DRDLR Audit Outcomes 2019/20 Annual Report, with Minister and Deputy Minister

Meeting report

Opening Remarks

The Chairperson welcomed everyone present and said that the briefing on the Auditor-General of South Africa (AGSA) report would be on the entities of the former Department of Rural Development and Land Reform (DRDLR), because the Office of the Speaker had accepted the decision not to table the annual performance section of the Department. The Chairperson asked the Minister to explain why the report would address only entities.

Ms Thoko Didiza, Minister of Agriculture, Land Reform and Rural Development (ALRRD), appreciated the opportunity to explain to the Committee, and said that the reasons for not tabling the report had been given to the Speaker. The reason for not tabling it was that the Agricultural Land Holdings Account audit was not yet finalised. On the audit process, the Department had been requested to present as a separate former department, which had resulted in the Department of Agriculture, Forestry and Fisheries (DAFF) concluding and presenting its audit with all respective entities on time. The Department of Rural Development and Land Reform audit had been delayed, but the Department’s auditor had conducted audits on the Department and all the entities except the Agricultural Land Holdings Account (ALHA).

The Minister said that the accounting measures of the Department had been questioned by the Auditor-General (AG), and discussions had been held with National Treasury (NT) on the matter. The Department had later taken a decision to advise the Speaker that the issues raised by the AG were going to cause a delay, especially since the matter had not been concluded. The Minister said that the Department had noted the complaints that had been raised by some Members of the Portfolio Committee on the delay of the audit presentation, and that a statement had been released by the Department on the issue.

AGSA Presentation

Ms Kgabo Komape, Business Executive, AGSA, said that the presentation would cover the entities’ reports, and introduced the AGSA team. She said that audits for all the entities and the Department had been concluded and submitted on 31 July 2020, as required. The ALHA statements had been received late -- on 30 September -- and matters of concern had been flagged by AGSA. Discussions between AGSA, the Department and NT had been concluded. The presentation would cover the audit outcomes of the three focus areas of AGSA, and the recommendations in preparation for the upcoming financial year.

The shifting of the ALHA funds would not be covered in the presentation because it did not form part of the previous financial year, but the upcoming one (2021/22) for AGSA.

Mr Thabo Ditodi, Senior Manager: Rural Portfolio, AGSA, highlighted AGSA’s role of the AGSA in assisting the Portfolio Committee with its oversight responsibilities. The three main areas of AGSA for annual audits included fair representation, reliable and credible performance, as well as compliance with laws and regulations of audited entities. He also outlined the types of audit outcomes in colour coded bands. The audit outcomes of entities for the past 5 years were outlined:

• The Deeds Registry had been unqualified, with no findings over the past four years.
• The Office of the Valuer-General (OVG) had also been consistent with audit outcomes, which were unqualified with no findings.
• The Ingonyama Trust Board (ITB) still received qualified audit outcomes with findings, and there had been no improvement.
• The Commission on the Restitution of Land Rights (CRLR) had received an adverse audit outcome because of incorrectly prepared financial statements.

On the credible financial reporting, he highlighted that the Deeds Registry and OVG had submitted their statements on time with no errors, and that the ITB statement had been delayed. The credible performance reporting of the OVG and the ITB had shown improvement. On the non-compliance with legislation, the ITB and the CRLR had findings, and the status of internal control for the entities was mainly good.

Mr Ditodi said that there had been a reduction, from R99 000 to R35 340, in the fruitless and wasteful expenditure of the entities in the past two years, with most of the incurred amount coming from the ITB. Irregular expenditure had also seen a reduction in the past two years, from R1.9 million to R970 000, with most of the incurred amount also coming from the ITB. Supply chain management (SCM) compliance was shown as being stagnant in the OVG, the Deeds Registry and the CRLR, which had no findings, and the ITB having material findings.

On the preventative controls, he outlined the six key areas that had been formulated to be implemented by the accounting officers to avoid recurring issues. The key drivers that were identified on the clean audits from the various entities included the tone and control culture, institutionalised internal controls, procurement of goods and services, asset management, and the preparation of financial statements. The concerns of the ITB audit outcomes were highlighted, as well as the root causes of the unfavourable outcomes. Mr Ditodi also provided the recommendations for the entities, especially for the ITB and the CRLR.

Discussion

Ms A Steyn (DA) asked the Minister if any of the tabled audit reports had been done by the Department’s entities, and raised concerns over the R900 million that had been shifted from the ALHA to the COVID-19 Agricultural Disaster Fund. She requested full details on the shifting of the funding once the Department’s report was finalised.

Mr N Matiase (EFF) shared the concerns of the R900 million shifted funding. He said that the Minister was not aware of what was happening in the Department and was being dishonest about being transparent on the matter to the public. He requested clear responses from the Minister on the matter, especially on the reasons why the Auditor-General was involved in the matter of the conditional grants under the ALHA.

Mr N Capa (ANC) raised concerns about the reoccurring findings and the person responsible for the uncorrected findings. He questioned the process of consequence management, and said that something had to be corrected, given the recommendations by AGSA.

Ms Steyn asked about the quality of the financial statements of the CRLR, because a previous annual report issued by the Department had indicated that the Department had achieved more than its targets. She raised concerns over the quality of the financial statements, and asked about the extent of the poorly compiled financial statements. On the ALHA, she again raised concerns on the shifting of funds, and said that the transactions had fallen under the 2019/20 financial year. She asked for the matter to be investigated, especially since R900 million was not used while land reform beneficiaries had no land.

Ms T Breedt (FF+) said that the ITB was a concerning entity, given the information in the AGSA presentation. She also raised concerns on the errors in the financial statements of the CRLR, and asked how bad the adverse audit outcomes from the CRLR were. She said it was worrying that entities were not improving, especially the ITB and the CRLR, and highlighted that the improvements that did happen did not relate to service delivery. She also raised concerns that the ALHA report and the Department’s audit report were still outstanding.

Mr Matiase said that he would wait on the responses from the Minister on the letter that had been forwarded to the Department with questions of clarity.

Ms B Tshwete (ANC) said that the ITB matter was concerning and should be addressed. The supply chain management tax clearance issue was worrying. The ITB matter should be resolved and the recommendations from AGSA must be implemented. Poor quality statements and continuous delays in submissions from the ITB should be investigated. She raised concerns on the management of the entity, and said it needed to be held accountable.

Ms T Mbabama (DA) also raised concerns on the ITB and the CRLR, and commented that the people who played an oversight role in the entities were not present at the meeting. She asked the Minister about the Department’s plans to resolve the issues at the ITB and CRLR. She said that over the past four years, the ITB and Ingonyama Trust (IT) had had the same recurring challenges. The management of the ITB was not interested in the inputs made by the Portfolio Committee, and continued to operate recklessly. She said that the Land Claims Commission had also not received support, and there were a lot of vacancies. She asked how the entity was expected to function if it did not receive support from the Department and vacancies were not filled.

Inkosi R Cebekhulu (IFP) also raised concerns on the ongoing issues at the ITB, and said that improvements did not seem to be important for the entity. A promise had been made by the Minister to meet with the chairperson of the ITB, and he asked if details of the discussions could be shared with the Portfolio Committee on how the ITB was administered. There were always suspensions and immediate reinstatements of ITB employees, which was concerning.

Mr N Masipa (DA) appreciated the continued quality work that the AGSA produces. He shared concerns on the ITB audit outcomes, and said that in the past the IT had always opposed recommendations made by the Portfolio Committee. He asked the Minister why incompetent individuals in the ITB were still in office, especially since the same issues were being discussed five years later. He also asked about action that had been taken by the Minister to assist the ITB, and also requested details of the discussion between the Minister and the ITB chairperson.

The Chairperson commended the Deeds Registry and the OVG on their outstanding audit outcomes. She highlighted to the Minister that the AGSA recommendation proposed that support should be given to the CRLR, especially in compiling financial statements and for oversight on the quarterly preparation of financial statements. She asked if the recommendations by AGSA were achievable. In previous engagements, there had been a decision to make the CRLR independent, and concerns had been raised on the vacancies in key positions. She asked if enough support was being given to the CRLR financially, or if financial top-ups should be requested from National Treasury.

On the IT and ITB, she shared the concerns raised by Members, and said that the main problem that had been highlighted in the AGSA presentation was the contestation over the legality of ITB operations, which should be a focus for the Portfolio Committee. She asked the ITB representatives at the meeting what was required to ensure compliance with public funds, and said that AGSA had the competency to take on institutions that did not comply. She asked for AGSA’s opinion on the ITB challenges.

On irregular expenditure, she said that it involved an incomplete disclosure, which was concerning. She highlighted that most of the challenges in the ITB were structural, and asked the Minister how the challenges would be addressed and how competent people would be appointed at the ITB. She also asked if the legislation provided the Minister with the power to employ the recommendations given by the Portfolio Committee on the IT, and called for a resolution to the challenges experienced by the ITB and the appointment of the ITB members.  

Responses by Minister and AGSA

The Minister said that all entities’ reports had been tabled on 29t October 2020, except for the ALHA and the Deeds Registry.

Ms Komape referred to the people responsible and accountable for the recurring issues of audit outcomes and the role of AGSA, said that AGSA placed responsibility on the Accounting Officer to implement a sustainable, controlled environment -- not only to prevent errors, but to detect them as well. The AGSA audited in accordance with the Public Finance Management Act (PFMA), and the Accounting Officer bore all the responsibility. The Accounting Officer must implement consequence management for the repeat findings, with executive support from the Minister. She said that the amendment of the Public Audit Act gave the AGSA additional space to promote accountability. She explained that a phased-in approach was being used, from local government to national departments, and that rural portfolios had not been included in the phased-in approach because bigger departments had been prioritised.

On the extent of the adverse audit outcome from the CRLR, she said that the CRLR had an extensive audit outcome which could be considered misleading and unreliable. She also said that clean audits were not always linked to service delivery, because a clean audit enabled other stakeholders to make decisions based on reliable records. Unreliable records and reporting were not informed.

The Minister confirmed that the letter with clarity seeking questions had been received from Mr Matiase, which had also expressed dissatisfaction with the request for the extension on the tabling of the Department’s annual report. She explained that matters that were still being discussed with AGSA and the National Treasury could not be discussed before they were finalised.

The Minister also acknowledged the concerns that had been raised concerning the ITB and the CRLR, and said that in the 2018/19 audit report, AGSA had raised a concern that the legislation of the CRLR allowed it to be independent and not fall under the Department. The government had to implement the corrective measures so that the CRLR was instituted according to its legislation and was properly supported financially. She said that discussions to address the issue of the CRLR were at an advanced stage. In the recent financial year, AGSA had started auditing the CRLR independently from the Department, and a decision had been taken for the Department to support it financially.

On the ITB, the raised concerns were relevant, and these had encouraged the Department to engage the ITB and the management of the entity on governance and work that was supposed to be done. Engagements were still ongoing to try and resolve the challenges of the ITB. The Minister indicated that one of the resolutions was the secondment of officials to the ITB so that the challenges faced by the entity could be better understood. There had also been discussions to strengthen the ITB because some members have resigned, and there was hope that the strengthening of the board would result in improvements. The ITB had been the Department’s most challenging entity when it came to the accountability of assets and resources that were extended to the board.

The Minister said that the legislation of the ITB was also being looked into, because it had limitations on the power that the Minister had in regulating the board effectively.   

Conclusion

Ms Steyn said that the reports from AGSA to the Department needed to be forwarded to the Portfolio Committee so that the issues could be identified. More information had to be made available to the Committee to avoid the same issues being discussed.

The meeting was adjourned.