Provincial Treasury & Western Cape Gambling Annual Reports 2020/21

Meeting report

Provincial Treasury Annual Report 2020/21 deliberations
Mr A van der Westhuizen (DA) referred to the Central Procurement Advisory Committee. He asked to what extent it had been made compulsory for departments to follow the recommendations of the Advisory Committee. On the Western Cape Supplier Evidence Bank, he asked how information was provided, who provided the evidence, and in what form the evidence had to be in. This had the potential to be a fantastic tool, however, it needed to ensure that all suppliers were treated fairly.

On the Procurement Disclosure Report, he asked if it had been adopted by National Government and if other provinces were required to follow suit, including the effect the report may have had on the pricing of products procured from suppliers.

Ms M Maseko (DA) stated that the Head of Department indicated that there had been collaboration by Provincial Treasury and municipalities to ascertain the impact of the pandemic within the province. She asked if the reports issued to municipalities on the pandemic impact provided municipalities with ways to react to those impacts. Was support offered to municipalities on how they could react to those challenges for the development and sake of the communities affected?

Mr David Savage, Provincial Treasury Head of Department, replied that the Condonation Working Committee powers had been delegated from National to Provincial Treasury due to there being a lack of processing of condonation requests. Provincial Treasury needed to establish a framework as well as governance structures for that. As such it had established a clear set of guidelines on what would constitute the minimum requirements for condonation. They also established a set of checks and balances in the governance system to ensure that it would not be subjectively executed.

The Central Procurement Advisory Committee (CPAC) was only an advisory committee and held no decision-making power. It drew on the depth of skills and experience amongst senior procurement officials across the province to deal specifically with complex problems and challenges associated with procurement in the Covid-19 environment.

Provincial Treasury's strategy was to differentiate between the different needs and contexts of different municipalities. Some municipalities had governance struggles while others had financial management or financial outcome struggles. Some municipalities were also extremely well governed and relatively financially robust. As such, its framework aimed to differentiate between the two according to the individual needs of municipalities. That would be done in a streamlined way, through its Joint District and Metropolitan Approach (JDMA) process.

The Procurement Disclosure Report, launched at the outset of the pandemic, aimed to be a useful tool for public oversight of procurement. A national framework had been developed largely based on the Western Cape’s framework. As such there was now a national dashboard on the National Treasury website which allowed for a national disclosure on Covid-19 related reporting. It subsequently expanded into a more integrated and extensive quarterly and annual report which provided more outcome-related information in the procurement space.

Ms Julinda Gantana, Provincial Treasury DDG: Governance and Asset Management, replied that in May 2019, National Treasury issued Instruction 2 of 2019/20 delegating condonation of irregular expenditure. The Provincial Condonation Working Committee (CWC) was established to assist the Head of Provincial Treasury in discharging those responsibilities. The power remained with the Head of Treasury in terms of the appointment of CWC members and how long a member served.

Mr Aziz Hardien, Provincial Treasury Chief Director: Financial Governance and Accounting, explained that a framework had been issued by National Treasury. However, most of the work began within a department where if a discovery of alleged irregular expenditure was made, the Accounting Officer had to ensure that an internal investigation was done by the department. Once that investigation was completed, and irregular expenditure was confirmed, an application needed to be completed with certain confirmations. The Accounting Officer had to confirm that no losses had been incurred by the Department, value for money for the expenditure incurred has been achieved and that a disciplinary process to hold to account people responsible for the irregular expenditure was being or had been undertaken. In almost every case of the Western Cape, disciplinary action had been taken and value for money had been attained with no losses incurred.

A letter would then be sent to the Accounting Officer from the Condonation Working Committee if any further remedial action needed to be taken. In most cases, commitments had to be made by the Accounting Officer to ensure that the irregular expenditure did not reoccur. In most cases, the referral required the department to reassess its processes and controls to ensure that the irregular expenditure was contained.

Dr Roy Havemann, Provincial Treasury DDG: Fiscal and Economic Services, replied on the underspending on its research projects. The Fiscal Futures project was elected to be an internal project to save costs. The project focused on trying to understand the long-run fiscal future of the province, as such, understanding how the macroeconomic conditions fed through into the allocations from National Treasury to the Province.

Provincial Treasury has also added another layer of doing a series of expenditure reviews and forward projections on key spending areas, particularly in health and education as it tries to forecast ten years forward for spending on education and health using projections that came from the Provincial and Municipal Economic Review and Outlook (PERO and MERO).

Mr David Maynier, Western Cape MEC: Finance and Economic Opportunities, noted that the Procurement Disclosure Report (PDR) was obviously a product of which they were proud. One of the challenges remained the National Database, where they have had some challenges with slow uploads and a system which was not as user friendly as it ought to be. He would be making further announcements on the PDR in the budget speech.

Mr van der Westhuizen asked about the condonations backlog and if it had been eliminated yet.

Ms N Nkondlo (ANC) asked for more information on the framework and time frame for concluding the public-private partnership (PPP) framework. She asked the meaning of the additional concessionaires in the DevOps. Interest was sparked when one saw the role of Provincial Treasury in the Fiscal Futures research project, including the type of fiscal trajectories which it was looking at. Recently there had been political instability in municipalities across South Africa, with the Western Cape being no exception, and impacting the fiscal stability of those municipalities. What exactly is the Department doing when it picks up on those instabilities? She asked for the reason the Gambling Board’s policies had not been concluded yet.

Mr Maynier agreed with Ms Nkondlo that political instability posed a risk to the fiscal stability of municipalities, however, rather than shying away, the Department would ‘lean in’ and put additional measures in place to try and combat the instability.

Mr Savage replied that in accordance with the law, when Provincial Treasury picked up instability which was threatening to the financial sustainability of a municipality, action would be taken absolutely without fear or favor. There was an internal dashboard of vulnerable municipalities within the province. Provincial Treasury tried its best to understand the underlying dynamics and drivers which are not only financial but also governance related. It monitored them regularly on a monthly basis, publishing a lot of information in its standardized MFMA Section 71 reports which gave the broader trends and pressures which municipalities in the province were facing financially.

Ms Gantana replied that at the end of 2019, total irregular expenditure peaked at R63 million in the Western Cape, made up of 600 cases ranging from as little as under R100 to thousands of rands. The Department of Health had the most backlogs which was understandable as it was dealing with medicines and specialized equipment that did not necessarily follow 100% of all laws in the procurement space. They worked through most of the cases for every department, with a strategy of dealing with the departments which had the highest number of irregular expenditure cases to the departments with the least.

Mr Maynier replied that a more adequate and detailed answer to the PPP question would be forwarded in writing.

Mr van der Westhuizen asked if the Supply Chain Management WhatsApp group was an effective tool for discussing problematic cases which arose. As an educator he was delighted that the word ‘training’ had appeared so often in the Annual Report. Training added a lot of value to people’s careers as well as to entities. He asked about the turnover of people trained in the Western Cape who were now working in other provinces due to the high demand for their skills. The sole goal of public procurement was to provide and support small and medium enterprises. As such, he asked how Provincial Treasury balanced the need to develop smaller enterprises and the needs of those who managed the contracts. He explained that surely it would prefer to manage one or two larger contracts than to deal with hundreds or thousands of small enterprises with a voluminous number of invoices from suppliers.

The Chairperson noted Provincial Treasury had stated in 2021 that it would be introducing artificial intelligence or machine-based learning into its programs to pick up on corruption and inefficiency in transactions. She asked how that pilot was going and how Provincial Treasury procured and drafted the specifications for artificial intelligence and machine-based learning coding.

Mr Savage replied that the WhatsApp groups played a vital role in broader communication strategies. Circulars are still being issued, however those took time to get through to people, while the WhatsApp groups alerted people in real-time, updating everyone on developments as they occurred.

The Department was progressively moving towards a much more integrated talent management strategy which looked at both young people and their current staff personnel and supported them with training in public financial management disciplines.

Single large contracts are not always found to be the most efficient and effective way to proceed. The competition in the industry is viewed as a very good thing in their supply chains. On artificial intelligence, there was a data centre which was integrated across Treasury.

On the e-Payslip system, while seeming very simple proved to have significant benefits. With the system being rolled out across the province, delivery of payslips to staff were done more efficiently and effectively, with little to no delay.

Mr Aphiwe Mazomba, Provincial Treasury Director: Financial Systems, replied that Provincial Treasury entered the industrial revolution space by using artificial intelligence and machine-learning to introduce aspects around computer algorithms which could automatically improve through experience and the data they use. They have completed the municipal vulnerability dashboard which kept track of ailing municipalities – a critical aspect in terms of oversight. They have introduced additional systems such as the ‘conflict of interest’ which was able to automatically pick up on employees doing business with government. The asset management tools were being utilized to keep track of the moveable assets, which was quite a big expenditure.

Western Cape Gambling and Racing Board Annual Report 2020/21 deliberations
Part A: General Information
Mr van der Westhuizen noted that the Act prescribed a quorum of five members, whilst the Board currently consisted of only six members. He asked if board meetings were ever rescheduled or faced challenges due to lack of quorum.

He asked if the wording in the legislation on gambling was outdated. He could not think of any other piece of legislation apart from financial legislation which was reviewed annually. The Western Cape Gambling and Racing Act had 19 Amendment Acts in only 21 years. Who should propose the modernization or updating of legislation?

Ms Nkondlo pointed out that both the Chairperson's Foreword and CEO Report in the Annual Report stated that financial self-sufficiency of the Board remained a challenge. An explanation was sought as to what challenges the Board faced in reorganizing and reengineering its own organizational design to respond to future demands and changes in the gambling and racing environment.

Ms Maseko said that the Board found itself in a time where nothing was deemed to be the ‘norm’ anymore. As such, innovative and creative steps needed to be taken to respond to the environment the Board found itself in. She asked what steps the Board has taken to add value and innovation to its vision. It needed to ensure it was able to react to its vision for 2023, as it would provide enough time to put the pieces together to ensure sustainability. She requested its plans for financial sustainability.

Mr Claude Bassuday, WCGRB Member, replied that the Board had an excellent attendance rating for meetings. The Board has never had to adjourn due to lack of quorum. The Board has made submissions on amendments to the Act, with the focus being on the 19th, 20th and 21st Amendment Bills. The law did not keep pace with technology, hence the continual need to amend legislation.

The Western Cape High Court set aside the policy determination of the Executive, with the invalidity being suspended for a period of one year. The Board received revenue from statutory fees and could not generate its own income – as such it also required legislative changes as far as organizational structures were concerned.

Ms Zoe Siwa, WCGRB CFO, replied that the difficulty for the Board's financial self-sufficiency was that the Board could only collect fees prescribed by law and that gambling development applications were based on industry demands.

The Board could not just increase its fees except as per the Act or if there were new gambling opportunities or developments. The 19th Amendment Bill would introduce new fees to be paid to the Board to the amount of R33 million. Currently, the Board was being funded by the Provincial Government and the Board received R27 million for 2020/21. Until the Board is self-sufficient financially, as per the requirements of the Performance Measure Indicator (PMI), the Board would continue to be funded by government.

Ms Sweetness Sixubane, WCGRB Manager: Human Resources replied that the organizational structure was high on the Board's agenda and would remain on the agenda until it was resolved. The Board was in the processing of contracting a service provider to assist in conducting an organization design investigation for the development of an optimal organizational structure.

Mr Savage explained that it was important for Members to recognize that the Covid-19 pandemic and the Disaster regulations hit the gambling industry just as hard as it hit other parts of the economy, causing a lot of instability which had an impact on revenue. While there was recovery underway, the impact added to the burden of an already vulnerable and structurally profoundly-changing industry.

Provincial Treasury was applying its mind and conducting considerable research in the area to understand the current environment and its likely future trajectory. The challenge with any independent regulator was that one needed to ensure that the Board could perform its role independently, robustly, reliably and without fear or favor. As such it was important to ensure that it was independent from the policymakers as well as the industry. The challenge was to have a reliable source of revenue, whilst at the same time ensuring it remained subject to expenditure constraints and its continual drive for efficiency improvements.

The Chairperson asked if the Western Cape Gambling and Racing 19th Amendment Bill had been enacted as an Act.

Mr Malcolm Booysen, Provincial Treasury Senior Manager: Local Government Budget Management, replied that the Bill had not been enacted as there were legal challenges which were being addressed currently.

Part B: Performance Information
Ms Nkondlo referred to page 22 on the expansion of the gambling industry. She asked how and what the Board was doing to drive digitization and e-commerce, considering the future and developments already occurring in the sector. She asked for detail about the automation of the Board processes, particularly the licensing process. What are some of the security challenges and risks the Board has found in the digital space?

The Chairperson noted that pages 22 and 23 spoke to the research into licensing further modes of gambling. An outcome of that research was requested. Secondly, on the Board appointment, she asked about the actual process including what would happen if the number one candidate in a selection of ranking was not chosen or declined the position.

Page 47 mentioned an over collection of revenue of R6 million. Despite the pandemic, the Board had an over collection of R6 million, whilst the majority of its programs had an under-expenditure. Surely the Board could be self-sufficient if there was money left on the books? Explanation was sought if money used for compensation of employees where positions were vacant could be redirected to other line items.

Mr van der Westhuizen asked about the decrease in interest and the source of interest. He found it interesting that in terms of the table, the Board was able to correctly anticipate that its income would drop from the previous financial year to the year under review. He asked what informed the anticipation of their income and retentions.

Mr Bassuday replied that paragraph 2.1.5 provided some context on the expansion of the gambling industry. However, the Board has also commenced a public participation process and would be considering the outcome of that soon.

Mr Alwin Matthews, WCGRB Head of ICT, replied that since 2018 the Board has gone the digital route for its business processes. They started with the licensing process, which was completed in September 2021. They have taken all the application forms from the licensing business unit and digitized those into an online platform, with the entire process being automated from start to end. To manage the environment and from a security risk perspective, once the application falls into the Boards domain, the Board processes the license right until the license is produced.

The RPM industry was busy rolling out an online casino currently, and the Board would also be tackling bookmakers from an E-commerce perspective on payments for the license itself.

Ms Siwa replied that the table on page 47 showed that while there was an over collection R6 million, included in that under item F was ‘services in kind. That was essentially the funds which they received from the Department of Public Works, being R5 million. Exclusion of that R5 million would mean that the over collection amounted only to R1 million in terms of own revenue.

She explained that they had tried to be conservative when setting up the Board income budget. They did not know what the industry demand would be when they did the budget for income. The R1.8 million retention of surplus was a specific request by the Board for its relocation, moving costs and furniture costs.

Mr Savage explained that what the Act tried to achieve was an appropriate balance of skills and strengths of Board members relative to the changing conditions of the industry. The requirements for effective regulation were a difficult process. Provincial Treasury focused on running a process which could uncover as much information as possible to give options to the Executive in that respect, with the Standing Committee playing a critical role in that. Some reforms ought to be introduced as part of the broader review of the legal framework on Board appointments and management.

Part D: Human Resource Management
Mr van der Westhuizen stated that he was pleased to see that while income of the Board had dropped quite significantly, nobody had been laid off. However, there had been some unhappiness expressed by the union about working from home. While it seemed to him that the staff were well protected against the drop in income, he sought to understand the dynamics behind the complaints from the union.

Mr Bassuday replied that the statement about the union dealt with workers' employment concerns during the pandemic period.

Mr Bassuday noted that the appointment of Board members was regulated by the Act, so the Board would not have a nomination committee for board members. Board appointments were dealt with by the Minister on the recommendation of the legislature. He just thought to reiterate that once again.

Ms Sixubane stated that the union matter was about the work from home strategy. There were a handful of administration workers who could not execute their jobs when the strategy was first implemented. The perception of the union was that the strategy did not favor those admin workers. However, the Board has since procured additional computer equipment for them to be able to work from home. The Board has also been engaging with the individuals affected and the union to resolve any challenges which continue to hinder them from working from home. The Board also invested in health and safety measures to ensure that those who were not able to work from home, were protected in the workplace.

The Chairperson thanked the Provincial Treasury and the Western Cape Gambling and Racing Board. The Committee would adjourn to deal with their resolutions.

Resolutions were dealt with and would be noted in the minutes for the next meeting.

The meeting was adjourned.