Department of Environmental Affairs and Development Planning Audit outcomes & 2019/20 Annual Report

Meeting report

Opening comments

The meeting was commenced by the Chairperson announcing that the session between the Committee and the Auditor-General of South Africa (AGSA) would be closed to the public. It would later be opened to the public within an hour and a half.

The purpose of the meeting was to discuss the audit outcomes of the 2019/20 annual report of the Western Cape Department of Environmental Affairs and Development Planning. The report’s part C and E was the focus of the meeting.

When the meeting was opened to the public, the Chairperson asked whether the MEC, Mr Anton Bredell, or Mr Pieter van Zyl, Head of Department (HOD), had any comments.

Mr Van Zyl said that the Department had achieved a clean audit report. Secondly, it had achieved a 98.4% programme expenditure on vote 9, and notably, they had received the bronze award from the National Department of Public Service and Administration for the “Best Provincial Department.” He added that this indicated great performance management, and that the tail end of the review period during the lockdown had presented serious challenges to the government.

Discussion

Annual report: Section C

Members then considered Section C of the annual report.

Mr P Marran (ANC) raised the issue of policing land invasions and solid waste. He pointed out that during the last two financial years, the Department and Cape Nature had surrendered quite a significant amount of money, which included the cost of employment. The auditing team had reported that there was not enough manpower to deal with the difficulties of policing, and he wanted to know whether this was due to a shortage of funds or some other issue.
Ms N Nkondlo (ANC) posed a question on broad-based black economic empowerment (BBBEE) as far as Section C was concerned. She sought to understand what Number 2 in discussion under “Developing and Mentioning and Procurement Policy” meant. Submissions had made mention of a particular strategy that the Department would assume, and if that was so, how was it ensuring alignment of national legislation with what was said to be a provincial strategy?
She also requested clarity from Cape Nature on how they would resolve gender inequity and representation on the entity’s Board, and to what extent this was an issue for them. Regarding the social responsibility initiatives in the annual report, she asked for clarity from Cape Nature on the Rand value spent, and on how social responsibility was carried out through employees interacting in communities.

Referring to BBBEE, she said the report which made mention that the procurement policy had not been included, and wanted to know why. She also sought clarity regarding the R3 million that had been received as part of the eco-tourism Public-Private Partnership (PPP) income, and  asked whether or not that element of the eco-tourism counted as a PPP engagement.

Department’s response

Mr Van Zyl began by responding to Mr Marran with regard to the Department’s adjustment budget processes, which involved surrendering some funds to the Provincial Revenue Fund from two functional areas of the Department -- compliance monitoring and waste management. He said the Department would have loved to have retained the money and deploy it, but the fact of the matter was that they were conscious of the importance and significance of prioritising these areas within the next four to five years. They were aware of the fiscal state of the country, and they therefore had to manage the situation.

He said that waste management’s role involved primarily leadership, monitoring and oversight over the municipal sector. Waste management was also an assigned constitutional function and as such, the challenges they faced were intergovernmental relations and support.

He recognised and acknowledged the point that Mr Marran had made, and when they tabled their budgets at the beginning of every financial year, as well as at the end of the year, they would have to continue to improve their performance.

He asked Mr Johannes Fritz, Director: Financial Management, Department of Environmental Affairs and Development Planning, to clarify and confirm Ms Nkondlo’s question, and also to contextualise how they operated within the framework provided by the Provincial Treasury Department.

Mr Fritz confirmed that Ms Nkondlo was correct in holding that financial procurement regulations were issued in 2017. There had been quite extensive discussions with Treasury on their implementation. Subsequent to that, the matter had gone to Cabinet and the challenges with implementation had been indicated. As a result, a number of items had been identified that the Western Cape Government (WCG) would not be implementing.

He explained that in the meantime, the Provincial Treasury had issued its 2019 regulations, which gave the context on how provinces would go about implementing some requirements on the preferential procurement regulations. Provincial circulars were also issued, and the Treasury had also implemented the electronic procurement system within the province, together with the Western Cape Supplier Evidence Bank (WCSEB), which hosted the information of the respective suppliers.

Towards the end of last year, the Provincial Treasury had issued a draft performer system which was subject to review by departments. In respect of the Department of Environmental Affairs and Development Planning itself, their procurement systems were quite repetitive in nature. Where they procured consultant services, for instance, they had indicated on one or two occasions in their requests that consultants should include students from previously disadvantaged backgrounds, so as to build capacity.

Dr Razeena Omar, Chief Executive Officer (CEO), Cape Nature, responding to Mr Marran’s question, said that Cape Nature had not surrendered any funds between the years 2019-2020. They had spent 99% of their budget, and there had been an under-expenditure of R22 million linked to capital infrastructure which could not be finalised during March. This was due to the COVID-19 regulations, which prohibited contractures from being on sites. However, they acknowledged the need for monitoring in the nature reserves during the current year. They had had land invasions at Driftsands, for instance. This was high on Cape Nature’s radar, and they were identifying hotspots as they continued. They had also developed a strategic implementation plan to look at the safety and security of protected areas in the Western Cape.

Concerning equity on their board, Dr Omar said that they were looking at this issue when there were vacancies. There was a process by which vacancies were advertised. They were advertised nationally and provincially in local newspapers in various languages. When shortlists were compiled, they went to the Standing Committee on Environment Affairs and Development Planning (with Agriculture added), and then recommendations were made to MEC Bredell, followed by interviews.
Recently, they had not had any vacancies on their Board. However, should they arise, there was space for gender representation, which was on their radar.

Concerning social responsibility, they did not donate money. The money was derived largely from partnerships and a sponsorship of prizes, and their staff had also reached out to schools with services in kind. There was therefore no expenditure from their income, per se. They sponsored overnights and accommodation for the Big Issue, as outlined in their report on page 89.

Dr Omar then handed the discussions over to Mr Mohamed Bhayat, Chief Financial Officer (CFO), Cape Nature, and Mr Sheraaz Ismail, Executive Director: Eco-Tourism and Access, to respond on PPP partners and the BBBEE policies.

Mr Bhayat began by addressing page 79 of the annual report. He said that in terms of the requirements laid down by the BBBEE Act, “all public entities and departments and public sector departments were required to comply with the Act and submit through a report to the Commission.” Regarding the agreement made by the Provincial and National Treasuries, as well as the Department of Trade and Industry, the compliance checklist needed to be included in the report, and therefore they did have a preferential procurement policy which was part of the standard supply chain management (SCM) policy which was followed. It was not included in the report as, for the purposes of the template, it was not part of the report. However, it had been audited and made available.

Mr Ismail said they have seven PPP agreements at nature reserves, with three different private sector companies. As a part of Cape Nature’s negotiations with these private sector companies, there was a strong element of black economic empowerment, and how they structured the deals with the Provincial and National Treasuries. There was a 20% BEE arrangement with the private parties, and R3 million in revenue had been generated for Cape Nature during the accounting period.

Dr Omar made a correction at this point on the under-expenditure with regard to infrastructure. She stated that it in fact amounted to R6 million.

Mr Marran asked whether the Minister and the HOD thought there was a need to have an Environmental Commissioner, based on the issues that had been raised and based on what was currently happening with the environment.

Mr Van Zyl responded that the question of an Environmental Commissioner was something that would be debated before the Standing Committee of the Premier, as it was as constitutional matter.
He said the examples provided by Mr Marran fell outside of the scope of an Environmental Commissioner, and therefore they would not be able to do anything about them. He pointed out that there were the Green Scorpions and Land Invasion Units, but an Environmental Commissioner would not be able to resolve those issues. This would, however, be debated under the auspices of the joint Standing Committees of the Premier and Environmental Affairs and Development Planning, and thereafter it would be taken to Parliament.

He said Mr Marran’s example of the Hermanus Milkwood Forest had been correct about the involvement of the Committee on Environmental and Agricultural Affairs and Development Planning. Late last year, there had been a site visit to the Overberg and inputs had been made there. He had recently seen some correspondence from that Standing Committee, and there had been some further input reports from that Committee that Mr A van der Westhuizen (DA) had asked for. The protection and the regulatory decisions on Milkwood Forest were a national competency of the Department of Environment, Forestry and Fisheries. It was not a provincial competency, nor did it resort under Cape Nature’s portfolio for wide diversities.

Discussion

Annual report: Section E

Mr D America (DA) addressed a question regarding page 121 of Cape Nature Report, pertaining to the post-retirement medical aid plan. There was an amount of R4.38 million recorded, and he wanted to know whether this amount was an actuarial amount representing an outstanding liability. He asked why that sum of money was not recognised as a contingent liability, and whether it was recognised as an expense for a particular year when those members qualified for a benefit, or for those who were retired and those who would retire in future.

He referred to page 126 of the Report, which dealt with contingent liabilities and contingent assets. He pointed out that there was a substantial amount recorded for contingent liabilities, and much of it was related to litigation in which the Department was defending itself. Given that legal processes took a long time, he asked whether he could get a brief update on where certain processes were, as some matters dated back from to the years 2009 to 2015.

He noted that page 127 referred to contingent assets and potential income from the Stellenbosch Municipality. He asked for a brief update on that matter, given that it had been dragging on since 2005.

Lastly, he asked for an update on the R3 million dispute over an invoice from the Garden Route Municipality.

Ms Nkondlo asked for clarification on page 120, under section 11 of the “Unspent Conditional Grants” of R42 million. She said that it indicated there that these grants would be utilised in future for respective projects, and asked whether a roll-over would be required for these unspent conditional grants. She also asked why this money had not been spent during the relevant financial year.

Secondly, with regard to the contingent liabilities referred to on page 126, which include cases that date back from 2009, what had been delaying the conclusion of these matters? Also, under point 25, which states that there was no provision for legal fees associated with these claims, was this not a risk, depending on what the outcome on these matters was?

Concerning point 13.3 of the report on page 200, she sought clarity on the funding received from private companies via plea and sentence agreements. She asked what this meant for the lay person. She then pointed to page 201, and asked for the rationale for prolonging this dispute, as well as clarity on how long the dispute between the Department and the employee had been going on.
Concerning irregular expenditure, Ms Nkondlo wanted to know how long ago the submission had been made to the provincial treasury, and how long it would take to respond. She also asked for more detail on the one item of irregular expenditure valued at R5 million in the accompanying annexure.

Lastly, on the section that dealt with Related Party Transactions, she asked for clarity on the financial and budget window. Did the Minister get part of his salary from one department? On Major Tangible and Minor Assets, she pointed out that they had received a total of 92 assets that were under investigation that could not be verifiable, which together made up about R1 million. She asked what this meant, how it happened, how long it had been happening, and whether this spoke to a lack of asset register control, if one read it literally from the annual report.

Cape Nature’s response
 

Dr Omar responded on the unspent conditional grant, and said that the way in which it worked was that Cape Nature normally applied for funding which was staggered over a period of more than one year. For instance, if one looked at funding for alien clearance, it would occur over three years, and that would be the amount listed under consideration.

Mr Richard Barry, of Cape Nature’s legal support services, explained that in respect of contingent liabilities on page 126 of their report, litigation was quite a lengthy process, and claimants would have a period of about three years in terms of the Prescription Act to institute legal proceedings. What then happened was that they would send out a Section 3 notice, indicating that they intended litigating an organ of state. This would buy litigants a further three years. He explained that negotiations were pending, and they were in continuous litigation to try and settle this matter so as to ensure the best outcome for Cape Nature.

He continued to provide feedback on each pending case:
 
Mountains to Oceans (MTO) case

The claimant had offered to negotiate a settlement with Cape Nature. This had been disclosed to the various legal representatives. There had been no further prosecution on this matter and as such, it should be settled very soon.

October case

The legal team had been in contact with the contractor team and was trying to negotiate a settlement or withdrawal on the matter. They had not received any consultation since 2017. In October 2020, the legal team had received further documents in the form of discovery, which again interrupted the prescription period of the matter.

Fourie vs. Cape Nature

There had been no further communication here. There was non-compliance with the institutional proceedings with certain organs of state. The legal team was going to raise this with the claimant, but to date they had not received any correspondence from them.

The legal team was in the position to go to court and ask for these matters to be struck from the roll. However, they preferred to negotiate and get an amicable agreement as far as all the parties were concerned.

On the contingent asset of Stellenbosch Municipality, he said that Cape Nature had a claim against it for R706 000, which was the sum of damages arising from fire suppression and fire-fighting costs. This dated back to 2005. Delays were due to negotiations. Correspondence received in October 2020 indicated that there would be a settlement, but the terms and conditions had to be divulged by the legal representatives of both parties.

Concerning the contingent liabilities due to the dispute with the Garden Route District Municipality, he said the amount of R3.06 million came from the municipality’s invoice to Cape Nature for various fire suppressing and firefighting services in the nature reserve. The legal team had been in constant consultation with this party, and there did not seem to be litigation as yet. There were disputes over the invoice, but they were trying to work this out.

Mr Bhayat said that the reason for not providing legal fees was because the matter was still in progress and as such, they could not estimate the extent of the fees. These issues caused a significant delay. When the time came, a budget would be created for the legal fees to be paid.

Regarding the post-retirement medical aid, he confirmed that the amount was indeed provided by an actuarial service provider, and they used them to provide expert input. Auditors had audited it and confirmed that the actuary had done what had done what was required. He explained that it was a current liability and not a contingent liability, because it was a current obligation and not a future obligation. If it was not included as a current liability, it could lead to audit complications.

Mr Van Zyl then responded to Ms Nkondlo’s question in connection with the dispute logged by an employee. He said that the process had been under way for a large part of 2017. It had begun as an internal dispute that was then escalated through the various processes. I had finally got to the arbitration process, with an independent arbiter being appointed to hear the arguments by the applicants from the labour union, and also by the Department, supported by the corporate services centre. The arbitration -- which was in favour of the employee – had been issued towards the end of November 2018. Cape Nature had reviewed the matter in 2019. The grounds for the dispute were founded in the interpretation and implementation of the National Credit Agreement. As such, there had been need for consultation with Mr Van Zyl’s Department, the Department of the Premier’s legal and corporate services centre, and specifically with the National Department of Public Service and Administration. This was because there could be further transversal implications.

Cape Nature had submitted an application for a review to the Labour Court in May of 2019. Proceedings had taken time and were further delayed because the court processes were suspended in 2020. However, they were advised that matter would be advancing within about two weeks’ time.
Regarding how long the matter would take, they would have to wait on the court’s proceedings.

Mr Ayub Mohamed, Director: Environmental Governance, Policy Coordination and Enforcement, Department of Environmental Affairs and Development Planning, took over and briefly explained the concept and mechanism of plea and sentence agreements. Where the offender had pleaded guilty but would not be prosecuted, there would be a settlement in the matter. It did not go through the court. The offender had to pay a sum of money to the Department. In this case it was R1 million. These negotiations were permitted in terms of the Criminal Procedure Act and the National Environmental Management Act.

Mr Fritz addressed the question on irregular expenditure. Two cases had been submitted to the Provincial Treasury for consideration by the National Treasury. One involved R9.13 million, and pertained to the Department of Construction Services. The second case concerned R850 000, which was an extension of non-compliance to the Division of Revenue Act. In these two cases, there were no losses and certain recommendations had been made after investigation.

These two cases had been forwarded to the Provincial Treasury during the year under review. However, they had not received an update on the condonation processes. Towards the end of December, the Provincial Treasury had issued a document which dealt with the irregular cases and wasteful expenditure. The document had also laid out the procedure for dealing with these matters and the conditions that needed to be met for submitting it to the Provincial Treasury.

There were three other cases under investigation. Of the R 5 million involved, R265 000 was related to the non-compliance of public service records. An official in the Department was a director of a private company, and in terms of the regulations one could not be a public servant and a director of a public company doing business with government. The second matter related to a contract where there was a particular clause in the contract that indicated that if certain requirements and conditions were not met within 24 months, then the contract would terminate. Unfortunately, the contract had exceeded the 24-month period and hence the contract had been terminated.

He then addressed a matter involving R906 000, which was related to the possible abuse of supply management processes. It appeared that the Department should have gone on an open tender process, which was not done. Instead, what was done was an open procurement system. These investigations were still under way, and it was still to be confirmed by the Department if there had been any losses.

Answering Ms Nkondlo’ s question, Mr Fritz said that the Department of Environment Affairs and Development Planning was responsible for the budget of the Minister, which included the remuneration of the Minister as well as the operational expenditure of his office.

He said that the Committee should note that of the 26 major assets, 15 were confirmed as loss cases. These losses had been recorded and sent for investigation. Of the 66 minor assets, 4 of those were confirmed as loss cases. The total value of the losses was not R1 million, but R387 000.

The current educational assets, given the current climate (COVID-19), with people working from home, had posed quite a challenge to the Department. What it had done for the current financial year was to produce an online form submitted to all officials, which required them to confirm whether they were in possession of any departmental assets. They could then submit confirmation or verification of those assets. The Department had also made arrangements to confirm the physical assets at the buildings, bearing in mind the COVID-19 regulations. After investigation, if the above assets were confirmed as missing, the matter would be submitted to internal control.

The Chairperson dismissed members of the Cape Nature delegation, and gave closing remarks and words of appreciation to the Audit and Public Accounts Committee, Cape Nature, the Department and the various teams involved. The Members of Committee remained.


Proposals for resolutions

Ms M Maseko (DA) said that following the information from the Auditor-General and the Audit Committee about the land invasion and waste management issues, she requested a briefing from the Department with a strategic plan specifically on spatial planning and land use management.

Ms Nkondlo requested that Cape Nature brief them on the gender representation of the Board, given that an indication had been made that the current board’s tenure was coming to an end, therefore opening up prospects for new recruits.

Also, in line with the engagement agreed upon with the other departments concerning economic development, involving SCOPA and the Treasury on BBBEE issues, she would like the Committee to also consider the Western Cape strategy, together with the Provincial Treasury instructions, that included particular provisions that waived some of the BBBEE elements. She suggested that for that session, the Committee may want to invite the BBBEE Commission to take part in the meeting.

The meeting was adjourned.