DST 2018/19 Annual Report with AGSA input; SKA Observatory Convention; with Deputy Minister

Meeting report

Auditor General South Africa (AGSA) expanded mandate
Ms Kgabo Komape, Business Executive: AGSA, spoke to the mandate of the Auditor General and the different audit outcomes. A clean audit meant the annual financial statements (AFS) are free of material misstatements and there are no material findings on performance information or non-compliance with legislation. An unqualified opinion with findings meant the AFS were free from material misstatements but material findings have been raised on the predetermined objectives reporting or legislation non-compliance of both. A qualified opinion with findings is when the financial statements contain material misstatements of specific amounts and disclosures, or there is insufficient evidence for AGSA to conclude that it is not materially misstated. The auditee will also have material findings on predetermined objectives or non-compliance with legislation, or both. An adverse opinion meant the AFS contained so many material misstatements that the AG disagrees with almost all the amounts and disclosures. A disclaimer would be issued if the auditee provided insufficient evidence for most of the amounts and disclosures in the AFS.

The Public Audit Act amendments meant a key expansion of the AGSA mandate as it can now:
- refer material irregularities to relevant public bodies for further investigation
- taking binding action for failure to implement AGSA recommendations for material irregularities
- issue a certificate of debt for failure to implement remedial action if financial loss was involved.
Once the certificate of debt has been issued, recovery measures for the lost funds would follow.

The expanded mandate as of 1 April 2019 did not introduce anything new that is not already in the Public Finance Management Act (PFMA). For 2018/19, 16 auditees were selected to be audited through the expanded mandate in a phased-in approach by AGSA. The Higher Education portfolio was not one of these.

Audit Outcomes of Department of Science and Technology 2018/19: AGSA briefing
Mr Theus Elof, Senior Manager: AGSA, commended DST and CSIR for retaining their clean audit. The NRF and HSRC received unqualified audit opinions with findings on compliance with laws and regulations due to material non-compliance by not preventing irregular expenditure. SANSA and TIA maintained their clean audit status. ASSAf received an unqualified audit opinion with findings. The overall financial health in the portfolio is favourable.

Irregular expenditure for DST and its entities declined from R52.6 million in the previous year to R12.5 million. All reported irregular expenditure in the previous year was investigated, including in the current year. For DST, all the irregular expenditure relates to non-compliance with supply chain management (SCM) processes related to the award of various quotations. For the HSRC, the irregular expenditure was for an extension of a contract that expired prior to extension as well as a variation on a contract without approval from the delegated authority. For CSIR, the irregular expenditure is a result of non-compliance with supply chain management regulations. For NRF, the irregular expenditure is due to non-compliance on deviations, expansion/variation orders and tax verification prior to the award.

AGSA recommended that audit action plans should be developed to address audit findings. NRF and HSRC management should ensure that supply chain management regulations are complied with.

Discussion
Ms J Mananiso (ANC) asked about the AG investigations. He asked if the engagement letter fully outlined the terms of reference did that not assist people to try and hide corruption. As for the cases that the AG was able to "bite", what were the steps taken?

Ms N Mkhatshwa (ANC) asked about the HSRC as it was mentioned on page 39, 41, 40 and 45 in the presentation. Should Members be worried about this?

Mr P Keetse (EFF) asked when the full implementation of the AGSA expanded mandate would take place. He asked what would happen if the AGSA recommendations were not implemented? AGSA only measures the auditee based on compliance. Do the auditors go deeper into supply chain management investigations and ensure the prices for goods and services were not inflated? Some suppliers would charge for example a department ten times more than the retail price and the AG does not investigate and ensure departments were charged the right amount– as that type of corruption is very evident.

Ms Komape replied that there were different ways of probing. Before probing, it would perform risk assessments and look through various documents and transactions. Then a risk-based approach would be developed. So the AG would get information from various stakeholders. When conducting verification of the property, plant and equipment (PPE), the auditee would be informed about the physical verification.

The core of the expanded mandate referred to material financial loss and that included ensuring that inflated prices of goods and services were detected. The auditors would probe the fruitless and wasteful expenditure note on the financial statements.

Mr Elof responded about the HSRC and said that it was drawing attention because it previously had a clean audit. The entity disclosed the irregular expenditure but AG indicated that it failed to implement the prevention of irregular expenditure.

Ms Komape said that the AG recommended that HSRC ensure that it strengthen the internal controls for the prevention of irregular expenditure.

The Chairperson commented that there were no major audit challenges for the Science and Technology portfolio. The Committee noted the expanded mandate of AGSA and the binding remedial action and issuing of certificate of debt. These measures introduce consequences.

Department of Science and Technology (DST) on its 2018/29 Annual Report
Dr Phil Mjwara, DST Director-General, stated that based on the approved 2018/19 Annual Performance Plan (APP), it achieved 42 targets (91%) and 5 targets (9%) were not achieved. On its audit outcomes, it reported the following:
- The DST received an unqualified audit opinion.
- Overall there was a drastic reduction in issues raised by AG.
- Comparatively, audit findings in the area of Finance had been reduced significantly by 80% and in the area of Performance by 90%.
- The department was fully compliant with the prescripts and all indicators were SMART.
- However, the audit finding in the area of IT increased by 120% and posed a risk to the organization.

On its goal of increased knowledge generation, during 2018/19 DST awarded 4 633 research grants: 40% went to black researchers; and 39% went to women. 9 159 peer-reviewed research articles were published by DST-funded researchers in the Thomson Reuters (TR) Web of Science Citation Database.

On research infrastructure grants, the Department, through the NRF, and internally driven processes awarded 35 research equipment and infrastructure grants, totalling R703.015 million to universities, science councils, museums, national facilities and other public research entities. This investment includes the establishment of large research infrastructures as part of the implementation of the South African Research Infrastructure Roadmap (SARIR).

Through the NRF, the Department funded or co-funded 13 154 students as follows: 4 572 honours, 5 202 masters and 3 380 doctoral students.

DST spent 99.2% of its budget and the R66 million variance was surrendered to the National Revenue Fund. The reason for the variance was delays in building construction by the Department of Public Works. Total procurement expenditure was R106.4 million; 39% was spent on SMMEs, 45.77% on black companies and 23.11% was spent on woman owned companies.

Discussion
The Chairperson said that he was quite frustrated with the presentation's financial information as it failed to capture a high-level view of the financial information and there was a lack of detail. He had to consult the official Annual Report. He was not happy with the presentation as it failed to ensure Members were adequately informed. When the Committee engaged the Department earlier this year, it was made clear that financial information ought to be presented adequately to give Members a sense of the financial movements. Hopefully, going forward that aspect would be treated with some level of respect.

Dr W Boshoff (FF+) congratulated the Department on the aims that were achieved. If there are so many students and that aim was exceeded, it is an unqualified achievement. However, if DST agrees that could lead to unbalanced outcomes, is there a plan to rebalance the target or is it good to exceed the targets? What are the methods used by the NRF to achieve its demographic targets?

Ms D Sibiya (ANC) noted the mention of improvement in the innovation and capacity in local and district municipalities – she sought more clarity on this.

Mr Keetse asked why DST is not being ambitious as far as innovation is concerned. The Department complained a lot about the funding that it receives from government being inadequate. He felt that there should be some sort of ambitious element or ambitious targets. For example, Rwanda launched its own cellphone, a government product, that will contribute to the economy. 

Mr Nodada said that the report was one of the best and most well-put together that he had seen so far. It gave a clear overview of the department’s programmes and he commended the Department on its successes and achievements. He asked about the targets for Programme 4 Research Development and Support and Programme 5 Socio-economic Innovation Partnerships and if those targets were linked to the budget that the department received. Was the challenge about the target for number of doctoral students linked to financial implications?

Dr Mjwara replied about rebalancing the targets, saying that at the time the targets were set DST was seeking to address a particular problem. The Minister and other stakeholders do engage on these targets to ensure that the objectives are met and did not disadvantage others. At the Honours and the Masters level we are reaching expectations, but we are struggling a bit with the Doctoral students.

On the level of ambition at DST, we have looked at our initiatives in the manufacturing sector and what we can put together to drive innovation in that sector. That level of ambition is already present in our thinking as we are designing the following year’s strategic plan and including inclusivity and transformation. When DST shares its 2020/21 Annual Performance Plan and Strategic Plan the Committee can push the Department a bit if Members think that it is not ambitious enough.

Dr Mjwara replied that that the Programme 4 targets were hampered by the depletion of funds. There was a reduction of funding. Even though the numbers were brought down by the budget, we have indicated that the variation in student numbers should be within 10% of the targets that should be met. We engaged with AGSA on this and it agreed.

Programme 5 had two major targets that were not met: At least 23 statistical reports / policy briefs submitted to Cabinet  and Decisions provided within 90 days for 80% of applications for R&D tax incentive. We have been having problems with the tax incentive as they are processed by contracted people who are experts and if one or two people are not able to process the work quick enough, it ends up delaying the process. The Department had asked the DDG to put together a presentation outlining all the system innovation activities with a provincial breakdown. This presentation would be presented to the Committee.

He apologised about the lack of financial breakdown and promised to furnish more detailed information at a later stage.

Ms Nonhlanhla Mkhize, DST Chief Director: Innovation for Inclusive Development, replied that the National Development Plan (NDP) calls for government to be innovative in service delivery. The tool was introduced to allow municipalities to identify gaps that could be looked into to strengthen their service delivery. Now municipalities have realised that the tool can be very useful and hence they have raised their hands in seeking assistance to make use of the tool.

Higher Education and Training Deputy Minister Buti Manamela - who was present at this stage - said that for the NRF one needs to understand that we are meeting targets outside the problem – the targets are not based on the great demand or what we broadly require.

The Chairperson said that AGSA noted the fruitless expenditure of R526 000 by DST due to the cancellation of an event. This was not disclosed in the Notes to the Financial Statements and one would expect it to be disclosed. The Committee could get this information when the Department provides the promised detailed financial information.

The Chairperson said that the Department and its entities have been generally performing well over the years. The Committee has had a briefing from the R&D Chief Director and the Committee requested a follow up discussion with the Department on that because it is an important area. The Committee wanted to get an idea from the Department on what it would take to achieve the R&D and Innovation objective of 1.5% of GDP. It looks like we are going in the right direction, based on what the department has presented. The Committee was quite happy with the performance of the Department.

Convention Establishing the Square Kilometre Array (SKA) Observatory: DST briefing
Mr Daan Du Toit, DST Deputy Director-General: International Cooperation and Resources, went through the draft Convention text and legal opinions from the Department of Justice and Constitutional Development and DIRCO. The Convention was signed in March this year in Rome by 15 countries. The Convention establishes the Square Kilometre Array Observatory (SKAO), the intergovernmental organisation (IGO) tasked with delivering and operating the SKA.

The SKAO enabled relevant diplomatic privileges and immunities to facilitate implementation of the project. It provided the project with the flexibility to design policies, such as procurement, best suited for the project. It is in many instances modelled on the example of CERN and it will be unique in that it will be the first science-focused IGO which will comprise membership from Africa, Americas, Asia, Australasia and Europe.

Dr Boshoff said that South Africa would have little jurisdiction over the SKA project. He asked Dr Adam to elaborate on how the jurisdiction of the project would unfold in the country and the technicalities.

Dr Rob Adam, Managing Director at South African Radio Astronomy Observatory (SARAO) said that the headquarters of the SKA Observatory would be located in the same building but the building would be divided to accommodate the IGO office and the South African Radio Astronomy Observatory. It would be a divided space where international law applies in one area and South Africa law applied in the other. The SKA dishes would be transferred to the IGO balance sheet but the land would belong to SARAO.

Discussion
The Chairperson asked where international law would be applicable; would it be inside the offices or elsewhere?

Dr Adam replied that this would be in the headquarters of the Science Operation Centre which would most likely be in Cape Town and the Engineering Operation Centre in the Karoo. There will also be a Data Centre and those three areas would be within the jurisdiction of the IGO.

Mr Du Toit replied that these were details that would be covered in the hosting agreement. There will be parts that would be under the jurisdiction of the Director General and the SKA Observatory and SKA would commit to complying with South African legislation. This will be a partnership but there are areas that would be under the control of the SKA Observatory.

The Chairperson said that international law keeps coming up but the IGO would not be part of the UN multi-lateral partnerships; so what is the source of this international law? International law is often derived from the United Nations under the spirit of multi-lateralism.

Mr Du Toit replied the Convention agreement by the 15 different governments was undertaken by the international law system provided for by the United Nations but the organisation created does not form part of the political governance structure of the United Nations.

Dr Adam replied this was not an uncommon practice. For example, CERN in Geneva operated exactly the same way and worked according to the UN law principles but they have their own agreement amongst Member States which defined their own agreement.

SKA Convention: ratification approval
The Chairperson indicated that the Committee should indicate if it accepts the Convention for ratification.  It would then go to the National Assembly for ratification with the aim for approval before Parliament rises in December. He remarked that the 2015 Paris Agreement on climate change was signed but yet the text was still being discussed. So the SKA Convention could be approved and the text could be discussed later if concerns arise.

The Freedom Front Plus and Democratic Alliance noted that further consultation within their parties would be undertaken before expressing approval or objection.

The Chairperson welcomed that.

Mr Keetse asked about the financial implications of the project on the South Africa fiscus. He asked for a sense of the financial contribution by South Africa.

The Chairperson replied that South Africa contributed to the project but the understanding was that once the project was in operation South Africa would be credited for its contribution. In addition, as the hosting country it would receive economical benefits.

Mr Du Toit said that 10% of the capital of the project would required for the operations phase of the project. That would be taking place in South Africa.

Dr Adam simplified this by saying if the capital outlay of the project was 400 million Euros, 40 million Euros would be required annually for the ops-phase. That is money that would be poured into the SA economy and this project has a lifespan of 50 years. That is how the SA economy would benefit from this project.

The majority of the Committee Members (from the ANC) agreed to ratify the Convention. A Committee Report would be compiled and signed by the Chairperson on behalf of the Committee. The DA and FF Plus reserved their rights to vote until further consultation with their parties.

The Committee would prepare a statement which outlines the agreement for the ratification and adoption of the Convention.  

Mr Nodada suggested that the Committee visit the SKA Observatory.

The Chairperson replied that this would be organised and arrangements would be made.

Meeting adjourned.