Audit Outcomes: AGSA briefing; DEA, Forestry and Fisheries (Marine Living Resources Fund) 2018/19 Annual Report; with Minister

Meeting report

The Minister’s Briefing

Minister Barbara Creecy, in her opening remarks. said that the audit outcomes of the Department were embarrassing and she had not enjoyed inheriting the mess. Her advice to the Department was to accept the beating they would take at the meeting. She said the Select Committee was sitting at the same time and she would be shuttling between the two meetings. After which she left to go to the other meeting.

Briefing by the Auditor General of South Africa (AGSA)

DEA Audit

Mr Eugene De Hoon, Deputy Business Executive: AGSA, said that the DEA had progressed from receiving an adverse opinion to a qualified audit opinion, but the overall portfolio had regressed to receiving three modified opinions from the two modified opinions of the previous year.

Mr Daniel Van Wyk, Senior Manager: AGSA, said that credible performance reporting remained stagnant at 20% from the previous year while irregular expenditure increased from R119 million in the previous year to R604 million. Financially unqualified statements had dropped to 40% from a 60% level in the previous year and there was no findings (zero percent) on compliance with legislation. He said that the root causes were because of a slow or no response to improving key controls and addressing risk areas; inadequate consequences for poor performance; and instability in vacant key positions.

Mr De Hoon noted a key expansion of the AG’s mandate which allowed it to issue a certificate of debt to board members in their individual capacity if there was no consequence management, and if the entity failed to take remedial action for material irregularities recommended by the AG.

Discussion

Mr J Lorimer (DA) asked what the AG’s view was on its ability to impact on getting results from accounting officers. To what extent could the AG take action, and at what point did it become a political matter?

Ms T Mchunu (ANC) questioned the leadership’s response to issues and the CFO’s response to SCM issues. There appeared to be that no responsibility had been taken by the leadership of the organisation. Why did the Department choose to do some investigations around irregular expenditure while choosing also to leave other cases alone’? Why was the Department failing to do what it was supposed to do?

Mr P Modise (ANC) said he felt it proper that the work of the previous Committee be included in the Auditor- General’s presentation so that the present Committee could benefit and not repeat the same mistakes. He said the AG’s report in effect said that nothing was being done by the Department. What was the historical qualification that needed to be monitored? Why were vacancies not filled? Who was responsible for irregular expenses if vacancies were not filled? According to the AG, there were many mishaps in the Department, but there was also no consequence management. Could consequence management be applied retrospectively?

Ms S Mbatha (ANC) asked if it would be correct to say that under the previous Minister everything was going right. She said that the political leadership of the Department had to be advised of non-compliance, not just the executive management of the Department or entity. Why did the AG wait so long before making interventions? If the AG did not have the powers to intervene, they should get those powers. The moratorium on staffing should be checked. She asked if the staff that was employed was full time or contract staff.

The Chairperson asked how the AG could help the Committee do its work. He said there was a slight improvement in the Department’s audit from an adverse opinion to a qualified opinion. The PFMA was clear about the responsibilities of the accounting officer and that there should be consequences for wrong doing especially with regard to investigations for deliberate SCM breaches, Accountability should not solely be the accounting officer’s responsibility. The CEOs of entities should also be held to account.

Mr De Hoon said the AGSA did audits according to the legislation and only made recommendations to improve outcomes. The AG did not make recommendations on disciplinary action to be taken.

The Chairperson said he could not imagine that there were officials at the highest levels that did not understand the PFMA.

Mr Modise said the Committee must demand an immediate investigation of the MLRF as a matter of urgency.

Ms Mchunu asked if the Department could present their risk management plan for the MLRF.

Ms H Winkler (DA) said that for the past two years no allegations had been investigated. The AG needed to follow up on whether recommendations were being done.

Mr Lorimer said he agreed with Mr Modise and the Committee needed to know what went wrong.

Responses

Mr De Hoon said the AG reported back in the form of a management report to the executive authority for further action on the matters raised in the management report. On the call for the AG to be given extra powers, he said that the AG would then be able to hold the board to account and the board would be responsible for the implementation of recommendations. Failing that the AG would demand remedial binding actions. If this was not done then a certificate of debt would be issued to the board members in their individual capacity. This process was rolled out in 2018/19 to 16 audits and from the following year 2019/2020 it would be fully rolled out. 

Ms Winkler asked what the time frame was for the board to act on the remedial binding actions.

Mr De Hoon said the time frame would be stipulated in the report to the board and would need to be realistic and be based on factors such as the magnitude of the issue. On average it would be a year to the next phase of execution.

Briefing on the Department of Environmental Affairs

Ms Limpho Makotoko, DDG: Corporate Services, Department of Environmental Affairs (DEA), presented the Annual Performance Report of the Department of Environmental Affairs. On the whole the Department attained 70% of its targets.

Program 1: Administration

She said Program 1 attained 77% of its targets. It did not meet the targeted amount of women in senior management positions, and vacancies stood at 10.4% as against the target of 8%.

Program 2: Legal Authorisation, Compliance and Enforcement

Program 2 attained 67% of its targets. 41 out of 44 criminal cases were finalised because the dynamics of the cases meant that some cases took longer to complete than others. The Rhino law enforcement intervention was not achieved because the joint operations meetings with Mozambique had to be postponed because of a cyclone.

Program 3: Oceans and Coast

Program 3 attained 77% of its targets. Differing legislative requirements meant that it had been difficult to get ICM processes to align. The Garden Route National Park had been gazetted. The Antarctic Strategy was delayed due to revisions caused by input from extra government and sector stakeholders. The Effectiveness of the MPA’s workshop would only be held in the fourth quarter and its recommendations would need to be incorporated. 20 MPAs were declared. Delays were caused by interaction with the DMR, but these had now been resolved.

Program 4: Climate Change, Air Quality and Sustainable Development

Program 4 attained 75% of its targets. The target for the NCC Adaptation Strategy and Action Plans were not met due to delays in appointing a Socio Economic Impact Assessment (SEIA) service provider. The 2017 air quality indicator was not calculated because it had challenges with the credibility of the data from monitoring stations due to vandalism or because of maintenance issues.

Program 5: Bio-diversity and Conservation

Program 5 attained 82% of its targets. Intergovernmental processes were not completed for the revision of the National Biodiversity Framework. The framework would be republished for comments because while consultations took place at provincial level, it did not take place at municipal level. The Biodiversity Bill was not published for comment because the Cabinet Secretariat indicated that there was not enough time for Cabinet to discuss the Bill in this year. A regional biodiversity risk assessment training workshop was not conducted because member countries were not available on the date it was set for and it would be done at a later date.

Program 6: Environmental Programs

Program 6 attained 38% of its targets. This program included the EPWP projects and most of the issues of this program related to contracting matters. The third South Africa Environment Outlook (SAEO) report was not finalised.

Program 7: Chemical and Waste Management

Program 7 attained 60% of its targets. The PCB phase out plan was not finalised. Two major tyre processors’ contracts had been suspended over non- compliance on exports and new companies were being appointed.

Ms Esther Makau, CFO, DEA, said that action had been taken to improve the 2019/20 audit outcome based on the audit findings of the AG. The Department had received a qualified audit from the AG. The AG had found that the Department did not record and include the required information on irregular expenditure in note 26 to the financial statements resulting in an understatement of irregular expenditure by R241,064 million. The Department had not considered the monies to be irregular expenditure and therefore had not included it. The amount would now be disclosed in the interim financial statements due on 31 October. Other issues were fruitless and wasteful expenditure, prepayments and advances and an overstatement of accruals and commitments.

Discussion

Ms Mchunu said non-expenditure by the Department compromised service delivery. Why was the staff in debt to the Department? What was the Department doing to assist SMMEs to empower themselves to meet tender requirements? When did planning for projects and their associated tenders start?

Mr Lorimer asked what resolution was reached with the DMR (the Department of Mineral Resources) on the issue of Marine Protected Areas. When would the Biodiversity Bill come to Parliament? What were the consequences for the service provider of the SA Environment Outlook Report? Would they be allowed to tender again? Why were the tyre recyclers regarded as being not acceptable? Why did REDISA (Recycling and Economic Development Initiative of SA) collapse and when was a new processor expected to be in place?

Mr Modise said the AG reported a backlog in unfilled vacant positions, yet the presenter said there was only one position unfilled. He asked if the conflicting views be clarified. The CFO had said she would be declaring irregular expenditure in the interim Financial Statements. Did this mean that the CFO had failed to pick up irregular expenditure before the AG found it?  What was happening with regard to the misconduct cases? Mr Modise said that it appeared that many issues of the 2018/19 financial year were not resolved - he asked if this would now have implications for the 2019/20 financial year. Would monies be returned to the Treasury? He asked if the 48 cases that were finalised and sent to the NPA, were all the cases of all the entities. He asked what the tools of analysis were to analyse the impact of BioPANZA where it was implemented. He asked if the Department was working only with the 45 municipalities it had worked with on chemical waste management or if it was identifying new municipalities.

Ms Mbatha asked if the Department had checked on the positive and negative effects of environmental awareness campaigns that had been done. What were non-compliance notices? What was the impact of the 173 environmental authorisations inspected? Where were the 1 966 officials that had been trained and placed? Were recycled materials used in building overnight facilities? She said the number of industrial waste management plans was too low as waste needed to be diverted from landfills and recycled. Why were only a few industries complying with having industrial waste management plans? What was the Department doing concerning REDISA? How was the Department assisting SMMEs to meet tender requirements? How was the Department supporting those municipalities that had piloted household waste separation?

The Chairperson said that from Program 3 of the Department, there was general under-performance. There was no emphasis on value for money when spending and when they were not spending, it meant jobs were not created.

Responses

The Minister replied that it was a crime to under spend on the budget because not spending affected the most poor and the environment impacted on those affected the most. She said there was a relationship between implementing the modified cash standards and under performance of programs, but the process the Department was undergoing had gone on for too long and the question of value for money was essential.

On the management of waste and finding more effective ways to re-purpose, re-use and recycle, she said that the Department had voluntary and mandatory plans and Section 28 on waste tyres had clear criteria. There was a process where industry could resubmit their plans if there were minor digressions.

She said the REDISA’s plan had expired and it did not re-apply according to Section 28. The Department’s intention was to get industry together because it had been looking to have an independent body to play the role of an NPO, as a way forward. A decision on other industry plans would be taken shortly.

On household separation of waste, she said the question was whether municipalities could handle this, as only 65% of the municipalities provided weekly waste removal. It was more a question of whether one could monetise waste. Currently 65% of plastic bottles were being recycled and a colloquium on single use plastics which would be held in November and five work streams were looking at single use plastics.

The Minister said that Section 48 of The National Environmental Management: Protected Areas Act, 2003  (NEMPA, indicated the process to follow if anyone wanted to mine in an MPA and the Department wanted to set out pro-actively where fisheries and mining could take place.

She said NEMPA was at the NCOP stage and the Biodiversity Bill could be expected in Parliament in 2020.

The Minister said the Department should present on the Biodiversity Phakisa BioPANZA on how one recognised traditional healing plants and compensated communities for the intellectual property of that knowledge which was in demand in the global pharmaceutical industry.

On compliance and enforcement issues, Mr Ishaam Abader, DDG Regulatory Compliance: DEA, and also the Acting DG, said that if it was an administrative issue then a pre- compliance notice was given to allow for the company to comply, followed by a final notice after which criminal processes kicked in.

On environmental authorisation, he said it was not only authorisation but included all permitting functions of the Department. He said there were compliance follow- ups and checks that were even done at airports on certain animal and animal product exports. The 1 966 people the Department trained were from all three spheres of government as well as for prosecutors, magistrates, judges, police, customs and SARS officials.

On the misconduct cases, Ms Makotoko said that the criminal cases were not on internal staff.

Mr Abader said that non -compliant industries were charged and there were 41 criminal cases where dockets had been opened. The ‘Green’ or environmental non -compliance dockets were given to prosecutors.

On MPAs, Ms Makotoko said the final resolution was the declaration of those MPAs.The areas would be managed as MPAs.

On the State of Environment Assessment report, she said payment was withheld from the service provider and a process was being followed which could lead to a blacklisting of the service provider.

On assisting SMMEs to tender, she said the Department had conducted briefing sessions but needed to enhance the sessions and increase their frequency.

On procurement, she said the Department planned a year ahead. One area it could improve on was the terms of reference of procurement to get more community participation in the processes.

Ms Makotoko said staff debt comprised of different categories of debt. For bursaries the requirement was that the person remained at the Department for two years afterwards. If they left earlier then they had to pay back the money. They had to pass the course otherwise the fees became a debt. Other cases of debt was for damage to property and vehicles.

On the question of the differing vacancy figures, she said the AG had reported on the challenge of vacancies in leadership positions in the portfolio as a whole, while the Department had presented figures for the Department of Environment which had the one vacancy.

Ms Makotoko said misconduct cases were finalised. The corrective measures were based on timeframes for cases to be finalised and there were no financial implications. The cases were supposed to be finalised in 90 days while the Department took 130 days. The challenges had been identified and it was a question of being more efficient.

On municipalities and Polychlorinated Biphenyls (PCBs), she said the Department targeted 80 municipalities but would go to all municipalities, not only 45 of them.

On undeclared irregular expenditure, Ms Esther Makau, CFO: DEA, said the irregular expenditure would be declared in the interim financial statements because the audit in the current year was completed very late. The irregular expenditure had been noted but there was still processes to be followed between the Department and the National Treasury because SCM was in disagreement with the AG. The R241 million of irregular expenditure appeared in September. The R150 million of 2017/18 was reported in total and the undeclared irregular expenditure was the R241 million.

There was R737 million in under-expenditure of which R558 million were from the EPWP projects and R95 million was from the Green Fund and R17.6 million was from Recycling Enterprises.

The Chairperson said that the Committee did not believe that there were mistakes made in procurement, it believed there was deliberate transgressions of procurement laws and he expected the laws of the country to be respected and followed and in procurement was looking for value for money.

At this point Minister Barbara Creecy left the meeting again.

Forestry

Ms Moronga Leseke, Acting DDG: Forestry, spoke to the Agro-forestry Strategy Framework that was implemented and the number of hectares of state indigenous forests planted and rehabilitated including the re-commissioning of the Western Cape State forest plantations. 

Ms Zoliswa Luyile, Chief Director, Financial Management: DAFF, said that the repeated audit findings were the misstatement of biological assets with an overstatement of R248 million which resulted in a qualified opinion for the DAFF, the appropriateness of user’s access rights for the Microforest system was not reviewed, the activities of the systems administrator was not monitored or reviewed, there was non-compliance found regarding the immovable asset register, and inadequate controls to safeguard plantation assets in KZN.

Discussion

Ms Winkler asked for clarification on why there was no audit opinion available for program 4 for the years 2012-2015.

Ms Mchunu said the targets presented to the Committee did not give an idea of the work that was done. She did not see corrective measures to the things that had been identified as being challenges. How many hectares of government land were under lease or used for forestry on a per province basis? How long were the leases for and how did communities benefit?

Ms Mbatha said that there was a lack of information in the presentation. Could the report be fixed to have more information as it was difficult to engage without information?

Ms Winkler said there had been repeat findings on the Microforest system online tool. What was the concern here that some people had access to the tool? Why was this important?

The Chairperson asked that the presenters speak about jobs. He wanted to know about the challenges being faced in the re-commissioning of the Western Cape State forest plantations.  

Mr Abader recommended that the Department brief the Committee on what Forestry does, what it does not do, the relationship between Forestry and the Department and expand on the jobs in the forestry sector.  

The Chairperson said that this had been agreed before that the Committee get a thorough briefing on forestry and fisheries, but today, it should be details around the annual report.

Mr Abader recommended that the Department do a short submission on the jobs issue before the 18 October when the reports would be tabled in Parliament.

Responses

On Program 4, Ms Leseke said she would not be able to answer that question because it was not related to Forestry.  Forestry fell under Program 5 in the DAFF. 

Regarding the need to know the whole program of Forestry and Fisheries, she said it would do that. In DAFF though, there were different ways of doing things with activities that were and were not expressed in the APP, for example permitting was not part of the APP.

On corrective measures and leased land targets to be met and how to improve the qualification, Ms Leseke said that Forestry was struggling with Microforestry but it did not have the exclusive rights on Microforestry, and even the private sector was struggling with it. Where Forestry had gone wrong was with the misstatement of the value of biological assets because a forest fire or theft could change the value of assets overnight. A solution would be to have manpower on the ground to monitor these changes.

On how much commercial land belonged to government per province, she said the information was readily available. Most of the category A plantations were leased on evergreen contracts. The minimum lease for forestry land was 70 years. Forestry would make the information regarding leased land available.

On job creation, Ms Leseke said that 80 000 hectares of commercial land in rural areas had the potential to create jobs which were not seasonal. These jobs were not reported to the Committee because the target sat somewhere in the DAFF. Forestry had registered ‘Working for Forests’ in anticipation of the move to the DEFF.

On the residual challenges raised by the AG on the immovable assets in the TBVC states, she said the challenge was that Forestry had land in the former TBVC states which was now in central government. The   AG wanted proclamation and the title deeds but Forestry was not getting the proclamation. Some of the land was now, for example, under the Ingonyama Trust. 

The Marine Living Resources Fund

Ms Sue Middleton, Acting DDG: Fisheries Management, said that the MLRF was tabled under the DAFF banner. The MLRF had been transferred multiple times and did not have a board. The DG was the Accounting Officer. It did its own internal and external audits and was audited separately from the Department, and unlike the Department, it could rollover unspent monies. Its audit outcome had regressed to a disclaimed audit opinion. She said the DDG of Fisheries Management had left the Department and 14 charges of fraud and financial mismanagement was laid against her. She said the management of the Fisheries branch was a mess which the new DEFF was inheriting. Fisheries was pleased to be going to DEFF as it believed there was better leadership in the new Department. Fisheries would be presenting on its audit matrix in late October. The National Treasury had seconded a person to help with a turnaround strategy and the DG of DAFF was seeking to extend that secondment. She reported on the Working for Fisheries program, aquaculture projects under Operation Phakisa, commercial fishing rights allocations, small-scale fishing rights allocations, and on its compliance and enforcement activities. It allocated fishing rights to small-scale cooperatives successfully in the Northern Cape and rights would be allocated in the Western Cape, KZN and the Eastern Cape in the coming financial year. The MLRF achieved nine of its 18 targets. 

Mr Wickness Rooifontein, Director: Revenue Management: MLRF, spoke to the financial performance. There was a deficit for the year of R47,6 million and the MLRF was close to being technically bankrupt.

Discussion

Mr Lorimer spoke to consequence management and said that Forestry was under the accounting authority of the former DG of DAFF who was now in a different Department. The then Minister was Minister Zokwana, who was in conflict with the former DG because the DG had suspended a DDG. Why was there a lack of key personnel in finance and who should have made those appointments? How many abalone thefts were there from the confiscated abalone store? Who were the service providers that Forestry was in conflict with?

Ms Mchunu said her concern was the financial deficit and she asked how operational expenses could be allowed to be more than revenue when they were underspending. Why were the revenue items (mentioned on page 94 of the Annual Report) not included in the budget? She asked if it was financially prudent to write off debt while having a financial deficit.

Ms T Tongwane (ANC) asked what the reasons were for not spending on the ‘Working For Fisheries’ program. She asked about the consequence management around the DDG’s case.

Mr Modise said that Mr Rooifontein had said that the MLRF was technically bankrupt. This was an embarrassment and if he was in that position he would never admit such a statement. There was no difference between Forestry and Fisheries, they were one Department and the Department had to take the Committee seriously. He said he did not see any matrix introduced to address the AG’s concerns. He asked about the R47 million deficit spent on travel and wanted to know to which destinations the travel was and who undertook the travel. He said that Forestry should present a thorough report to the Committee on this matter.

Ms Mbatha asked if Forestry and Fishing were now under the Department of Environment, Forestry and Fisheries. If not, when would this happen? She said permanent staff had to be appointed so that they could be held accountable.

Ms Winkler said that there had been no rights allocation to the Eastern Cape, KZN and to the Western Cape cooperatives because of delays in the registration of cooperatives. What was causing the delays and what were the new timelines for the allocation of rights to cooperatives? Why was a recovery plan for abalone not developed, what was the timeline for the recovery plan and what would be done in the interim?

The Chairperson said he wanted to see the implementation of laws in the two entities as well as transformation at the entities. The challenge appeared to be corruption and he asked what happened to the 14 fisheries inspectors who had taken bribes to facilitate poaching of rock lobster. Corruption appeared to be rife and the Committee expected action because poaching was a big problem. He said only R6.5 million of Operation Phakisa’s R19 million was spent. Under-performance affected poor communities. He wanted more information concerning the irregular appointment of a company. 

Responses

Ms Makotoko said that Forestry and Fisheries were still under the DAFF until all the entities were transferred. In July the functions of the entities were transferred to the Minister of the DEFF but funding, personnel and transfers were still with the DAFF. The full transfer should be complete by 1 April 2020. Treasury was looking at areas it could prioritise for the October mid-term review. There needs to be a way to manage the transitional period. The challenge was that the Department could not change anything as all actions had to be consistent with the tabled document.

On why vacant posts went unfilled for so long, Ms Middleton said that when Fisheries was transferred to the DAFF, the DAFF decided that there could only be one CFO and none for the MLRF. The Posts were transferred as vacant, so the CFO position has not been filled since April 2010. The DG said that the CFO post would be filled as a CFO post for the MLRF and the vacant Director: SCM and Director: Financial Management posts should also be filled. She said the DDG post was subject to disciplinary processes, but there were other key posts vacant, for example Harbour Masters and Dock Masters.

On abalone thefts and burglaries, she said there were five burglaries.

She said the ‘Working for Fisheries ‘program had collapsed and was one of the charges against the DDG. A lot of the issues were part of the DDG’s disciplinary process.

Ms Middleton said Fisheries would welcome any investigation of corruption and wanted corrupt officials to be dealt with by the law so that the rest who were not corrupt were not painted with the same brush.

Ms Middleton said that nine Overberg officials were up on charges of colluding with poachers and were out on bail. They would not be allowed to work in that area.

She said the audit report was tabled while Fisheries was under the DAFF and before its transfer to the DEFF.

On the irregular appointments, Ms Middleton said that both instances were part of the disciplinary cases and were under investigation by the State Attorney who is working with the US Treasury regarding the donations. The Hawks and the SIU were also doing investigations into Fisheries.

On the small scale fisheries program and the CIPC process, Ms Middleton said rights were allocated in the Northern Cape but were still outstanding in the three other coastal provinces. Minister Creecy had instructed rights to be allocated to KZN and the Eastern Cape by the end of October and this process was complete. The Western Cape allocation would occur before the Rock lobster season between mid-November and mid-December. Meeting this deadline would be a challenge. Rights were allocated to small cooperatives under the CPIC program and cooperatives fell under the Department of Trade and Industry which was responsible for cooperatives’ registration and this was where the delays were experienced.

The former Minister had decided to delay the start of the abalone 2018/19 season which delayed the recovery plan. The plan has since been completed.

On the audit matrix, Ms Middleton said that there was a Committee meeting scheduled for 22 October and she had thought she would be presenting those details at that meeting.

On the companies Fisheries were in dispute with, Mr Rooifontein said they were Barnabas Xulu & Company. Shaheen Moola had demanded payment of R3 to R4 million. 

On the unspent monies of the “Working For Fisheries” program, while at the same time overspending on the budget, he said it had an operational budget that spent from its own income while the Treasury gave them ring-fenced monies which if Fisheries did not spend, had to be returned to the Treasury. 

On when fees would increase, Mr Rooifontein said it would be in this year but the question was whether the fees would be affordable in the tough economic climate in the fishing industry at the moment.

He said that the State Attorney decided whether people would be pursued to recover debt. The MLRF had to write these amounts off according to GRAP accounting rules. If the State Attorney recovered the money it became income again.

He said he noted the comments on the MLRF being technically bankrupt.

On depreciation, Mr Rooifontein said that the MLRF followed a cash budgeting process. Provision was made for items that had not been paid out yet.

On revenue that was not included, Mr Rooifontein said that it was donations of assets.

The Chairperson said that the same issue of corruption in Forestry applied to Fisheries as well because communities were saying that government was not acting against corruption.

The meeting was adjourned