Robben Island Museum, The Africa Institute of SA, Mine Health And Safety Council, & Department of Arts and Culture: Audited financial statements

Public Accounts (SCOPA)

19 March 2008
Chairperson: Mr T Godi (African People’s Convention)
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Meeting Summary

The Robben Island Museum was questioned about its lack of progress in addressing issues raised by the Auditor-General twelve months previously, the delays in commissioning its new ferry, salary bonuses which the Museum explained as 13th cheques, and other issues related to poor compliance with the requirements of the Public Finance Management Act. The Committee reiterated several times during the meeting that managers should manage, monitor, and provide leadership. Lack of skills was not a sufficient explanation for poor reports. In its negotiation of penalties for late delivery of the ferry, the Museum should have taken sufficient account of tourist revenues lost. The Committee strongly suggested that the Robben island staff, least of all senior management, did not deserve a 13th cheque or a performance bonus in the current year. It was unacceptable that so many departments came before SCOPA with dire performances year after year.

The Africa Institute of South Africa was criticised for a report whose contents did not match the beauty of the cover. It was the Committee’s view that there was no reason why the asset register should not be up to date, and asked for an assurance that even if the Committee met the Institute next year with a qualified report that the asset register would be in order. If that were not so, then the Committee would really have to investigate in detail and punitively.

The Committee reviewed the annual reports of the Mine Health and Safety Council from 1994 to date. For three consecutive years the entity had received reports qualified on account of non-compliance and with matters of emphasis. Its 2005-2006 report had been unqualified, while in 2006-2007 it had reverted to a qualified report, a case of  'one step forward, two steps back' as the Chairperson observed. Questions focused mainly on the attempts to recover moneys classified as fruitless and wasteful expenditure from the Council for Scientific and Industrial Research..

The Department of Arts and Culture was criticised for advertising for nominations for candidates to be considered to serve on a board for the Castle at Cape Town when the Bill transferring custody of the Castle to the Department from the Department of Defence had not even been approved by the Defence Portfolio Committee. It was also criticised for mistakes in its annual report that amounted to gross negligence in the report’s preparation and waste of public money in the publication. The Department admitted negligence, apologised and undertook to correct the matter. The Department was to be called back to discuss matters further with the Committee, but must in the meantime submit a written response.

Meeting report

Ms L Mashiane (ANC) asked that, for the record, those speakers who used acronyms should first give the name of the entity or concept in full.

Robben Island Museum: Hearings on the audited financial statements of the
The Chairperson noted that two of the Museum's accompanying officials were introduced in an 'acting' capacity. He asked what had happened since the release of the Robben Island Museum's Annual Report and the present to explain the difference between the officials as named in the report and those now acting.

Mr Paul Langa, Chief Executive Officer, Robben Island Museum (the Museum) said that nothing much had happened, beyond the realignment of the Institution on the basis of performance and delivery. The entity was working on the process.

The Chairperson asked Mr Langa to express himself in simple terms. He asked if the officials listed in the report but not present at the meeting had been fired.

Mr Langa said that those officials had not been fired, but had been given extended leaves of absence.

The Chairperson asked what that meant.

Mr Langa said that it meant that the officials must 'just wait until we call you back'.

The Chairperson asked why.

Mr Langa said that currently the entity was undertaking some processes through the courts. Probably one would not be privileged to deal with the matter openly. There had been a view from the entity's new council in examining the totality of the institution and in ascertaining what the new council would be inheriting as an institution. Suggestions were then made that there should be an open door to examine, on the basis of merit, where there had been matters of qualification.

The Chairperson observed that Mr Langa was offering a complicated response. He asked if the essence of it was that the two officials concerned had been suspended or were on extended leave.

Mr Langa said that the case against them was underway.

The Chairperson asked if there was a case of misconduct against them.

Mr Langa said 'not really'; It was rather a check on their competence.

The Chairperson asked how long that process would take.

Mr Langa said that the gentlemen in acting capacities had been acting for almost two months. The entity was anticipating that the matter would take at least another two months.

The Chairperson asked what the status of the two suspended officials was.

Mr Langa confirmed that they were on leave with full pay.

The Chairperson asked about the status of the two gentlemen who were 'acting' and present at the meeting with Mr Langa.

Mr Langa said that they already held posts in the organisation and were acting in their present capacities in addition to their original responsibilities.

The Chairperson observed that when Mr Langa was talking of a two month period in which to resolve the matter, this was a best case scenario.

Mr Langa confirmed that two months was the best case scenario.

The Chairperson suggested that a worst case scenario might be four to five months.

Mr Langa agreed.

The Chairperson said that he was concerned that the entity would be faced with such a situation over an extended period. The entity's Acting Chief Financial Officer had been employed in a particular capacity, and now he had to double up on something else. That had a bearing on the entity's operation, because he then had to fulfil two senior managerial posts. The reason that they had been separated previously was that it was evident that no single senior person could handle them together. If those posts had to be combined for the next six or seven months, it would definitely have a bearing on the quality of the organisation's management and monitoring. It was certainly a situation that the Committee could not remain happy about, and it was to be hoped that it would be resolved as soon as possible.

Moreover, the Chairperson hoped that the extended leaves were not just 'a fishing expedition'. He said that the investigations seemed to be based not on factual evidence, but on circumstantial matters. After a long time, they might be brought back, after relations had broken down, with resultant loss of performance. The Museum was before the Committee because matters were not as they should be. The Committee had had a similar engagement with it twelve months previously.  There was a need to speed up the process. At best a delay of a further two months could be expected. However, it was not possible to plan on the basis of a best case scenario. The Committee wanted to be kept abreast of developments, and be given an update not later than early May 2008.

He asked if the Robben Island Museum was moving forwards or backwards. He had been reviewing the records of the Committee's previous engagement with Robben Island Museum a year ago when the Committee had indicated its concerns, especially in view of the status as a World Heritage Site, that people working in that entity needed to have a particular consciousness about the work that they were doing for the country and for the future of the country. Certainly the reports from the Auditor-General indicated that there were challenges. Extended leave given to some of the senior officials were certainly a manifestation of those challenges. Twelve months previously, there had been firm commitments to putting things right, it would appear that those commitments had not come to fruition. He was not sure if the entity had taken one step forward and one step back. He wanted to establish clearly if there had been any real progress or not.

Mr Langa said that the Robben Island Museum had taken serious cognisance of the Chairperson's first concern. It recognised that it was 'in the middle of the water'. It had indicated that its boat was its lifeline. Moreover, Robben Island Museum was comparable to a small city and had indicated that it needed a budget befitting that of a small city. It had an infrastructure of roads, it was responsible for a clinic and for animals; it was a World Heritage Site, and it had a major role in the world of archives. However, he said that the entity was dependent on a budget that came from that of the Department of Correctional Services. Twelve months previously, the Museum had indicated that an assessment needed to be done. An assessment was now being done. A budget was now being considered. Whilst the entity retained its old historical vessels that it kept for heritage purposes, the entity was acquiring new vessels that sought to address the capacity constraints mentioned twelve months previously. 

The Chairperson said that he supposed that the key issues revolved around management or around leadership, the human factor of the ability to manage the institution effectively, and to be able to account appropriately for those processes. The Auditor-General had not been happy twelve months ago with the way that the entity had been managed, and remained dissatisfied currently in that narrow sense, though not with the broad aspects of the Museum. The Committee's question as to whether progress had been achieved related to the specific concerns of the Auditor-General. He asked Mr Langa, if, according to his perception, the entity was moving forward or backwards or was stagnant.

Mr Langa said that definitely the entity was moving forward. The entity had inherited a Correctional Services approach, but it was now adapting itself to the role of a museum. The search for skills, referred to the previous year, had been completed. There might be gaps, because it was a big institution, here and there. He said, however, that the entity was moving in a clear direction with regard to the Auditor-General's issues.

The Chairperson said that the substance of the Auditor-General's report was that the Auditor-General was dissatisfied with the utilisation of special project revenues. This utilisation had not been up to the required standard. Funds were not used in accordance with what they had been allocated for originally. He asked if that were the case, and why, and what had been done to correct it. 

Mr Langa said that on special projects, the challenge for the past six years had been to get donor money into the institution to perform particular functions. The weakness then was the relationship between the entity and the donor money, and the system that co-ordinated the donor money to the project. After examination, the entity had found that its weaknesses were in the accounting systems. Several employees had resigned or been dismissed from the accounting sections. He thought that that aspect had now been cleared. The senior managers who had applied for the funds had been instructed to indicate what they had achieved with those funds.

The Chairperson said that if the entity had applied for money to repaint part of the museum, he could not understand how one ended up with that money being used to buy bulbs, for example. The issue was the allocation and utilisation of special project revenue. The Chairperson said it was a monetary monitoring and management function. If this was not being done, it meant that managers were not managing. It was a very basic issue. He said that he was struggling to see where the difficulties were, unless the entity had people in senior positions just doing as they pleased.  It was a matter of strengthening management and ensuring compliance.

Mr Langa admitted that lack of skills had been the entity's weakness as far as senior financial management had been concerned. As the Chairperson had said at the entity’s previous meeting with the Committee, the basic requirement was the necessary skills to exercise those functions. 

The Chairperson said that Mr Langa's response raised the question why such individuals, who lacked the necessary skills, had been appointed to those positions in the first place. The Chairperson also asked if there was any in-service training for financial employees. He trusted that dialectically the Committee and the entity would eliminate those weaknesses in order to move forward.

The Chairperson asked secondly why some of Robben Island Museum's fixed assets had been excluded, and why there had been a problem in the first place.

Mr Langa said that the assets, transferred from Correctional Services to a museum, had been the entity's biggest problem.

The Chairperson asked if these were assets that were on the island.

Mr Langa said that all assets belonged to the State.

The Chairperson asked if there would not be a challenge about the assets in the next audit.

Mr Langa said that the entity had employed an accountant (CA), and staff were being given strict instructions as to what should be done and how. 

The Chairperson said that at the entity's last appearance before the Committee it had indicated that about 80% of its assets were included in the register, and that the remaining 20% would be included by the end of the year.

Mr Langa said that there were some remaining assets that still had to be included, and some insurance issues resolved.

The Chairperson noted that the issue of fixed assets was receiving attention.

Mr Langa confirmed that the matter was 'on the way'.

The Chairperson asked what Mr Langa meant.

Mr Langa said that the entity had devised a process that finalised the totality of that section.

The Chairperson asked when that would be finalised. 

Mr Langa said that when the matter had last been discussed with the team, they were looking towards the end of April when they would be finalising the report.

The Chairperson asked if that were the best case scenario.

Mr Langa said that that was the best case scenario.  The worst case scenario would be around June.

The Chairperson said that the Committee worked with worst case scenarios rather than with best case scenarios. Best case scenarios were not a good basis for planning. He said that managers must work within the terms and spirit of the Public Finance Management Act (PFMA). It was critical that managers managed. That was the spirit of the Public Finance Management Act. If subordinate managers were not managing, then it meant that the senior manager was not managing. The human factor remained central to getting things right.

The Chairperson recapitulated on the three issues of qualification – special project revenues, fixed assets, and deferred revenue. However, the Auditor-General had also raised, for example, non-compliance. He asked if it was still a matter of skills or if it were the result of negligence.  He asked if anything had been done to address these non-compliance issues.

Mr Langa said that with the assistance of the Acting Chief Financial Officer, the entity was detailing an approach and actions with regard to those the issues. Basically it was a matter of ensuring that documents related to each other. Some interviews had been conducted in those sections.

The Chairperson asked what would be the situation by the end of March in the next audit.

Mr Langa said that the entity had employed the services of some consultants and contracted labour to deal with the reconciliation of some very old records.

The Chairperson asked Mr Langa if he had a sense of any progress being made.

Mr Langa said that 'tremendous progress' had been made. Even the Auditor-General would agree to that.

The Chairperson said that he hoped so, but again said that it came down to a lack of monitoring by management. Everything came back to management. People in positions of leadership were either not doing their work, or did not know what they were supposed to be doing. He found it difficult to comprehend this, as in the normal situation people went to work to perform a function.

Secondly the Chairperson said that policies and procedures had not been updated. The payment of creditors had not been done on a timely basis. At the time of audit, the fraud prevention plan was in a draft form. When it came to safeguarding assets, proper controls were not implemented, or had been implemented to the dissatisfaction of the Auditor-General. In the Chairperson's view, these were not systems problems, but management functions.  Those who were currently in management must do their work. The Chairperson asked if there had been any improvement with the safeguarding and maintenance of assets, if policies and procedures were all in place, if payments were made on time, and if the fraud prevention plan had been completed and adopted. It was then necessary to monitor and ensure implementation. Otherwise people would just ignore it.

Mr Langa said that the Museum had had many drafts of policies. The policies and procedures had been adopted by Council. With regard to fraud prevention, one of the problems had been that the entity did not have a risk manager. Now there was a risk manager, who had drafted a plan with regard to risks and fraud possibilities and circulated it to senior managers. Each manager had discussed and identified the risks in his or her areas. Cash flow, from lack of tourists, had been a problem. With regard to safeguarding of assets, the entity had instituted supply chain management. At the time of the previous meeting with the Committee the museum had not had a maintenance plan for the archives. It had had to contact UNESCO and head-hunt.  The heritage section was now dealing with those aspects. On the basis of maintaining the assets of the entity, the entity had now put a percentage on the day-to-day running of the ferry.

The Chairperson asked if the dialogue between himself and Mr Langa was being conducted at a conceptual level, or if all the matters that Mr Langa was talking about were already in place. 

Mr Langa said that at a planning level these matters were in place.

The Chairperson said that his interests were more at a practical level.

Mr Langa said that at a practical level, the entity was dealing with the 'hiccups'.

The Chairperson noted that, the long and the short of it was that they were not implemented.

Mr Langa said that scenarios tended not to be the same in all areas. If one spoke about the heritage and exhibition sections, one could say that they were done, whereas in the archives, the process was just beginning. With regard to safeguarding of assets, the museum had instituted measures. There had been some challenges with regard to maintenance, at the level of relations with the Department of Public Works.
The Chairperson noted Mr Langa's observations, and said that he looked forward to these issues not being the subject of adverse comment in the future. 

The Chairperson noted that the new boat had been delivered to Robben Island Museum. The Committee was concerned that the boat had arrived 13 months late. He asked if there were penalty clauses as a control measure, what they were, and had the museum exercised them. 

Mr Langa said that the boat was launched on 29 February. However, there were stakeholders and role players with regard to the boat, such as marine inspectors, and all those involved might have contributed to the delay.  The entity's penalty clauses had been based on a standard approach, in which there had been a penalty for delayed delivery, but not for loss of revenue incurred as a result of delayed delivery.  Before the final instalment in payment for the boat would be handed over, the outstanding penalty would be deducted.

The Chairperson asked if the museum would still be negotiating about the penalty.

Mr Langa said it would not be; the penalty was in the clause.

The Chairperson said that he was struggling to understand what Mr Langa was saying. He said that there had been a delay of twelve months. He asked if that delay had caused a penalty to be imposed on the boat builders.

Mr Langa replied in the affirmative: the penalty was approximately R960 000, but that his advisers had told him that the entity should try to obtain more money as a penalty, so they were looking around the clause. 

The Chairperson asked if there was an agreement between the entity and the boat builder on the penalty that the boat builder should pay.

Mr Langa said that, on the basis of the contract, that was the amount that the boat builder should pay to the entity on the basis of the delays.

The Chairperson said that on the basis of what Mr Langa had said earlier, he thought that Mr Langa had been exonerating the boat builders.

Mr Langa said that that was not so, but that there were issues that were beyond the control of the entity, and beyond the control of Fair Ocean, the boat builder, for example, issued related to the Independent Inspectorate.  

The Chairperson asked why, twelve months down the line, the entity had not looked at all the clauses.

Mr Langa said that the entity had looked at all the clauses. They were now at the concluding phase and making sure nothing had been overlooked. The last 10% of what the entity owed to Fair Ocean would be paid at the end of April.

The Chairperson presumed that the entity could subtract the penalty from the outstanding 10% that the Museum owed to Fair Ocean.

Mr Langa said that the approach they had taken, because of the Public Finance Management Act, was to avoid clouding issues, and that the Museum was to pay Fair Ocean the purchase price agreed in the contract. Then Fair Ocean would pay to Robben Island Museum the sum determined by the contract as penalty for late delivery. The Museum did not want to offset, because that might cause a problem.

Mr V Smith (ANC) referred to page 75 of the report, and asked on what basis the Robben Island Museum had granted bonuses averaging 8% to the Chief Executive Officer, the Chief Operations Officer, and the Chief Financial Officer. The Audit Committee report itself, on page 56, said that the Audit Committee had revealed that significant adjustments had been made to those statements. The Auditor-General's report was a qualified report, but the Chief Executive Officer had nonetheless received an 8% bonus.  Mr Smith was not clear on what basis employees were given performance bonuses. To get a clean audit report did not merit a bonus; it meant that one was doing one's job. In the public sector there was a growing perception that one got a bonus just by going to work every day. The Auditor-General had referred to quite a number of policies that had not been in place, and a significant adjustment in the financial statements, and yet the Chief Financial Officer was given an 8% bonus.  He would ask the same question throughout the public sector, how were such bonuses calculated. He asked whether it was a standard straight bonus every year or on the basis of performance.

Mr Langa explained he had come into his position at a time when management was just dealing with employment packages. The bonuses in reality represented 13th salary cheques, which were governed in part by the rate of inflation.

The Chairperson asked why these 13th cheques were recorded as bonuses.

Mr Langa said that 13th cheques had been an institutional practice.

Mr Smith explained how he had calculated the bonuses to be 8% as a percentage of basic salary from the figures in the report, excluding such matters as motor allowances. 

Mr Langa said that the 13th cheques were given to all employees, and that was how it was recorded. 

The Chairperson said that the practice needed to be changed. Otherwise those who had not had the benefit of Mr Langa's personal explanation would assume that senior management simply were given an 8% bonus for producing results reflected in such an unsatisfactory report. It created a bad impression.

Mr R Mofokeng (ANC) asked for the opinion of the auditors present. He did not think that it was correct. He asked who compiled the books. He asked if the CFO had had a CA qualification and asked for clarity about the basic salary.

Mr Langa said that the chief financial officer did not have a CA qualification.

Ms Alice Muller, Auditor-General's office, confirmed that it was a 13th cheque, for that was how the employment packages had been structured. She suggested that in future they should be separated.

The Chairperson said that the two should be distinguished, in the light of what he had said previously.

Mr Smith asked about the decline in ticket sales from R41 million to R33 million. He assumed that the decline was related to the non-delivery of the 300-seat boat. He then referred to the commissions of 16% paid to ferry services providers. Revenue had been lost to the extent of 20% for the year (R8 million). Commission had gone down by 4% (R700 000). What he was reading as a layman was that the museum had taken a serious knock on revenue, but a modest knock on commission. He asked on what basis the commission was paid. If it was correct that the 20% revenue loss was because of the non-delivery of the boat, then that problem should be raised with the suppliers. Although it was not the Museum's fault that the boat had not been delivered on time, the Museum could not leave it at that. Suppliers should not be allowed to fail to deliver to the State and get away with a slap on the wrist.

Mr Langa said that Mr Smith was talking about two scenarios. If you did not have a boat, you then had to hire somebody to convey visitors, and that entailed paying a commission. Mr Langa explained how such commission was calculated. The commission amounted to R8 500 per boat trip. There were four boat trips per day. The problem became magnified when paid for 25 days a month.

The Chairperson asked for a percentage.

Mr Langa said that his officials could calculate it. One problem was that there was not an anchor boat for operational purposes that belonged to the Museum. The second problem was that the Museum still retained its old historic vessels, which were over 50 years old, and could carry only 150 passengers. While they were pressed into service to ferry visitors, they were liable to break down.  The second scenario was that if the Museum had its anchor boat, it could carry 250 visitors. He admitted that the penalty clause had not been negotiated sufficiently with a view to compensating the museum for lost revenue occasioned by delay in delivery and the commissions that it had to pay to third party providers to ferry visitors on account of the delay in delivery.

The Chairperson said that the penalty clause should not be calculated in isolation. Such factors should be taken into account. The Chairperson said that there had been a lapse on the part of Robben Island Museum.

Mr Smith said that if the loss of revenue was R8 million, the Committee might have a case to take the matter further. Revenues had gone up, as well as costs, and this was the result of poor planning by a service provider. If it was the case that nothing more could be done, then Mr Smith was suggesting that the Robben island staff, least of all senior management did not deserve a 13th cheque or a performance bonus in the current year. It was unacceptable to have a situation where so many departments came before SCOPA with terrible performances in terms of their financial management, and there was a perception that Parliament had no teeth. If a legal solution could not be found, he was suggesting firmly that Robben Island's political authority be informed that the staff must not be given a 13th cheque.  In the corporate world such behaviour would justify firing. He said that in his view employees were not entitled to a 13th cheque.

Mr Langa said that the boat builder and the engine builder had been informed that they must have a sense of social responsibility. He had appealed to their conscience, because a court case would be protracted. The museum had started to engage them. The company was reporting back to the Robben Island Museum in one week.

The Chairperson asked why, within a month of delivery, the new ferry had broken down.

Mr Langa said that the media were in a better position to answer. The so called 'break-down' had occurred during a sea trial. If the media called that a break-down, Robben Island could not answer.

Mr Smith referred the management to page 59-60 of the Annual Report for the financial year ending 2007, where the Auditor-General had referred to issues of non-compliance with the Public Finance Management Act, with incorrect calculations, policies not updated or implemented, long outstanding cheques not deposited, leave incorrectly calculated, and basic lapses. It was an indictment on the financial management of the organisation. He asked the management not to defend itself by pointing to skills deficiencies. If they did that, then he would recommend that they be fired.  Most departments used that as a defence. He asked if the Robben Island Management could say that those deficiencies had been fixed and corrective measures in place..

The Chairperson said that the Committee had already dealt with Mr Smith's question and said that the Committee had received a commitment that these matters had been attended to.

Ms L Mashiane (ANC) requested that Robben Island Museum examine SCOPA's resolutions and all those matters not attended to in the last financial year, and called for progress and resolution and progress on all those matters.

Mr P Gerber (ANC) asked about the status of the Blue Stone Quarry, which the Committee had been informed had been closed down and filled up with machinery.

Mr Langa said that the lime stone quarry was a walk-through exhibit to protect it from diesel fumes. The Blue Stone Quarry was the one that had built Robben Island. There had been a problem of incursion of water into the quarry. It had been necessary to liaise with South African Heritage Resources Agency (SAHRA). The museum had ordered large stones and rocks in order to stop the ocean from coming in. Permission had not yet been granted. There were concerns that the museum was tampering with the flora and fauna arrangements. In view of interpretation, it had been suggested that ex-political prisoners be asked to rebuild the wall.

The Africa Institute of South Africa: Interrogation of Financial Statements
The Chairperson asked all present to refrain from breaches of protocol regarding obtaining information that was not due to a particular party. 
Mr H Bekker (IFP) commended the Africa Institute of South Africa on the beauty of its annual report, especially the cover, but noted that there was a serious problem with the contents. With regard to property and equipment, in the 2004/2005 year there had been an emphasis of matter. In 2005/2006 it had been said that the matter had been resolved. In the latest statements there was a qualification.  There was a lack of appropriate and approved policies and procedures; the existence of that could not be verified; he asked what was going on with regard to the entity's control environment.

Dr M
atlotleng  Matlou, Chief Executive Officer, Africa Institute of South Africa, said that there had been problems with the fixed asset register. There were some assets that had been recorded there that should never have been recorded. There had been provisions that had been made against fixed assets before those assets had been procured. A revaluation had not been carried out of the remaining useful life of the remaining fixed assets. These had led to the qualification.

Mr Bekker said that the Auditor-General had investigated ten items and the cost prices with regard to six assets, were not correct.  To his mind that indicated an Institute that was in a shambles. He said that the process was quite elementary; if you had an invoice, you would take an amount from it, and you would enter it in your asset register. He asked what was really going on.

Dr Matlou wanted to give a background of what had been happening in the Institute before answering.

The Chairperson objected that there was not enough time. Whatever the background, the Auditor-General had found cause for dissatisfaction. He asked what was being done to sort out the situation.

Dr Matlou said that the Institute had moved from a manual fixed asset register to a reconstructed fixed asset register. Secondly, a verification and reconciliation process had been carried out.  The remaining step was the revaluation of the remaining useful life of those assets.

Mr Bekker said that there was no reason why the asset register should not be up to date. He asked for an assurance that the asset register would be in order even if the Institute had a qualified report next year.  If that were not so, then the Committee would really have to investigate in detail. 

The Chairperson asked if the matters had been implemented.

Dr Matlou replied in the affirmative.

Adv M Stephens (DA) said that there appeared to be a problem with the Institute's documentation. These three issues arose from the fact that the Institute had no supporting documentation. He asked if the Institute had a filing system in which to keep documents.

Dr Matlou said that the Institute had been experiencing a problem in the way in which records had been kept. There were measures that they were putting in place to improve the situation.

Adv Stephens said that if Dr Matlou was using the present continuous tense, it meant that the Institute had not yet put the measures in place.

Dr Matlou said that the Institute was still in a process.

The Chairperson said that the long and the short of it was that the measures were not yet in place.

Adv Stephens asked why it had not been possible to put it into place within the past twelve months.

Dr Matlou said that he and Mr Brian Seabela, Chief Financial Officer, had joined the Institute in September 2007, so they were dealing with those issues but it took time. There was a project under way with the National Archives to help the Institute. It was a major problem and they recognised it, but they were working on it.

The Chairperson asked what the time frames were.

Dr Matlou replied that, based on the Chairperson's worst case scenarios that he had mentioned earlier, the matter should be addressed by the end of June 2008.

Adv Stephens said that he would assume that by next year, these matters would not be a problem any longer.

Adv Stephens asked what the situation was with regard to South African Airways which was shown as a substantial debtor. The Auditor-General said that it could not be shown clearly as a debt.

Dr Matlou said that there had been a conference in 2005 coinciding with a strike of South African Airways. Tickets had been issued and paid for, but not used. The Institute was still negotiating with the airline for the money to be made available to the Institute for the issue of tickets in future.

Mr Bekker criticised the ambiguity in South African Airways’ listing as a debtor.

The Chairperson asked if the Institute's officials, Dr Matlou and Mr Seabela, were acting or permanent.

Mr Seabela said that they were permanent.

The Chairperson was satisfied with that response, which had taken care of one area of concern. Of major concern were the six issues of qualification, especially lack of documentation around staff debt.  He asked if any measures had been taken to address the issue of staff debt.

Mr Seabela replied that it was no longer the Institute's policy to have staff debt. The only areas where staff debt would remain were areas where reconciliation was still being done, when staff had been sent on trips and advances paid. Previously there had been one advance account and it had been ‘a nightmare’ to reconcile. The Institute would no longer stand security for employees who would now have to make other arrangements.

Mr Smith asked if the pair of them had performance contracts and what did these stipulate. If they had performance contracts that stated that proper financial controls should be in place, and the Institute lacked proper filing cabinets to keep documents, that constituted grounds for dismissal.

Mr Matlou replied that as Chief Executive Officer his contract was with the Council; it was a short-term contract with a turnaround strategy in the period September to March 2007 to 2008 to close the current financial year. Senior management would report to him, and he would enter into contracts with them.  

Mr Gerber asked, with reference to page 128 of the Institute's Annual Report, what credibility could be attached to the Institute's figures regarding disposals of library books, vehicles, computers, and other items.  The total was wrong. If there were so many mistakes on two pages, what credibility could be attached to the whole report. He asked what book would one sell for R37 and what vehicle for R16 000.

Mr Seabela said that these values related to things that were scrapped during the year.

Mr Gerber said that that had not answered his question. He asked which vehicle had been sold.

Dr Matlou asked if the Institute could be allowed to reply later to the Committee. It did not have with it the required information.

The Chairperson insisted that the Committee be informed by the following week.

Mr Gerber referred to page 130 of the Annual Report. He asked how these figures related to other disposals.

Dr Matlou asked again if the Institute could be allowed to reply later to the Committee. It did not have the required information at the meeting.

Mr Gerber said that they must just indicate that they wanted to visit the Committee again.

The Chairperson said that they would be welcome to return, but, in future, he expected officials to study their reports and be prepared for all questions that might be asked.  Otherwise, everything might just as well be done by correspondence. He wished the management well in its formidable task and hoped they would remain in place so that the Committee would not have to start from the beginning with new faces..

Mine Health and Safety Council (The Council) : Hearing on the audited financial statements  
Mr R Mofokeng (ANC) said that he had studied the qualified annual report of 2006-2007 of the Mine Health and Safety Council. Three consecutive years’ reports had been qualified. He would study from 1994 onwards and call them next week. The qualifications were on account of non-compliance and matters of emphasis.

Mr Thabo Gazi, Chairperson of the Mine Health and Safety Council, said that the issue of ownership of levies had been resolved with the Department. The Council had been declared a public entity in 2001. It had received some qualified reports, but in 2005-2006 an unqualified report. In 2006-2007 it had again received a qualified report.

The Chairperson observed that it was a case of 'one step forward, two steps back'.

Mr Mofokeng asked about certain discrepancies in the Council's financial records.

Mr Gazi said that those discrepancies had been resolved.  They had been caused by systems problems.

The Chairperson trusted that those issues would not recur.

Mr Mofokeng asked for an explanation about interest charges.

Mr Gazi said that in response to the Auditor-General's report, the Council had instituted an organisational review of the problems that had led to the qualification. There had been a problem because of the linkage of the General Manager's function with that of the Chief Financial Officer (CFO). During the period of this audit, there were problems, and the general manager was suspended. Because of these problems certain matters were not given attention in time. The Council for Scientific and Industrial Research (CSIR) had wanted an advance payment to book a site for a research project in the United States of America. Because of a mining accident in the United States, that research project had been cancelled, but CSIR had kept some monies as administrative costs.  The Council was engaging with CSIR to recover those monies. Meanwhile they had been classified as fruitless and wasteful expenditure.

The Chairperson asked if the Council was anywhere near resolution of that engagement.

Mr Gazi said that a letter of demand had been written to CSIR.

Mthokozisi Zondi, Acting General Manager, Mine Health and Safety Council, said that a letter had been issued to the Council's attorneys and they were in the process of taking legal action.

The Chairperson said that that created an impression of a long, involved process.

Mr Zondi said that the Council was at the beginning of the process.

Mr Gazi said that the CSIR had kept those monies because they had incurred administrative costs, although the Council had not received a service.  With regard to the attorneys, it appeared that their correspondence had not borne fruit in recovery of the monies.  There had been a big change in the organisation over the period. He had been appointed as Chairperson in March 2007. He had been Acting Chief General Manager and Acting CFO. All these things had impacted on the situation.

The Chairperson asked how long the Acting General Manager had been acting.

Mr Gazi said that the Acting General Manager had been in post since September 2007. The Acting Chief Financial Officer had been in post since 01 October 2007.

The Chairperson asked when the Council would have permanent officials in those posts.

Mr Gazi said that the Council was currently in the process of filling those vacancies. One of the main issues that had come out of the Auditor-General's report was that there had been serious lack of capacity, particularly in the finance section. 

The Chairperson asked if the Council had sufficient capacity now in terms of skills.

Mr Gazi replied in the affirmative. The Council had employed temporary staff in some areas during the review period. 

Mr D Gumede (ANC) asked whether those eventualities had been foreseen as part of the risk of the contract.

The Chairperson observed that the simple answer was that the risk assessment had not been done. He asked how the legal process could assist if the contract was not sound.

Mr Gazi said that it was one incident of its kind and the Council had addressed it.

The Chairperson said that it was an issue of prepayment. The Council had paid in advance for services that it had not received, and now it wanted its money back.

Mr Mofekeng said that year after year the Council had been tracing an amount of R6 million, with which some individuals had absconded,  which was still reflected in the Council's books. The Committee could hardly resolve to authorise a writing off of this R6 million, especially since the Council had never told the Committee what was going on with this amount. He asked if the Council had found the money after the auditors had audited the Council's books.

Mr Gazi said that it was still an outstanding debt in the hands of the courts. There had been difficulty in tracing those who had absconded with the money, but the courts had now found them and were dealing with the matter.

The Chairperson asked what that meant. He asked if any date was set for the final court hearing.

Mr Gazi said that he did not know when the final court hearing would be, but those concerned had appeared two or three times in court already.

The Chairperson asked if there was anyone in the organisation who knew the exact situation.

Mr Zondi said that this issue was related to the one that was raised earlier on, because the levies had been raised by the Department of Minerals and Energy, so the matter was now between the Department and the Company called Financial Solutions.

The Chairperson inferred that it was the Department that was now pursuing the matter.

Mr Zondi said that the Department was pursuing the matter, but the Council was kept abreast of developments within the Department. 

The Chairperson asked if the Director-General of the Department of Minerals and Energy was present.

Mr Gazi said that as he had reported earlier, the Director-General had had difficulty in travelling to the meeting. When Mr Gazi had contacted the Director-General, Mr Gazi, had merely told him that the meeting was starting at 09h30, so the Director-General was possibly unaware that the order of business had been rearranged to accommodate him. He confirmed, with some reluctance, that the Director-General was not present.

Mr Mofekeng said that he rested his case. It would be helpful if the Department would make a follow-up.

Mr Gumede said that his question referred to page 34, paragraph 10 of the Annual Report, and concerned the basis for the qualified opinion on property, plant and equipment.  

Ms Kate Moloto, Acting Chief Financial Officer, Mine Health and Safety Council, said that the fixed asset measures had now been installed. The Council was reviewing the useful lives of assets and these would be reflected in the current financial statements. The reason for their not having been reflected earlier was capacity constraints in the organisation at the time.

Mr Gumede asked about the nature of the capacity constraints: he asked if it was a matter of unfilled funded vacancies, or the level of skills, or a matter of attitudes.

Mr Gazi said that the Auditor-General had found that the problem had been related to the linkage of the GM and CFO roles, with the result that those functions were not performed optimally. This was why the Council had taken the view that it should pursue organisational design and bring in more people, as it already had, for example, an Acting CFO and an Acting Chief General Manager (CGM).    

Mr Gumede asked if, in the absence of a CGM, the tasks that would be performed by that official were left undone.

Mr Gazi said that was not necessarily the case. There was an acting General Manager at the time, and there was a company that was giving support on the financial side. 

Mr Gumede asked if the accounting officer had been satisfied.

Mr Gazi said, that judging by the reports that the Council had received, the problem was with the module; it was a technical problem. The reports received were that 'things were fine'. The Council was coming from a year when it had obtained an unqualified report after many years of work. In other years the accounting officer had been “shocked” and that was why the Council had taken those drastic steps to review the whole organisation and put things in place. 

Mr Gumede said that the Committee would continue monitoring that even in the next report. He asked about a list of capitalised research assets that were not available for audit purposes. He asked why that was so.

Mr Gazi said that the challenge had related to the research assets. Sometimes people, as part of their research work, bought equipment which then belonged to the Council. The list had been based on the budgeted list rather than on what had actually been paid for.

Mr Gumede asked if they were talking about intellectual property.

Mr Gazi replied in the negative, explaining that research assets referred to research equipment. The contract said these would be the asset of the Council. The asset register made provisions only for non-research assets, and that limitation had led to the qualification.

Mr Gumede said that the Auditor-General held the view that there should be a description and location of the research assets that should be updated. He asked what action had the Council and the Department taken.

Mr Gazi said that the Council had contacted institutions that had done research for it, and was compiling a full list of research assets. 

Mr Gumede asked if the Council had the required human resources and enough time for this matter.

Mr Gazi said that the time frame, particularly on the research assets, was difficult. The Council reviewed it as work progressed. Some of the people who had done research had emigrated. The work, however, was at an advanced stage.

Mr Gumede accepted that one was not dealing here with an exact science. However, for practical purposes, it was reasonable to set a deadline.

Ms Moloto said that the deadline was the Council's production of its financial statements at the end of May.  It was hoped that the list would be complete by mid-April. It was quite an involved exercise to reckon the residual values in time.

Mr Gumede said that the Committee would keep monitoring from its side. The Auditor-General had said that a complete fixed asset register was not available. A fixed asset register was a requirement of the PFMA and the Treasury regulations. It was most probably a requirement of internal audit standards. He asked the Council why it had not implemented a fixed asset register.

Ms Moloto said it had now been implemented. As the Chairperson of the Council had indicated, the Council now had the indicative view of the assets. However, some assets might have to be written off if some were found not to exist. The Council basically now had a verified fixed asset register, verified except for research assets. It was being completed to include the research assets.

Mr Gumede asked about the Council's guidelines for writing off assets.

Ms Moloto said non-existence of the asset for whatever reason, or noted also that an asset would be written off over the lifetime of the contract. 

Mr Gumede asked how the Council determined the residual amount.

Ms Moloto said that the Council was engaging with the research institutions and hoped to complete disclosure by mid-May; that was the reason for the long time frame. The Council was sitting next week, and it was hoped that the Council would determine relevant guidelines.

Mr Gumede referred to page 56 of the Annual Report, dealing with trade creditors. These had increased by more than six times. He asked what benefit had arisen from this.

Ms Moloto said that she was not aware of any specific factor accounting for the increase. One of the problems of the capacity constraint was that the cut-off at the year's end was not managed properly. That arrangement was in place for the current financial year. The Council was making sure that all creditors would be paid by 31 March. That process was well under way.

Mr Gumede said that matters raised in the Auditor-General's reports should be investigated by the Institute on an ongoing basis, not just because they would be asked about them by the Committee, but as a matter of routine and as a proactive measure to prevent recurrence.

The Chairperson said that Mr Gumede's point could not be overemphasised. Matters contained in the Annual Report were owned by the organisation. It was reasonable to expect the Institute concerned to be able to elaborate on any issue raised by the Committee. He asked what progress had been made in addressing the matters of governance raised by the Auditor-General.

Mr Gazi said that the Council had undertaken its organisational review taking account of all the issues that had been raised.

The Chairperson asked if that had included improved communication with the Department of Minerals and Energy.

Mr Gazi confirmed that there were regular meetings between the Council and the Department.

The Chairperson observed that it was unfortunate that the Director-General was not present. The mining industry in South Africa had come at a very high cost to the workers. The Council had a heavy responsibility towards enhancing the safety of the country's people in the mines. There was a need to contextualise responsibilities. He trusted that the next reports would confirm all the promises that had been made in the meeting.

Department of Arts and Culture (DAC): Interrogation of audited financial statements.
Mr T Bonhomme (ANC) said that, according to the Auditor-General, because of the fact that the asset management policy was approved only on 27 March 2007, monthly reconciliation was not performed. A proper asset register was not in place. As a result no physical verification of assets could be performed. He asked what current position was.

Mr Themba Wakashe, Director-General, Department of Arts and Culture, said that the current position was that the Department had implemented, with the assistance of the National Treasury, the LOGIS asset register. Currently, the Department had completed the verification of assets, and was reconciling the asset register with past records. Assets in the Department would be reconciled by the time of the annual report.

Mr Wakashe said that a figure of R13 million had been given for one asset because of a wrong entry of an asset priced at around R13 000, and gave details.

The Chairperson asked why this had not been explained to the Auditor-General at the time of the audit. It seemed a simple error and he could not understand why it had not been explained.  

Mr Wakashe said that the reason was linked to the fact that the asset register itself was problematic.

The Chairperson asked if the Department had been able to clarify the issue subsequent to the audit report.

Mr Wakashe answered in the affirmative.

Mr Bonnehomme asked what controls over purchases had been put in place so that such mistakes could not happen again.

Mr Wakashe said that there was now a process of internal audit in the Department and capacity for internal audit was being increased over the course of the 2008-2009 financial year.

Mr Gerber asked if the Department was battling to control the assets of which it already held custody.

Mr Wakashe said that indeed it was a challenge, in particular with regard to some of the heritage institutions.

Mr Gerber said that there was a Bill that had been tabled in Parliament some time ago. It had been considered, but not finalised, by the Portfolio Committee on Defence. The Department wanted to assume control over the Castle at Cape Town. The Portfolio Committee on Defence had still not approved the bill and had serious reservations about it. However, in the Sunday Times Business Section and Rapport of the previous Sunday, the Department had advertised for nominations for candidates to serve on the council of the Castle, on the assumption that it had already achieved custody of the Castle. This was not the case and the Department had acted improperly.

Mr Wakashe said that often when such transfers were under consideration, proper governance structures were not in place.

Mr Gerber said that he was not fighting with the Director-General. All he was saying was that what the Department had said was not true. The advertisement was misleading.

Ms Mashiane said that she was going to link Mr Gerber's question with vacancy rates in the Department. It would have been better for the Department to advertise vacancies rather than advertise for positions that had not yet been approved. 

Mr Wakashe said that the Department had advertised the Chief Operations Officer post and other vacancies and was in the process of short-listing candidates. There was a serious shortage of skills in those areas.

Ms Mashiane said that the Department had a vacancy rate of 32.9%. There were funds available. She asked the Director-General to define the problem in filling those vacant posts.

Mr Wakashe confirmed that there were funds available to fill the posts. The problem emanated from the fact that the Department had used to be the Department of Arts, Culture, Science and Technology. The split had impacted on the capacity of the organisation. A process of expansion was started in 2006 resulting in a structure approved by the Public Service in the same year. The nature of the work then obliged the Department to conduct an organisational development exercise, which was already under way.  The services of a company to assist with that exercise had been secured.

The Chairperson asked if the organisational development exercise embraced increasing capacity and filling posts.

Mr Wakashe confirmed that that was the case.

Ms Mashiane asked if there were funds linked to the existing vacancies.

Mr Wakashe answered in the affirmative.

Ms Mashiane asked what had happened to the funds saved by the non-filling of the existing vacancies.

Mr Wakashe said that the Department had started to accelerate the filling of existing vacancies.

The Chairperson asked if those funds still remained.

Mr Wakashe said that the Department had taken them and used them for other things.

The Chairperson said that Mr Wakashe's response was acceptable.

Ms Mashiane wanted to know for what purpose the funds had been used.

Mr Wakashe said that the funds had been used towards the defraying the cost of a number of national commemorations.

Ms Mashiane asked why those funds had been used for events for which specific budgets should have been prepared.

Mr Wakashe said that the nature of some events was that one had to change the way one conceptualised them.

The Chairperson observed that this amounted to a case of poor planning.

Mr Smith cross-examined Mr Wakashe about the figures for vacancies in table 2.1, in which the Department claimed to have a vacancy rate of 11%. However, according to the figures the vacancy rate was 32%.

Mr Wakashe confirmed that Mr Smith was correct.

Mr Smith was appalled at 'figures that were so inaccurate'. This was all the more shocking when these figures were presented to Parliament. All six lines in that table were inaccurate. If these inaccuracies were intentional, then the Department had a serious problem. If the inaccuracies were not intentional, then it indicated negligence. He asked how much the book cost to print, because that became fruitless and wasteful expenditure. He wanted a thorough explanation about the Annual Report.

Mr Wakashe admitted that, although the events had taken place before he came to office, there had been some negligence in the matter of the preparation of the Annual Report. He undertook to address the matter and tendered his apologies.

The Chairperson asked if all staff present from the Department were new.

Ms Mashiane asked if it was the first time that Mr Wakashe had seen the report.

Mr Wakashe said that it was not the first time that he had seen the report, but he had been focussing on the branch that he had previously headed, and tendered his apologies.  He had been Director-General since October 2007. He had served with the Department for 11 years. Other officials had served, in various capacities, for varying lengths of time.

Ms Mashiane said that this was an example of institutional memory and some of these things had been happening in Mr Wakashe’s presence.
Ms Mashiane said that the Auditor-General had found fault with the Department’s record of leave balances. This presented the possibility that monies would be paid to staff incorrectly. She asked the Department to acknowledge this deficiency. However, anticipating that they would be unwilling to answer; she proceeded to questions on matters of governance.

Ms Mashiane asked about art work that had been lost or not accounted for.

Mr Wakashe said that the Department had, in June 2005, started a process of documentation of its art works. During the process of documentation, it became clear that there were some art works that were missing. He listed the 14 works that were missing. It had been identified as an area of risk management in conjunction with an audit of art objects in the possession of government, including embassies abroad.

Ms Mashiane asked about the value of the missing objects.

Mr Wakashe said that the value was very difficult to determine.

Ms Mashiane asked if art works appreciated or depreciated.

Mr Wakashe said that it was a complex matter. In some instances, art works appreciated; in others they depreciated. It was possible to obtain only a broad opinion of any particular artist, and he gave some examples.

Ms Mashiane asked if any performance bonuses had been paid.

Mr Wakashe said that performance bonuses had been paid.

Ms Mashiane asked on what basis.

Mr Wakashe said that there were performance agreements that were in place. There had been problems in the area of quarterly reports.

Ms Mashiane said that in terms of the report there were no agreements. She asked who signed approval for the bonuses. If the Minister signed, it was necessary to ask on what basis he was informed. She thought that the Minister had been misled, because the report said that performance agreements could not be submitted for audit purposes. However, clearly the Department felt that they had been signed, and therefore they must have existed at the time of the audit.

Mr Wakashe said that what the Auditor-General detected was that information was not complete. It was a matter that he, Mr Wakashe, was aware of.

Ms Mashiane requested the Office of the Auditor-General to respond.

Ms Alice Muller, Auditor-General's Office, said that it was true that the Auditor-General’s Office worked on the basis of a sample. She did not have that particular sample with her, but the fact that  a significant percentage of the performance agreements could not be submitted for audit purposes  was serious enough to be mentioned in the audit report,.

The Chairperson inferred that there was no disagreement between what Mr Wakashe and the Auditor-General had said. The bonuses had been paid on the basis of a defective process of evaluation and yet it was possible to assess people only when a complete job had been done. The payment of bonuses in the Department had increased by almost R1 million a year. The question still had to be answered as to how the Minister approved the bonuses.

Mr Smith said that payment of a performance bonus was based on a legal contract. If for any reason that contract was invalidated, then the payment became fruitless expenditure of public money, and that was how SCOPA should deal with the matter. It was not necessary to have a debate about the matter. He asked the Auditor-General to determine the extent of any illegality in the present case. Then SCOPA would refer the matter back to the Department, instruct it to recover the money, and let it know that Parliament ‘had teeth’.

Ms Mashiane agreed fully with Mr Smith. The Department must return to SCOPA and recoup that money.

The Chairperson said to Mr Wakashe that it was necessary to revisit the matter of the bonuses. The Department must know that policies were to be adhered to. The Committee would be happy for an interaction with the Auditor-General’s Office.

Mr Gerber said that the report of the Minister, and that of the Deputy Minister had not been signed. The Acting Director-General, Mr Julius’s report had not been signed. There was a serious discrepancy in the financial figures on page 121.

Mr Wakashe undertook to obtain further information within two weeks.

Mr Smith insisted that the Department should be recalled to the Committee to explain itself rather than respond only in writing.

The Chairperson agreed, but he asked that Members appreciate that the Committee’s programme was full. He asked for written responses from the Department supported by an oral interaction after the recess.

The Chairperson wished the Department all the very best in their efforts in the challenging work that they were doing. He agreed with Mr Gerber that the plan to transfer the Castle to the Department was not perhaps well-conceived in terms of the management of assets.

Ms Mashiane said that most of the entities under Mr Wakashe’s responsibility were in disarray. She commented that although the Annual Report was attractive, the colours used made it difficult to read.

The Chairperson asked the Auditor General to examine further the matter of the Department of Arts and Culture’s bonuses.


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