ATC170201: Report of the Portfolio Committee on Tourism on 2016/17 Quarterly (Quarter 1) and Financial Performance Report, dated 01 February 2017

Tourism

Report of the Portfolio Committee on Tourism on 2016/17 Quarterly (Quarter 1) and Financial Performance Report, dated 01 February 2017

 

The Portfolio Committee on Tourism, having considered the quarterly reports of the National Department of Tourism and South African Tourism on 2 and 9 September 2016 respectively, reports as follows:

 

1. Introduction

The purpose of the tourism vote is to promote and support the growth and development of an equitable, competitive and sustainable tourism sector, enhancing its contribution to national priorities. To achieve this purpose, the Portfolio Committee on Tourism is responsible for conducting oversight over the National Department of Tourism and South African Tourism on how they carry out their tourism mandate.

The Department of Monitoring and Evaluation in the Presidency provides guidelines for quarterly reporting. These guidelines stipulate that quarterly performance reports provide progress on the implementation of an institutions’ Annual Performance Plan in the previous quarter, with particular reference to monitoring delivery against quarterly performance targets. As with the Strategic Plan and Annual Performance Plan, consistency and alignment in performance information, objectives, performance indicators and targets, should be ensured in the quarterly report. The Department of Tourism is therefore expected to ensure that the actual achievements of targets set in the Annual Performance Plan are reported in the quarterly reports.  The legal requirements related to the production of quarterly performance reports are reflected in the Treasury Regulations. Section 5.3.1 states that the accounting officer of an institution must establish procedures for quarterly reporting to the executive authority to facilitate effective performance monitoring, evaluation and corrective action. In addition, National Treasury Instruction Note 33 outlines that the mandatory requirements as set out in the Framework for Strategic and Annual Performance Plans should be fully complied with.

This report provides the scrutiny of the quarterly reports of both the National Department of Tourism and South African Tourism with regard to their alignment to government priorities, quarterly financial and non-financial performance, and the National Development Plan.  

 

1. National Department of Tourism Quarterly Report (Q1) for 2016/17

The performance of the Department against the Annual Performance Plan for Quarter 1 of 2016/17 is as follows:

Table1: Achievement of targets per Programme

Branch	Number of planned targets	Number achieved	Targets not achieved	Percentage achieved	Percentage not achieved
Administration	20	17	3	85%	15%
Policy and Knowledge Services	37	31	6	83.78%	16.22%
International Tourism Management	13	11	2	84.62	15.38%
Domestic tourism management	21	11	10	52.38%	47.62
Total	91	70	21	76.44%	23.56%

Source: adapted from NDT 2016

 

1. Achievement of targets

The Department planned to achieve 91 targets in the first quarter of 2016/17 and 70 targets were achieved whilst 21 were not attained. This totals to 76.44 percent of targets achieved and 23.56 percent not achieved.  The Department has a trend of reporting on targets not achieved with a significant work done painting a picture that they are on the right track to achieve annual targets. The pattern has been that in most cases, these targets lag behind for the entire year and are subsequently not achieved at the end of the financial year. The Committee is closely scrutinising such reporting, especially the affected targets, for tracking throughout the financial year. The concern is mostly with programme 4 which carries a number of targets that are already behind schedule.

 

2.2        Programme performance

The Departmental overall performance for the first quarter was unsatisfactory with the following issues emerging in the four Programmes:

2.2.1     Programme 1: Administration

The Department achieved 17 of the 20 targets set for the first quarter accounting for 85 percent achieved and 15 percent not achieved.  Firstly, the Department did not achieve 50 percent of women representation in the senior management (SMS) but maintained a 49.3 percent. The Committee acknowledged that this is a fluid target as employees can resign at any time resulting in the non-achievement of the target. The Department could however expedite the recruitment process in line with their employment equity to maintain gender parity. Secondly, the Department achieved 85 percent in the implementation of their communication strategy instead of 100 percent set for the quarter. This target was not achieved due to internal delays in convening workshops with internal stakeholders, and late media monitoring and analysis report from the service provider. The Department could improve coordination of internal stakeholder engagements to ensure that all targets that are not depended on external stakeholders are achieved as these are “low hanging fruits”. Thirdly, the Department did not approve the draft Regulations on lodging of tourist complaints as planned. The reason for non-achievement of target was that the Regulations were not signed off by the designated official.  This target also depends on internal processes that have delayed the process of signing off and points to poor internal stakeholder engagements.

 

2.2.2     Programme 2: Policy and knowledge services

The Policy and Knowledge Services branch did not achieve 16.22 percent of their targets, which is six out of thirty seven planned for quarter one. Only the Terms of Reference were developed for the procurement of the service provider to conduct the baseline study for the amended BEE Codes and the service provider was not procured as planned. The service provider for training tourist guides was also not appointed with the Department citing that the service provider did not quote according to specifications. In addition, the service provider to develop the CPD programme for tourist guides was not developed and the reason given was that the appointment could not take place due to consultations that had to be conducted with respective Units in the Department. The service provider to develop the mobile app for tourist guides was also not appointed. The Department reported that the appointment was delayed by the development of the specifications which took longer than initially planned due to difficulty in sourcing required information

The non-achievement of targets in Programme 2 points to poor internal coordination. This in turn points towards poor internal risk auditing and that the Department cannot detect internal bottlenecks that have a potential of delaying project implementation. There are also signals of poor performance from responsible officials who did not practice duty of care to ensure they planned properly and executed the targets they are individually and collectively responsible for.

2.2.3     Programme 3: International tourism management

 

Programme 3 did not achieve 15.38 percent of the targets for the quarter which is two of the thirteen targets planned for the quarter. The Department did not conduct phase 1 of language training in Russian for tourist guides due to taking a strategic decision to focus on the implementation of Mandarin within the current financial year.  The Department took a strategic decision to change quarterly targets in the Annual Performance Plan. The strategic decision taken by the Department to change the implementation plan has consequences for non-achievement of quarterly targets as contained in the Annual Performance Plan.  Section 4.2 of the Framework for Strategic Plans and Annual Performance Plans issued by the National Treasury stipulates that to simplify performance tracking, in-year changes to the plan should not be made. Where an institution’s performance exceeds or misses targets due to in-year budget changes or for another reason, this should be noted in its annual report. In addition, the Terms of reference for capacity-building interventions for effective participation in market access were not circulated as planned. The Department cited that this was not done due to delays in alignment with the Domestic Tourism Management branch.  This is also a case of dereliction of duty by staff who did not perform their work on time to meet the planned target.

 

2.2.4     Programme 4: Domestic Tourism Management

The Department was only able to achieve 52.38 percent of the planned targets for quarter 1 which is ten out of eleven targets. The audit of the 2010/11 Domestic Tourism Growth Strategy was not conducted due to fact that the terms of reference were not yet approved to appoint service provider. The tourism enterprise developmental portal was not operational due to awaiting the Corporate Identity Manual Approval. Portal will be activated upon approval. The Procurement and appointment of service provider for Sommelier Training course was not done due to the consultative process with the relevant stakeholders taking longer than initially anticipated. The procurement and appointment of service providers for Hospitality Service Training Programme was not done due to delays in procurement. The appointment of the service provider to train 500 food assurers was not done due to the delays as a result of budget challenges which have since been resolved. The contract for the four iconic national heritage sites for the provision of funding for the development of tourism interpretation was not done due to delays in receiving inputs into Memorandum of Agreement (MOA’s) from management authorities of heritage sites.  The 200 unemployed youth were not recruited, orientation not provided, and not placed in the selected 50 beaches due to the process of consulting with municipalities in the three provinces to identify the participating beaches taking longer than anticipated. The framework on the development of the infrastructure Master Plan was not finalised due to the framework on the development of the infrastructure Plan having to be finalised after the second quarter and after sign-off of Service Level Agreement SLA with IDC. 288 full-time equivalent (FTE) instead of 523 jobs were created through the SRI programme due to the procurement of service providers for projects with high FTEs not finalised in the first quarter.

 

2.3        Observations on reasons for poor programme performance

The Committee has made a number of observations on possible factors contributing to poor Pprogramme performance and will be monitoring them closely in the remaining three quarters of the 2016/17 financial year. The observations are as follows:

 

2.3.1     Lack of details on performance reported

The Department does not provide details of the performance against set targets in their reporting to assist the Committee to a full appreciation of what has been achieved and not achieved. A request has been repeatedly sent through the Parliamentary Liaison Officer to provide details but this has not been honoured. It would be helpful if the Department could provide specifics of some of the targets and not merely report that the activity has been conducted.

 

2.3.2     Targets not achieved in the previous financial year, 2015/16

The fourth quarter report for the 2015/16 financial year shows that there was a number of targets (15.79 percent) that were not achieved. Some of these projects should have been finalised in the current financial year but there was no indication in the report that the Department had finalised them. These include projects such as the finalisation of the National Tourism Sector Strategy whereby only six provinces had been consulted by the end of the 2015/16 financial year.  The Department indicated that a draft NTSS was in place but also mentioned that they were considering developing a new tourism policy and that the NTSS should take this in consideration. It is therefore not clear if the Department indeed has finalised the draft National Tourism Sector Strategy. The identification of the 200 Food safety Assurers was not done in the previous year and 500 have been planned for the current year. The issues which led to failure of the 2016/17 project were not provided and the current project has already met a delayed start. This is a cause for concern as the details for non-performance in the previous year were not elucidated.

 

 

 

2.3.3     Pre-determined objectives

 

Some of the pre-determined objectives are depended on external stakeholders and the Department had not done adequate ground work and planning to ensure that the targets are attainable during the quarter. The Department has failed to meet quarter one targets due to issues that still need to be sorted out with the external stakeholders. Similar challenges have been experienced despite the Committee having raised the importance of proper planning before the target is incorporated in the Annual Performance Plan. 

 

2.3.4     Delays in finalising Terms of Reference (TORs)/ SCM Committees

 

 

The Department did not finalise TORs on time and this led to delays in initiating procurement and/ or appointment of service providers for various projects. Despite the Department saying that a number of these matters have been resolved, the Committee is of the view that the delays may also be due to innate weaknesses in internal processes.

 

 

2.3.5     Management and internal control

 

There were delays in initiating almost all the projects in the first quarter of 2016/17. This points to the laxed management control is in the Department. The Department assured the Committee that there was no management vacuum in the Department as all the members of the senior management team were on top of issues in their respective units. However, the Committee was concerned that a number of staff responsible for driving certain projects had not adequately performed their duties in the first term, and this led to a number of unnecessary delays. The Committee is of the view that the top management in the Department should strengthen their management control to ensure that the Department performs optimally against the set targets.

 

 

 

 

2.3.6     Poor internal audit, and monitoring and evaluation

 

 

The Committee was concerned that the departmental internal audit was not able to identify potential risks that could lead to poor performance.  This is a recurring concern as it had happened before that the Department set targets that were not achievable and this risk was not identified at a planning phase. The Department was of the view that this observation by the Committee is misplaced as they had been ranked number two by the Department of Monitoring and Evaluation with regard to internal controls.  However, the Committee is concerned that these internal controls are not fully implemented as there are still performance risks that are still not adequately gleaned by internal audit.

 

 

2.3.7     Entity oversight

 

South African Tourism continues to underachieve and the Department is apparently failing to conduct efficient and effective oversight this entity. The Department reported that they had an oversight mechanism where they meet the entity on monthly basis and the individual Deputy Director-Generals and the Director-General meet with the relevant counterparts on regular basis. Despite this, the entity seems to be on a declining trajectory with regard to performance.

 

 

2.4        Expenditure

The Department had spent 37 percent of its allocated budget in the first quarter which indicates overall over expenditure by the Department in the first quarter of 2016/17. Programme 1 spent 19 percent of its budget, Programme 2 spent 50 percent, programme 3 spent 27 percent and Programme 4 spent 9 percent. The expenditure shows some anomalies with Programme 2 having spent half of its budget, which is serious over expenditure given that it is only the first quarter of the financial year, and Programme 4 spent 9 percent which is gross under expenditure. These two extremes could be attributed to Programme 2 having transferred large amounts of money to South African Tourism to hedge against foreign currency exposure whilst in Programme 4 a number of projects had not been implemented due to delays caused by internal staff inefficiencies.  The Committee will be scrutinising the Departmental expenditure in the subsequent quarters of the financial year.

 

1. South African Tourism First Quarter Report of 2016/17 financial year

South African Tourism (SAT) also reported their first quarter performance of the 2016/17 financial year. The overview of SAT performance shows a continued non achievement of set targets which is a concerning trend as this entity also failed to achieve all the targets in the 2015/16 financial year, except one. If this non-performance trend that has also emerged in the first quarter persist, the entity may not achieve all of its targets in the 2016/17 financial year as well. The performance information for South African Tourism against the set targets for quarter 1 of 2016/17 is provided below:

 

3.1        Achievement of targets 

South African Tourism set fourteen (14) performance targets for the 2016/17 financial year. It was difficult for the Committee to ascertain the achievement of targets due for reporting in the first quarter of 2016/17 as SAT distorted reporting period.

Table2: Achievement of quarter 2 targets for 2015/16 as reported

Key performance indicator	Annual target	Quarterly target	Number achieved	Number not/ over achieved	Percentage achieved	Percentage not achieved
Number of tourist arrivals achieved	9 077 995	2 294 078	2 721 005	426 927 above target	Exceeded by 19%	Target exceeded by 19 %
Number of domestic holiday trips achieved	3 059 764	750 474	661 000	89 474 below target	88.0%	12 % below target
Total revenue achieved (in billions)	R95.7	R22.8	R40.1 (Jan – March)	R17.3 above target	Target exceeded by 76 %	Reporting period not consistent with financial year
Percentage of positivity achieved	40 %	NA	38 percent progress	Not due for reporting	Not due for reporting	Target not achieved by 2%
Number of business events hosted in South Africa	138	No quarterly targets	No quarterly targets	No quarterly targets	No quarterly targets	Not due for reporting
Number of business delegates hosted in South Africa	77 567	No quarterly targets	No quarterly targets	No quarterly targets	No quarterly targets	Not due for reporting
Number of grades establishments	5 650	1 273	1 251	22	98.2%	2 percent below target
Number of graded room	5 650	27 631	24 933	2698	90.2%	10 percent underperformance

Source: Adapted from SAT 2016/17 first quarter report

 

3.3        Performance per key performance indicator

The following information depicts performance against selected targets:

 

1. Number of tourist arrivals achieved

The target was exceeded by 426 927 of tourist arrivals. However this overachievement of the target cannot be verified as reporting by SAT for this target is inconsistent with the reporting period.  The target is for January to March instead of April to June. The issue of the reporting period is a challenge as the Committee is expecting quarterly performance but SAT reports on annual performance on some of the targets. SAT indicated that this target is based on benchmarking with the United Nations World Tourism Organisation. The Committee is however of the view that SAT should be reporting based on the StatsSA figures as the monthly statistics are available. SAT should collate the figures from various data sources and report accordingly.

 

 3.3.2    Number of domestic holiday arrivals

SAT was able to achieve 88 percent of the set target for domestic holiday arrivals. This fell short of the target by 89 474. This shows a continuing trend of decline in the domestic tourism figures. The non-achievement of targets continues despite the additional budget ring-fenced for domestic tourism initiatives. It was however noted that SAT was embarking on new domestic tourism campaigns such as #Tourism for All which is additional and aligned to the #Tourism for All” and “A million experiences are just a Sho’t left away”. The Committee was also concerned with SAT depending on Visiting Friends and Relatives on this target. The view of the Committee is that VFR does not have economic benefits to the sector as travellers do not necessarily utilise commercial tourism establishments. The entity should strive to convert VFR to leisure tourists.

 

1. Total tourism revenue

The total tourism revenue depends largely on a number of international arrivals and domestic trips. SAT reported that the target was achieved by 76 percent. The achievement of this target cannot be verified as the reporting is inconsistent with the reporting period as it reflects January to March not April to June. This is an addition challenges of the entity reporting outside the financial year reporting period.

 

1. Number of business events hosted in South Africa

During the Annual Performance Plan and Strategic Plan briefing in March 2016, the Committee expressed a concern about the South African National Conventions Bureau (SANCB) reporting on certain targets only on annual basis. In this regard, for example, the Committee requested the SANCB to provide a quarterly breakdown of the 138 meetings for the 2016/17 financial year and specify the number of delegates and revenue to be generated by each meeting; indicate in which provinces, cities, or towns the meetings will be held; and a plan to deal with the geographical spread and submit this addendum to the Committee when South African Tourism comes for the first quarter reporting for the 2016/17 financial year. The SANCB did provide a separate annexure on the breakdown of the targets and this must be a standing reporting item in all the subsequent quarters.

 

 3.3.5    Number of graded rooms

The SAT reported that the underperformance of 10 percent on graded rooms was mainly due to cancellations by hotels. Some hotels had indicated that they were opting out of the grading process as their clients were not particularly interested in using grading establishments. This is a concern as grading is meant to ensure quality assurance in the sector and a continuing trend of cancellations, especially by hotels, jeopardised these quality assurance interventions. The decline is persisting despite the basket of benefits offered to the industry and the interventions by FCB South Africa (PTY) LTD.

 

1. Budget expenditure

SAT has spent 30 percent of its budget, R673.3 million against the R1.2 billion for the year. The over expenditure of R353 million was incurred against the R320 million budgeted for the quarter. This was due to hedging for foreign currency to avoid budget leakage due to foreign exchange which increases costs of doing business abroad. However, the entity under-budgeted for upfront allocations from the NDT in the first by R370.9 million as this amount was not reflected in the Annual Performance Plan targets. On the other hand, the entity under-budgeted by R10.7 million which is money received from the TOMSA Levy.

 

1. Committee observations on performance by South African Tourism

The Committee was generally not pleased with the performance of South African Tourism during the first quarter of the 2016/17 financial year.  The following issues were considered as matters of concern:

 

1. Reporting time-periods

It was observed that South African Tourism continued to report on some of their targets on annual calendar year instead of the financial year. For example, the number of international tourist arrivals and total revenue were reported for January to March 2016 instead of April to June 2016. This challenge continued despite the previous commitment made by SAT to the Committee that they will be aligning their reporting to the financial year. A permanent solution should be found between the Committee and South African Tourism on how this matter should be handled. If the entity cannot report on quarterly basis due to certain data collection constraints, a reasonable and legal explanation should be provided to the Committee through the Technical Indicator Descriptor information, and this should be an agreed process with the National Treasury.

 

1. Vacancy rate at South African Tourism

It was observed that SAT currently operates at 86.14 percent of occupancy rate.  This means that only 174 of 202 approved positions were filled. The concern of the Committee was that most of the vacant posts were within the marketing department which is the core business of SAT. South African Tourism acknowledged that their vacant rate was indeed high but alluded that they had taken a strategic decision not to fill the posts as they were in the middle of the organisation review process. The posts will be filled after the new structure has been developed emanating from organisational review.

 

 

 

1. The impact of FCB in non-achievement of targets

 

The Committee observed that South African Tourism appointed FCB South Africa (PTY) LTD (FCB) as its Lead Marketing Agency in the execution of its mandate to market South Africa as a tourist destination of choice to both domestic and international. However, the effectiveness of FCB in assisting SAT in achieving its targets was not clear as the entity was not improving in its performance.  It was noted that FCB was appointment on a non-exclusive basis to provide SA Tourism with the development and execution of integrated marketing services, media buying, planning and coordination services globally for a period of 3 years effective 1 October 2015. However, the Committee observed that there were still challenges with the performance of SAT and there was no clear value added by the FCB in the performance of the entity.

 

1. Recommendations

After assessing the financial and non-financial performance of the national Department of Tourism and South African Tourism for the first quarter of the 2016/17 financial year, the Committee recommends that the Minister of Tourism:

1. Ensures that the Department strengthens its management controls and risk management to ensure that there are no delays in the implementation of projects to avoid non-achievement of targets specified in the Annual Performance Plan.

 

1. Improves the departmental oversight role over South African Tourism to ensure that the SAT Board achieves targets as set in their Annual Performance Plan.

 

1. Ensures that South African Tourism observes the correct quarterly reporting periods in line with the targets postulated in the Annual Performance Plan or provide clear technical indicator descriptors to the Committee justifying deviation from reporting according to the financial year time frames.

 

1. Conclusion

 

The financial and non-financial performance of both the National Department of Tourism and South African Tourism in the first quarter of the 2016/17 raised serious concerns to the Committee. The two organisations did not perform satisfactorily against their set targets. This creates uneasiness with regard to whether or not the two organisations are on the right trajectory to achieve their annual targets and make necessary contribution to the sector as envisaged in the National Development Plan and the National Tourism Sector Strategy.

 

The Committee will monitor the progress in the subsequent quarters with regard to issues raised in this report. The Committee will also be interacting with the Ministry of Tourism through the office of Chairperson to bring to bear necessary improvements in the organisational performance of the two organisations.

 

Report to be considered