temporary staff had been employed to expedite payments. Prompt payment would indeed be better for the Department and for the promotion of the second economy, because the Department relied heavily on SMEs.

Mr Trent asked about with non-compliance with applicable legislation (page 117 of the Annual Report), a huge area which could not be covered in the available time. He hoped that complete replies would be forthcoming in writing. The Auditor-General had noted major problems with the Department’s compliance with the Division of Revenue Act (DoRA). Transfers had often not been effected promptly. The Auditor-General said that the Department should appoint a compliance officer. He asked about the Department’s to ensure compliance with DoRA to ensure flow of funds and if the Department had appointed a compliance officer to monitor compliance with this legislation.

Dr Rampedi said that the Department followed a precautionary policy in the transfer of funds. In various cases, municipalities were not ready to utilise funds that would be transferred to them. The Department had been obliged to capacitate them in order to enable them to use the funds. The Department could report that it had appointed a compliance officer.

Mr Trent commended the Department for capacitating municipalities to use funds and asked if it was reaping success with that programme.

The Chairperson asked what percentage of municipalities complied.

The Department was not able to report 100% compliance, but progress was being made. The Department was assisting municipalities with business plans, and had required progress reports. Detailed information was available, and would be made available to the Committee within two weeks.

The Chairperson and Mr Trent both expressed concern about the level of staff debts. If the state lost money because of fraud, managers might be held accountable.

Mr Ayaya had obtained a written assurance that pensions would not be paid to individuals before their debts to the Department had been settled.

Mr Trent said that the Auditor-General had reported that employees were not terminated timeously on the PERSAL system, which resulted in staff debt on account of salary overpayment.

The Chairperson said that this indicated a need for more vigorous monitoring, as the Auditor-General had observed.

Dr Rampedi said that the Department was verifying that all employees on the PERSAL system were truly current employees of the Department. This was a challenge because some work stations were remote. The system of travel and subsistence allowances was another cause of staff debt.

Mr Trent said that he had received a satisfactory answer and hoped that next year’s Report would be very much better.

The Chairperson hoped that Mr Trent would quickly conclude his questions.

Mr Trent asked if there was a human resource plan, and if a compliance officer had been appointed.

Dr Rampedi said that the Department had no human resource plan, but was working towards such a plan.

Mr Trent said that lack of a human resources plan was to be regretted, because in certain areas the Department had a high vacancy rate. He wondered why the Department had reduced by several thousand its number of posts for persons with low skills, since such persons found it hard to obtain jobs, and notwithstanding the reduction the Department still had a vacancy rate of around 30%. He congratulated the Department on reducing its vacancy rate for skilled staff from around 40% to 15%.

Dr Rampedi said that some of the persons to whom Mr Trent had been referring had been transferred to municipalities.  The Department had appointed a director of corporate planning. Project managers would be expected to produce annual performance plans with very clear quarterly targets. Norms were being established for the internal management of information.

Mr Trent acknowledged that change management was not always easy. He asked up to what level managers had performance level agreements and whether those that did not meet their targets would be given bonuses. 

Dr Rampedi said that legislation obligated the Department to apply performance level agreements to managerial staff. Secondly, if managerial staff did not meet performance targets, they could not expect any bonus payments.

The Chairperson observed that Members of Parliament did not receive bonuses, however hard they worked.

Mr B Pule (UCDP) said that he wanted to encourage the Department to strive for an unqualified report next year.

The Chairperson supported Mr Pule’s remark and trusted that the Department would fulfil the Committee’s expectations.

The meeting was adjourned.