Departments of Agriculture & Land Affairs & Ingonyama Trust Board: Interrogation of 2005/6 Audit Report

PUBLIC ACCOUNTS STANDING COMMITTEE
31 January 2007
DEPARTMENTS OF AGRICULTURE & LAND AFFAIRS & INGONYAMA TRUST BOARD: INTERROGATION OF 2005/6 AUDIT REPORT

Chairperson: Mr N Godi (PAC)

Relevant documents:
Annual Report 2005/6 Department of Agriculture (available at www.nda.agric.za)
Annual Report 2005/6 Department of Land Affairs (available at www.land.pwv.gov.za)
Annual Report 2005/6 Ingonyama Trust
Audit Report 2005/06 Ingonyama Trust
Response of the Board to aspects of the Audit Report: 2006
Audit Report 2004/05 Ingonyama Trust
Response of the Board to aspects of the Audit Report: 2005

SUMMARY
Members interrogated the qualifications, disclaimers and matters of emphasis raised by the Auditor General in respect of the 2005/6 financial statements of the Departments appearing before the Committee.

The Department of Agriculture was asked to speak to the Auditor General’s comments that there had been a lack of documented policies, leading to deficiencies in the effective management of receipts, the lack of reconciliation over revenue and licences issued. The Chairperson stressed that he expected the Director General to reply to matters in detail and not to defer to his staff. Members asked if these problems related to lack of capacity. They were concerned over the high vacancy rate of 25.6%. The Agricultural Debt Accounts had not reflected figures in accordance with International Accounting Standards 32 and 39, and there was some discussion on whether the Department would have an exemption in this regard. The high outstanding debts in the Agricultural Debt Account were debated. It was clear that no proper risk assessments had been done. The Auditor General’s statements that he could not place reliance upon the internal audit unit were discussed and the work undertaken by that unit during the year expanded upon. The Department noted that its finance section had sufficient staff but insufficient training, which was being addressed. The irrecoverable debt figures were questioned. Irregular expenditure was interrogated.

The Ingonyama Trust Board’s audit reports had disclaimers over a number of years. In March 2006 the Committee had resolved that the Trust be required to establish accurate records of land holdings, bring its information systems to standard, obtain copies of all title deeds and furnish a progress report to Parliament. The Trust was asked to indicate what it had done in this regard. Further questions were raised over the discrepancies between the details of land extent and descriptions in Trust and Deeds Office documentation, and there was extensive discussion on the role and functioning of the Deeds Office in regard to surveys, amendment of descriptions and registrations. A number of properties had yet to be transferred and the Trust was asked to explain the delays. Land valuations had not been reflected in the financial statements, and the Trust was asked to explain why this was so, and whether the land had been valued. Rental and royalties over mining rights were questioned, and the reasons sought for the fact that Permission To Occupy receipts and applications were not reconciled. The Trust was asked to explain the arrear rates owing to municipalities. It became apparent that there was some dispute over who held rights and liabilities in respect of some land, and the Committee explored whether the Trust had capacity to discharge its mandate, to manage the matters to finality, and to attend properly to financial management.

The Department of Land Affairs was asked to explain the qualifications around the non-disclosure of revenue for land leases and to explain the apparent lack of a proper accounting system, and detail the steps to rectify. Members were concerned at the statement in the Annual Report that implementation of some systems was taking off slowly due to competing priorities, and pointed out that correction of incorrect accounting systems must take precedence over all else. The problems of communication were questioned, and the vacancy rate explained. There was some dispute whether the Auditor General had requested supporting documentation, and Members expressed their concern that the information was not available despite the fact that it would normally be required. They questioned the inconsistencies between various sources of information and the steps taken to address these issues. There appeared to be some discrepancies in the information relating to the land holding of various departments, and the steps to compile a fixed asset register were requested. A member was concerned that 104 policy workshops had been held during the year, which cost time and money. Questions on under spending revealed that most arose from land restitution and further questions were asked on the communication and payment processes. The Director General explained the steps taken to improve controls in the areas identified by the Attorney General. The non-compliance with accounting standards was questioned. General questions were asked in relation to the processes and procedures in the Deeds Office and the Office of the Surveyor General.

MINUTES
Department of Agriculture: Auditor General’s report on 2005/6 financial year
Mr G Madikiza (UDM) indicated that the Auditor General (AG) had noted a lack of documented policies leading to deficiencies in effective recordal and receipt management. He asked how the Department could hold its employees accountable without set policies and procedures.

Mr Masiphula Mbongwa, Director General, Department of Agriculture (DOA) replied that he agreed that it was necessary to have authorised documents and procedures. He would be able to reply on the broad issues but would like his Chief Financial Officer to reply on the detail. He stated that the Department continuously sought to update its procedures in consultation with the AG, National Treasury and its internal auditors. Where gaps were identified the Department would address and attend to matters.

The Chairperson asked what specifically had been done to address the gaps. He would like to hear specific answers to the questions.

Mr Tommy Marais, Chief Financial Officer, DOA stated that at the time of the investigation, receipts were handled at branch level. Since the report of the AG the system had been altered and new policy had been documented from Head Office, specifically the finance section, and revenue now fell under the control of an Assistant Director in a separate section. There was better coordination between Finance and all line directors who worked with revenue. The reconciliation of the certificate issues was done at the point of service rendered, and another reconciliation at Finance. Quarterly inspection of all offices was being carried out.

Mr Madikiza asked if this meant that this qualification would not recur in the next report.

Mr Marais was satisfied that it would not.

Mr Madikiza said that the AG had reported that reconciliation of revenue as against licenses issued was not done throughout the year. He asked if this task required specialist skills. If not, he asked why this had not been done.

Mr Marais replied that this should have happened in terms of the systems, but had not been done. In order to follow up DOA his team was now working through the 2005/6 records to ensure that where the reconciliations were not done this had not facilitated any fraud or theft.

The Chairperson pointed out that these matters were surely part of day to day management and questioned why the Department had only identified these matters after the AG had reported on them.

Mr Marais said that there was a policy already in place before the report, but the responsibility for ensuring the monthly reconciliations was a line issue. The finance department had not done its oversight, but was now doing so.

The Chairperson commented that this seemed to arise from lack of supervision and proper mentoring.

Mr Marais confirmed that there was lack of supervision on the part of the finance division.

The Chairperson asked to what extent the qualifications reflected lack of capacity and to what extent they reflected lack of policy

Mr Mbongwa asked that Mr Marais answer the question.

The Chairperson took issue with this, and pointed out that the Director General, as the chief accounting officer, should answer the question.

Mr Mbongwa said that his responses would give more of an overview, whereas Mr Marais would be more specific.

The Chairperson asked the Director General how long he had been in office, and, on receiving advice that Mr Mbongwa had been appointed in April 2005, commented that the Committee expected him to be fully apprised of the full details.

Mr Mbongwa said that he was happy to answer the questions but requested that he should not be requested to give the specifics.

The Chairperson responded that this was a most unusual request, and he was surprised that the Director General should continuously defer to a junior official. Another institution had been turned away by the Committee as Members were not satisfied that the Chief Executive Officer had not been present to answer questions. The Committee expected Mr Mbongwa to respond to the issues. He did not believe that his question was difficult. He reiterated that he would like to know whether the qualifications arose through lack of capacity, lack of policies and procedures, or both.

Mr Mbongwa replied that certain issues were human resource issues, and DOA had dealt with them. In respect of the policies, documentation was now being put in place. Therefore both capacity and lack of procedures were to blame.

The Chairperson pointed out that the vacancy rate was reported as 25.6%.

Mr Mbongwa indicated that people had since been hired.

Mr Marais added that there was a history to the vacancy rate. In 2002 severance packages were offered and thereafter a number of new posts were created, but no funding had been allocated. A decision had then been taken to abolish 163 posts, as the fact that they had been unfilled (because unfounded) indicated that they were not really required. The remainder of the vacant posts would be assessed in March, and if these posts had not yet been filled, then they too would be re-assessed and the funding re-allocated. The Department was finding it difficult, in some cases, to hire and retain staff with scarce skills but this was an ongoing exercise. The vacancy rate would look very different in a few months time.

Mr E Trent (DA) pointed out that the vacancy rate had increased since last year. He believed the Department needed highly skilled administrative staff, and it was not a question of scarce skills.

Mr Marais said that because of the restructuring alluded to earlier, revenue was headed by an Assistant Director, and the line directorates employed professionals. It was unlikely that new staff would be needed in this section. He had spoken rather of the broad vacancies. After the exercise of re-assessment, the only posts remaining unfilled would be those in which scarcity of skills meant that appointments were difficult.

Mr Madikiza reported that the AG had reported that in relation to the Agricultural Debt Accounts, DOA had not reflected the figures properly in accordance with international accounting standards (IAS). He asked for an explanation.

Mr Mbongwa replied that for some time DOA had enjoyed an “exemption” from Treasury but in this financial year DOA was informed that the exemption would no longer apply. By the time this information was communicated there was not sufficient time to rectify the matter. DOA believed that this matter could be sorted out in communication with National Treasury.

Mr Madikiza asked for the reasons for the exemption, how long it had existed and why it was withdrawn.

Mr Mbongwa responded that the Debt Account had come into existence in 2001, at a time with the IAS did not apply. The exemption had lasted over two years.

Mr Marais added that National Treasury, without consulting DOA, had apparently decided to classify all accounts outside of the National Revenue Fund, and had classified this account as a trading account. Mr Marais did not think this was correct. There was no trading and the account was merely a debt recovery account, aimed at recovering loans granted between 1966 and 1997. The withdrawal of the exemption and the classification were notified on 31 March 2006, the day that the books closed. The account was fully in order as far as the numbers were concerned; it was merely the manner of recordal that fell short. DOA was attempting to prevent recurrence. Firstly, DOA had met with National Treasury (NT) and the AG, and had agreed that an exemption would be granted for the current financial year. DOA was awaiting a response from the Accountant General in regard to the special types of financial statements to be prepared. Thirdly the DOA was amending the Agricultural Debt Management Act, and if the amendments were passed the debt recovery account would be closed altogether, and the current surpluses and future recoveries would be deposited into the National Revenue Fund. The money had been earmarked by Parliament for agricultural development assistance to new farmers and DOA would ask NT to ringfence the funds for this purpose.

Mr Terence Nombembe, Auditor General acknowledged that this explanation had given some clarity. The accrual accounting systems required by IAS had the effect that certain matters did require a certain way of accounting and recordal that would not necessarily be required by other accounting systems or standards. These standard required information, in relation to financial instruments, that was supplementary to that required on the cash basis of accounting. There was required to be confirmation that the moneys owed were fairly stated according to a valuation. This in turn required an assessment of the extent to which the funds were recoverable. The question was whether it was really necessary for this account to make a value judgment as to what would be recoverable, and whether it was possible to extract such information. Such questions would need to be looked at when NT was asked to make an exemption.

The Chairperson pointed out that if an exemption was granted, then this qualification would not arise in future.

Mr Mbongwa indicated that one of the points raised with NT was that the new accrual system was costly to set up and run, and this needed to be assessed against the amounts that would be recovered, to determine whether the costs would be justified, or whether there was another alternative.

Ms A Dreyer (DA) asked for details on the core functions of the Agricultural Debt Account. She understood that it had been established to manage recovery of debts due. She was concerned that the Annual Report indicated that a number of cooperatives had built up substantial debt before the State Attorney had been asked to intervene and attempt to recover. For instance, Grovida had a debt of R1.6 million capital and interest and Bakgaga Bakopa an outstanding debt of R14.5 million.

Mr Johan Venter, Director: Debt Management, DOA replied that a production loan scheme for emerging farmers had been run between 1995 and 1997, as a three year pilot scheme. DOA had granted loans, through agencies, which were then on-lent to small-scale farmers in various areas. Many of the agencies had complied with the conditions, but the two agencies mentioned had failed to adhere to the terms of repayment. When they failed to pay, DOA had commenced proceedings in the normal course, sending letters of demand, and finally issuing summons through the State Attorney. The Bakgaga Bakopa was now dormant, so that would be a write-off but Grovida were making payments to settle the outstanding amounts. R12 000 had been received from them this year and R9 000 the previous year.

Ms Dreyer commented that the amounts were large and enquired what was done to minimise the losses, and whether there was not a need for earlier interventions.

The Chairperson wondered if there had been a proper risk analysis before the loans were granted.

Mr Mbongwa stated that these loans were a pilot project to see how loans and services could be provided, and LandBank and the Agricultural Credit Board perhaps had not done these analyses. The shortcomings of the systems were identified and the scheme closed after three years, with LandBank taking over. DOA was still responsible for the debt collections.

The Chairperson commented that this was a very expensive pilot project, and he was surprised that such huge sums were lent without the viability of the project being assessed properly. Whilst the aims were noble, the manner of operation could not be justified.

Ms Dreyer added that quite apart from the burden to the taxpayer the communities had not received any benefit, as they were now saddled with a huge debt resulting from improperly managed projects which had not created to upliftment.

Ms Dreyer reported that the AG had said that no reliance could be placed on the reliance of the internal audit as no work had been done by that division on the Agricultural Debt Account.

Mr Marais stated that the internal audit would not necessarily have covered the Debt Account as part of their programme for the year, but this fact would not reflect on the quality of their work

Mr Nombembe clarified that the AG relied upon what had been done by the internal audit functions. However, it raised questions of risk assessment. Internal audit units needed to understand what was and what was not risk, in order to fulfil the requirements of this Committee and lead to cleaner reports by the AG. It seemed that DOA and the AG needed to reach convergence on matters that would lead to audit reports being qualified.

Ms Dreyer continued that the AG had been unable to perform all the necessary audit procedures because he could not rely on the accuracy of the majority of balances in the financial statements, due to a lack of the necessary expertise, proper accounting and data management systems. She asked whether this related back to the vacancy rate.

Mr Mgongwa replied that DOA had not complied with IAS 32 and 39. PricewaterhouseCoopers (PWC) had now been appointed to assist in setting up compliant systems. He pointed out that the method of reporting had not changed, and in previous years the AG had not raised this point.

Mr H Bekker (IFP) indicated that receiving a qualified audit was a serious matter. It was clear that the DOA needed to equip itself with appropriately qualified staff and set up proper systems. He asked whether there was understaffing in the finance sections.

Mr Marais replied that there was no question of under-staffing. Problems were due to lack of training on IAS 32 and 39. When PWC had set up the systems, the DOA staff would be trained on them.

Mr Bekker indicated that lack of proper systems for assessment of revenue and recovery of debt were serious. He indicated that the potentially irrecoverable debts had risen from half a million rand in 2004 to R3 million in 2005/6. He asked whether this figure was accurate.

Mr Marais drew the distinction between the irrecoverable debt listed for the budget vote and that in the financial statements.

Mr Andries Wessels, Acting Director: Financial Services, DOA stated that the debtors listed under 2.7 and 2.3 included other debtors, and was not limited to the Agricultural Debt Account.

Mr Bekker did not regard this answer as entirely satisfactory. However, he did not pursue the matter. The AG had reported irregular expenditure of R2.7 million. He commented that this appeared to indicate lack of control.

Mr Marais replied that this related to financial leases, and that every Department was experiencing similar problems. NT had insisted that all Departments now included the financial leases in their disclosure notes.

Mr Mbongwa asked if the Committee suggested that DOA should make provision for debt. He understood that it would be sufficient to note the debts, which would then be recovered or written off.

The Chairperson stated that the requirements in relation to debtors would be set by agreement between DOA, NT and the AG. In relation to policies and procedures, the Committee would expect the Department to rectify the discrepancies so that the account was administered in a proper manner, irrespective of whether exemptions were granted.

Ingonyama Trust Board: Auditor General’s report on 2005/6 financial year
Mr P Gerber (ANC) commented that the Ingonyama Trust Board (ITB) was a significant land owner, holding almost 3 million hectares of land, which encompassed townships, mines, forests and agricultural land. It was an important vehicle for empowerment, which made it all the more worrying that it had received a series of disclaimer reports from the Auditor General, including the report for 2005/6. This Committee had resolved on 18 March 2006 that there must be a resolution of the outstanding questions on land holdings. The Auditor General had highlighted the fact that the land holdings register did not agree with the financial statements, that title deeds had not been submitted, that uncertified copies of title deeds were used, and that there lack of supporting information. For these reasons this Committee had required the Board to establish accurate records of land holdings, to bring its filing and retrieval systems up to standard, to obtain certified copies of all title deeds and to furnish a report to Parliament on all matters by 18 April 2006. He asked what had been done to comply with these requirements.

Mr Justice S Ngwenya, Acting Chair, ITB confirmed that these requirements had related to the previous financial statements, and that following the March 2006 Committee resolution steps had been taken to set up an electronic registration system for the land holdings. A qualified surveyor was appointed and had furnished a report. The shortcomings identified at that time had been rectified because the system had been updated. There were still some problems, but these were not the fault of the ITB, but rather of the Deeds Office (DO), which had not updated its systems and records. By way of example, rivers or towns were still described by their old names, land was still reflected in morgen, not hectares, and it was often impossible to reconcile the records of the ITB with those of the DO. He pointed out that regrettably the Resolution of the Committee had not been communicated directly to ITB, but had been sent to the Department of Land Affairs (DLA), who had then conveyed it to the Trust. A reply was formulated and was sent through to the Deputy Speaker on 4 August 2006.

The Chairperson confirmed that this response had been furnished to the Committee this morning and it was unfortunate that it had not been given to the Committee sooner. He asked for comment on the AG’s report that, using a test sample of 1.68 million hectares, no listing appeared on the title deeds for 353 200 hectares, there were discrepancies between the land register and title deeds recordals of 626 005 hectares, and supporting documentation was not available to substantiate a decrease of 372 hectares from the previous year.

Mr Ngwenya said that the blame could not be apportioned to the ITB. The Deeds Office had not amended its records. The Surveyor General (SG) had re-surveyed and there had been approval given for substitution of descriptions. He pointed out that many of the historic surveys used imperial measurements, based upon archaic and inaccurate methods, and that river courses and other features may have changed. The discrepancies would only be corrected once the Deeds Office had attended to its own systems. The Surveyor General’s diagrams did now correlate with the ITB documents.

Dr Nozizwe Makgalemele, Deputy Director General: Land Planning and Information, Department of Land Affairs (DLA) noted that although properties might have been re-surveyed by the Surveyor General, the Deeds Office would only receive notification of this and thus be able to rectify its records at the point when the properties were transferred. The Deeds Office records were based on whatever information was given at the point of transfer. It could not change its records if no information was submitted.

Mr Bekker noted that ITB stated that the title deeds could be corrected by February 2007, once the properties had been surveyed and the amendments registered with the Surveyor General. He asked if this would involve a change of ownership or registration of caveats.

Mr Ngwenya stated that ITB was doing ongoing reconciliations through a consultant, who had identified about 143 discrepancies between the ITB asset register and the Deeds Office. Most of the land would be transferred. Some was owned by communities and some was deemed to belong to state entities, although it was formally registered in the name of ITB. Endorsements would be made against the title deeds, and transfer would be effected once the survey diagrams had been updated. He commented that the Deeds Office would thereby be prompted by the Surveyor General.

Dr Makgalemele confirmed, in answer to a question from the Chairperson, that DO did not alter its records on independent enquiry or investigation, but only on lodgement of documents for transfer. She pointed out that a land owner might have obtained approval for subdivision, but may not take steps to transfer the subdivided portions for a number of years thereafter.

Mr Bekker indicated that transfer of 341 parcels of land should have been effected, and asked how far this process had gone.

Mr Ngwenya replied that this was an ongoing exercise and ITB was aware of the progress of each transfer. Survey diagrams did not exist for some properties. Blockages had occurred for others at the State Attorney, who was responsible for effecting the transfers. A meeting would be held shortly with that office, and if it became apparent that it could not cope with the work, it may be necessary to appoint private conveyancers to continue. He would not like to attempt to give precise figures, as he would not like to mislead the Committee.

The Chairperson asked if ITB knew the exact extent of its land holdings.

Mr Ngwenya replied that ITB knew that it owned 2.7 million hectares of land, registered in its name in the Deeds Office. However, there was further land which was currently registered in the name of the DLA, but which was destined for transfer to ITB. He did not know the exact extent of this land.

Mr Bekker indicated that the AG had reported that the accounting policies had been changed in regard to the valuation of land to give better comparative reading of the financial statements. The valuations were not shown in the financial statements, to fall in line with the DLA land holdings policy, and the change in policy departed from IAS 16. Mr Bekker pointed out that this was a departure that could have serious implications. He pointed out that the Department of Public Works did value land, and if no values were ascribed by DLA this would lead to Divisional Council valuations simply falling away rather than being updated and maintained.

Mr Ngwenya pointed out that Mr Chris Aitken, representing the ITB Secretariat, was a qualified valuer. Most of ITB’s land fell in “nature reserve” categories, but one area held over 20 000 subsistence farmers. Land values were not shown in the accounts, in accordance with DLA policies. ITB had consulted with the AG and the Board’s Audit Committee. The changes were deemed appropriate because of previous experiences. ITB had presumed that the advice given at the time by the AG was correct and was surprised that this was raised as an emphasis of matter.

Mr Herman van Zyl, Business Executive: Ingonyama, KZN AG confirmed that discussions had been held in regard to the disclosure of values. It was acceptable, in certain instances, to depart from IAS standards, but the nature of the departure would still have to be reflected in the financial statements. This comment had served to draw attention to the fact that there had been a departure from the standards.

The Chairperson stated that this should probably not be regarded as a point of focus.

Mr Bekker asked if there were values, and if they appeared elsewhere.

Mr Ngwenya stated that there were no values. However, the new Property Rates Act provided for valuations by various municipalities, and these values could be used.

Mr Bekker said that the ITB should then update its records with the municipal valuations.
Mr Bekker noted that leases had been concluded for cellular base stations to be constructed on trust land. He asked if the ITB had approved a policy in respect of those masts.

Mr Ngwenya said that there was no existing policy but ITB were dealing with this.

Mr Bekker indicated that in rural areas it often happened that a contractor would erect a tower, but the contract to lease the tower did not deal with subletting. Although the tower would be used by several networks, only one would pay. He advised that provision should be made that the tower could not be subleased without additional rental payable.

The Chairperson was concerned that contracts had been concluded without policy being in place.

Mr Ngwenya stated that ITB did in fact have a lease policy, and this policy already provided that cellular network contracts would have to have the approval of traditional leaders, and that subleasing was not permitted. The future ITB network policies would address different matters entirely.

Mr Madikiza noted that the AG had commented that complete recordal of royalty income from mineral extractions could not be verified. Although it would not be feasible for ITB to monitor each site, he asked what ITB had done to prevent loss of income due in mineral rights and royalties for mining rights leases.

Mr Ngwenya replied that the mining income derived from ZAC, who had been asked to provide audited financial statements to verify the income derived from land owned by ITB. This certificate would not have been obtained by the time of the ITB audit, but an undertaking had been given that it would be provided to ITB by the end of February 2007, when the amounts would be verified.

Mr Madikiza asked for comment on the AG’s report that receipts for Permissions To Occupy (PTOs) could not be matched to the applications.

Mr Ngwenya stated that the PTOs were issued by the Office of the MEC for Provincial Culture and Traditional Affairs, as delegated from the Minister of Land Affairs. When a PTO was issued the Department would give an account number to which payments should be made. It was often difficult to assess the source of the payments. In addition, when ITB had been formed it was impossible to determine exactly how many people held PTOs as they were not registrable rights. Although the PTOs carried a “prescribed” fee of R48 per annum, there was no mechanism to enforce payment of the fee. Strictly speaking, ITB was not obliged to collect the income, because the current ITB land was then State owned, so that the PTOs were issued in respect of State land. The PTOs should have been discontinued. It had now been agreed with the Department of Traditional Affairs that an individual wishing to have tenure over Trust land must liase directly with ITB.

The Chairperson asked if this situation would continue.

Mr Ngwenya said that the PTOs were issued “for life”, so that those already in existence would continue, but confirmed that no new PTOs had been issued. He reiterated that in theory the income was payable to the Minister, and not to ITB, but the Minister had ruled that ITB could receive and apply the income. ITB was unable to enforce payments, and was also unable to verify the holders of the PTOs who were not paying.

Mr Madikiza asked what ITB was doing to resolve the impasse.

Mr Ngwenya commented that he would not describe it as an impasse, although clearly there were difficulties. Because ITB did not know how many PTOs were held, it could not assess the amount of income that it should be deriving. Firstly, no new PTOs were being issued. Secondly, ITB had engaged with all business operating on ITB land, the largest being the KZN Development Corporation (or Ithala), and had recommended that all PTOs be surrendered, and that instead commercial leases be entered into at market related rates, to ensure that ITB could manage its land on a viable basis.

Mr Madikiza referred to the AG’s Emphasis of Matter in regard to contingent liability arrear rates, for which no provision existed in the financial statements, and which ITB was disputing. He asked what amount ITB claimed was owing.

Mr Ngwenya replied that some municipalities had served accounts that contained no property descriptions, in terms of addresses or locations, but merely described the square metres and the value of improvements. ITB would consider it irresponsible to pay, when the land was not identified. Secondly, ITB disputed the accuracy of the Municipal accounts because one municipality, which had claimed R80 million in arrears in the previous year, had reduced its claim to R23 million although no payments had been made at all.

The Chairperson stated that ITB had acknowledged a contingent liability of R23 million for municipal debts, and asked how ITB intended to resolve the issue. He asked if ITB was effectively boycotting payment or if it disputed that anything was owed. No purpose would be served in allowing the matter to drag out.

Mr Ngwenya confirmed that ITB was paying rates where it was satisfied that they were owed. Two municipalities were claiming arrears. One municipality’s claim was investigated, and it was discovered that the land being rated was owned by the municipality itself, containing a cemetery and a sewerage plant. Where claims were made, ITB would call for more information. eThekwini, who were now laying a claim, had already agreed some time back, under a land agreement, that they would pay the rates in respect of the low cost housing on the land.

The Chairperson said that therefore ITB had not been paying some rates.

Mr Ngwenya replied that ITB paid where it owed rates. Some of the land “owned by”, in the sense of registered under the ITB was not subject to rates. The enabling Act had provided that the township areas must be transferred to municipalities. Land that was at that stage being used for State purposes must be transferred to government departments. The Act had therefore deemed the land to be municipal or State land. It was in the process of the formal transfer process, yet the Municipalities were still attempting to levy rates on ITB although the legislation had resulted in it already being owned by another entity. Again, he said that ITB could not admit to liability for rates on property that it did not own, and gave the example of police stations or hospitals.

The Chairperson commented that clearly this matter must be sorted out, although he was not sure how this could be done.

Mr Ngwenya stated that the Deeds Office still reflected ITB as the owner, as the necessary endorsements had not yet been effected. This was not the function of the Deeds Office. There was a historic problem. On 25 April 1994 an Act was passed placing the former Kwazulu Natal homeland into the entity of ITB, including the townships. In 1998 this Act was amended, so that the townships were henceforth to fall under, and be transferred to, the municipalities. However, the municipalities had not budgeted to take them, and objected to doing so. ITB had effected transfers of some of the outer boundaries, but there remained pockets that still required to be transferred. The Department of Public Works, as an example, were only now updating their asset registers, and as they did so, they would agreed formally to take transfer of identified assets. ITB had recently met with the MEC for Public Works to try to resolve a dispute regarding some properties that the municipality claimed to own, on which Public Works were paying the rates, but which were still registered in the name of ITB.

Mr Madikiza asked if ITB required intervention from the Minister, and whether this matter was likely to be finalised in the near future.

Mr Ngwenya stated that the matter would be finalised, but he would be loath to commit to this happening “in the near future”.

Mr Nombembe commented that, given the complexity of the issues, it was not possible to resolve the matter at this meeting. He added, however, that it was the role of management to find solutions to complex matters. He felt it would be useful to get some indication whether the capacity existed to manage the issues, otherwise they would continue to go around in circles and this would only harm the image of all concerned.

The Chairperson agreed that this was most useful, and asked whether ITB did have the capacity, both in terms of human resources and processes and policies, to discharge its mandate properly, and whether its resources were being properly managed.

Mr Ngwenya said that a number of steps had already been taken. On 20 November 2006 a letter had been addressed to eThekwini’s City Manager, setting out their understanding of the issues and calling for confirmation as to which matters were or were not in dispute. A similar letter had been addressed to the Umgeni Municipality. Neither had been answered. ITB certainly had the capacity to deal with the rates issues, which boiled down to whether the property was owned by ITB, and, if so, a determination of the correct amounts owed. He pointed out that ITB was a transitional entity that would eventually work itself out by transferring its land back to the people. Where transfer had not been taken by municipalities, the Committee should surely question those municipalities.

The Chairperson said that he was speaking of internal procedures. The three key elements of the AG’s report were non-compliance with relevant legislation, absence of documented policies and procedures and lack of segregation of duties. He said that his question of capacity related specifically to whether ITB had the ability to do the financial statements properly, and whether it was able to manage its affairs.

Mr Ngwenya said that the comment relating to segregation of duties in the accounting function related to the fact that only two people were assigned to these functions. Further personnel were being appointed to augment the functions. In respect of the policies, a number of policy documents were being drafted, pursuant to the AG’s report, and would need to be approved by the Board. Apart from the segregation aspects, ITB had no other capacity constraints in managing the Board.

Department of Land Affairs (DLA): Auditor General’s report on 2005/6 financial statements
Mr Bekker noted that the AG had commented on rental revenue receivable on land leases, and noted that this had been raised as a Matter of Emphasis in previous reports, and now appeared as a qualification. The DLA had been unable to determine the completeness of its leased land revenue and had not disclosed it in a disclosure. Supporting information was inaccurate and incomplete. Mr Bekker enquired what steps were being taken to rectify the matter.

Mr Glen Thomas, Director General, DLA felt it was important to give some background to state land management in the DLA. Contracts were of a complex nature and systems and procedures were, at the time of the audit, already being put into place to manage the leased state land. All nine provincial offices had been consulted and the data gathering process had started, with assistance from service providers. Staff were being appointed at each office specifically to manage the state land functions. The DLA had already taken a proactive role to address the issues.

Mr Bekker noted that the cause of the problem was that records were not adequately managed, and a proper accounting system was therefore not in place so as to be able to substantiate the debts receivable.

Mr Thomas noted that in 1994 DLA already had a dysfunctional system of state land management.

The Chairperson pointed out that the matters raised by the AG related to problems in 2005.

Mr Thomas indicated that the function of state land management had not been an area of focus in the 1990s, as the DLA had focused strongly on land reform programmes and a new legislative framework, as was evident from the budget allocations over those years. Negligible amounts had been assigned to this particular function.

The Chairperson accepted that this might have been so. However, he would like to hear what DLA proposed to do as the way forward.

Mr Thomas replied that the processes had already begun. He hoped that the system designed to manage the functions would be fully operational by the end of 2007 or 2008.

Mr Bekker said that he did not feel this response addressed the immediate issues. He said that it was the duty of the accounting officer to ensure that there existed well designed policies and procedures for the collection of revenue, particularly lease revenue. There appeared to be poor communication between national and provincial departments. These difficulties needed to be isolated and dealt with. He was concerned with the Director General’s own comment, in dealing with the qualifications, that implementation was taking off slowly, due to competing priorities and capacity constraints. He would like to hear what those capacity constraints and other priorities were, as he was surprised that anything could take precedence over improving systems to address the qualifications.

The Chairperson added that he would like the general comments to be honed into specifics. He agreed that any qualifications indicated that there were areas to be immediately addressed so that there was a proper accounting system.

Mr Thomas stated that no other matters were currently taking precedence, and that National Treasury had already been asked for an additional resource allocation for increased capacity to address all issues. This had been granted, and capacity was being built for lease management. Capacity in fact was being built at all levels. The state land management programme had been decentralised, and was being handled by the Provincial Land Reform Offices. The problem of the leases had arisen since some had not been updated as they should have been in the past. An effective database was being developed to assist with monitoring at the provincial level. Powers of Attorney had in the past also been given to provincial departments of Agriculture for state land administration, but an investigation had been shown that these also did not have proper capacity and the Minister would be asked to consider whether these Powers of Attorney should continue or be withdrawn. DLA would prefer to handle all matters itself.

The Chairperson asked if the lack of capacity referred to numbers of personnel, or their skills. He noted that the vacancy rate had risen from 23.4% in 2004 to 24.4% in 2005/6 and the skills rate had declined.

Mr Thomas replied that there were problems both in numbers and skills. Steps had already been taken towards restructuring and building capacity, and the state land management function was one of those identified as requiring more skills.

Ms A Dreyer (DA) pointed out that even when appointments had been made, performance would still need to be monitored. She wished to focus on the Emphasis of Matter, and asked if there were approved policies and procedures in place for performance information.

Mr Thomas confirmed that these were in place.

Ms Dreyer indicated that the AG was concerned over lack of policies and procedures on the preparation of performance information, and that there was no supporting evidence to validate the statistics on performance, or material discrepancies in the information provided.

Mr Thomas stated that the procedures and systems existed, but the AG had identified some flaws in those systems. DLA was currently trying to improve upon them. Each component produced a quarterly performance report and review and assessment meetings were held every three months. Information was collated by managers of all provincial and national offices. The AG had examined the documents at National office but could not find the source documents, as these were held at provincial offices.

Ms Dreyer asked whether supporting evidence had not been sought and provided for audit purposes.

Mr Thomas said that the evidence existed, but was not able to be found by the AG, because the AG had not visited the provincial offices. The source documents were not attached to the original reports.

Ms Dreyer pointed out that the AG had visited, as he had done every year, at a certain time, and had carried out the same set of procedures, so that DLA surely either should have been aware of the need for the supporting documents, or should have been able to provide them.

Mr Thomas said that he had not been made aware that the documents were needed, and he was not sure if the request had been made.

Mr Nombembe indicated that the AG would in the normal course base his conclusions on supporting documents, and would have expected that these would have been requested. This highlighted the need to perhaps improve the process of finalising the reports with the Directors General. A core issue was the dispute as to whether the documents had been requested,

The Chairperson confirmed that this did seem to be an uncertain area and asked whether management letters were not sent through to Directors General highlighting concerns at the time of the audits.

Mr Nombembe said that the nature of the AG’s work required him to request evidence in order to reach conclusions. He would not like to address the issue of whether or not the evidence was called for at this stage, and would address it separately, while also clarifying a more robust process.

The Chairperson took the point, but added that this would not help the Committee at this stage.

Ms Dreyer made the point that the AG and his staff worked in a predictable manner, and Departments were therefore not likely to be taken by surprise. She found Mr Thomas’s answer unsatisfactory, as he must surely have known that documentary proof would be requested and should be available. She asked how he would address the issue to ensure that there was no repetition of the problem.

Ms Sarah Choane, Chief Financial Officer, DLA indicated that in fact this was the first time that there had been an audit of the performance information. If this information and the process had formed part of the normal audit, it should have been dealt with at provincial level, as most information was kept in the provincial offices. She noted the comment, and would in future ensure that proper audit trails were kept of all information, verified and aligned to the original documents and reports, and this would involve examination of the way in which the information was collated.

Ms Dreyer asked whether DLA had been alerted to the problem at any stage, or whether it was surprised to see this comment in the audit report.

Ms Choane replied that DLA had been alerted to the concerns and had discussed the matter with the AG, who had taken into account the fact that this was a first audit of this information, but had nonetheless indicated that because it was a discrepancy, it would have to be included as a Matter of Emphasis. In 2006/7, as a result of those discussions, DLA would be able to provide the information to complete the audit trail.

Ms Dreyer asked if the 2005/6 information had subsequently been provided to the AG.

Ms Choane said it had not. The timeframes for giving that information had been very limited, and it was impossible to comply in that time. DLA would follow up on the matters and ensure that they were properly addressed in future accounts. As the AGs were deployed to provincial offices, they should ensure that the operational side of matters was covered too.

Ms Dreyer asked if DLA was aware of the reported inconsistencies between the various sources of information, and what was being done to address them.

Ms Choane replied that DLA was aware of this, and had appointed a Director to deal with risk and compliance, who, together with his team, would attempt to align the strategic and operational plans and performance reports and agreements, so that all information was consistent. A template had been designed and would be able to detect discrepancies. Therefore a system was in the course of being implemented.

Ms Dreyer referred to the report that in 1994 State properties had been registered under 32 different names, which had currently expanded to around 6 000 names, representing about 1.5 million properties and about 24 million houses. However, only 338 properties were found on the Public Works Property Management Information system. 284 did not contain the 13-digit reference numbers that would match Deeds Office records. Further statistics were quoted, but these statistics on state land were out of line with the statistics given earlier by the ITB. Ms Dreyer questioned how DLA was intending to compile a proper fixed asset register.

Mr Thomas pointed out that DLA was not the only Department that owned state land. It could not be held accountable for land owned by other Departments, although it was obviously in its interests to verify State land holdings, in order to properly manage the land reform programmes. DLA, once the Restitution of Land Act was passed, had initiated the creation of an inventory of all public land, which would include municipalities, national and provincial departments and parastatals.

Mr P Gerber (ANC) noted that the land reform programmes were threatened by serious delays. He was concerned to see that the DLA had held 104 policy workshops in the previous year. This amounted to a workshop every second working day, at a cost of around R18 000 per workshop. He questioned the need for so many workshops, pointing out that this was at odds with other Departments. He felt that it was the function of the politicians to make policy and the function of the Departments to implement policy.

Mr Thomas responded that the dividing line between policy and implementation was not always clear, but this was a philosophical question. The work of the DLA was very complex, and it was vital to ensure that not only the clientele, which included land reform beneficiaries, all other government departments and stakeholders, understood all issues, but also that all levels of personnel in the nine provincial and three district offices must be fully acquainted with the policies, procedures and systems.

Mr Gerber reiterated that he could not see the need for so many workshops. The DLA budget allocation was small compared to other Departments.

Mr Thomas felt that perhaps there was some misunderstanding of the policies and work.

Mr Gerber indicated that the budget was R3.9 million, but the spending at only R2.85 billion, representing 73% of the allocation. He asked if this situation would improve.

Mr Thomas indicated that the bulk of the unspent funds related to restitution, and it was accounted for in terms of the development fund as owned to restitution claimants. There were admittedly some logjams in the system. The largest challenge related to funds that were to be allocated to agencies after submission by them of development plans. These issues were being addressed.

Mr Tozi Gwanya, Chief Land Claims Commissioner: Land Restitution Commission explained that in the Eastern Cape R44 million had been approved and accounted for in this financial year. A particular municipality was appointed as the implementing agent. However, when the Commission looked at the municipal financial statements, it became clear that there were serious problems, and it would have been irresponsible of the Commission to continue with the transfer of funds. Therefore a new agreement had to be drawn with the Amatola District Municipality, and delays occurred in the switching of contracts. This was but one example of the problems that could arise.

The Chairperson asked what DLA had implemented in order to improve the bottlenecks, and what were the implications of the delays.

Mr Gwanya replied that where municipalities were not in a position to assist DLA would consider appointing implementing agents. There had been problems in the past with some community trusts. DLA was currently considering the setting up of a development agency to empower land reform beneficiaries, similar to the Australian model where a land council had been used. There was as yet no finality on the issue.

The Chairperson noted that there were severe staff shortages and noted that this too would affect the finalisation of matters. He asked if the delays would worsen.

Mr Gwanya replied that the matter was under discussion with National Treasury and that it was hoped that more funding would be committed. DLA was trying to reschedule the development component and was discussing a land acquisition budget and release of development funds from other years.

The Chairperson indicated that since the model was still in the conceptual stage, the money would not be released immediately.

Mr Gwanya confirmed that this was correct.

Mr Gerber indicated that DLA had a Directorate of Communications, but that the Annual Report showed that some R67.8 million of restitution awards were unclaimed. This had increased from the previous year’s R31.8 million. The objectives of the Communications directorate included a communications campaign and tracing but it did not seem that awareness was improving.

The Chairperson asked how people did not claim what was awarded.

Mr Gwanya replied that when claims were allowed, some of the claimants would opt to receive payment directly through electronic bank transfers, and some would opt to receive funds through a voucher system administered by ABSA. A schedule of verified claimants was drawn up and the claimants could only obtain their funds on production of their ID. The claimant community was advised directly that payments would be made on a certain date. ABSA would stagger those payments according to their capacity, so that certain claimants would have to call on certain days. It might be that some did not arrive to redeem their vouchers, and therefore ABSA would return the vouchers with the reason for non-payment. The Commission would also use the radio to disseminate information, so that it could reach those claimants who had moved away from the area, and would also make use of the local press. Mr Gwanya explained that the increase in the financial statements was not a cumulative increase, but was rather due to the large number of restitution claims being finalised in that year. The numbers would change on a weekly basis, according to how many claimants had collected their payments. It was true that there were a number of untraced claimants, some having moved away, some perhaps having died, and vouchers expired after a time so that moneys could not be paid out without further processes.

The Chairperson enquired whether it was possible that out of a batch of claimants, some could be paid several months after others.

Mr Gwanya replied that because the vouchers were watermarked, they took a short while to produce and that batches would be prepared on a weekly basis, according to a certain schedule. Naturally large numbers of claimants would not necessarily be able to be paid on the same day, but it was unlikely that the payouts would extend beyond a couple of weeks.

Mr Gerber asked for comment on the AG’s report that an information systems audit of the control over the land base and land registration system had revealed material control weaknesses.

Mr Thomas stated that these had been dealt with. Recovery plans had now been put in place with backup systems, which in turn had been tested. Secondary hardware was being stored against the possibility of failure of the primary hardware, and the implementation would be completed by July 2007. Tools had been procured to facilitate management of the programme lifecycle and change management procedures had been implemented. DLA had recently relocated to a more secure area and now only authorised officers were able to gain access to the production environment.

Mr Gerber indicated that the AG had also raised issues of non-compliance with the accounting standards in regard to property, plant and equipment, and that financial leases had not been accounted for in line with IAS13. Further there had been non compliance with Treasury Regulations.

Ms Choane replied that the comment on IAS16 related to appraisal of assets. This was the first year in which DLA had been required to appraise the assets, which were mainly furniture and computers. This was not like a balance sheet that a company would draw. It was a costly exercise, but a value had now been fixed, and the necessary entries would be passed. The changed estimates needed to be agreed with the AG. The leases were entered into by National Treasury. The way in which they were reflected had not differed from past years. The hiring of equipment had not been capitalised, and this procedure was non-compliant. These matters had been corrected and would not recur.

Mr Gerber asked why the different provincial Deeds Offices were not yet linked to each other or with the Office of the Surveyor General (OSG). He also enquired if it was possible to receive some information on the number of vacant posts in OSG. Furthermore he pointed out that there were still discrepancies in the legislation since only those surveyors who had a university degree, and not those who had studied at a technikon, were able to sign off surveys, which led to delays and inefficiencies in the subdivision systems, and obstacles to land reform.

Dr Makgalemele admitted that the shortage of surveyors was a challenge, and it proved difficult for the Department to attract staff, because of its lower salary structure, and to retain them. Surveyors were a scarce skill. DLA did not undertake surveys, but merely ensured that there was compliance with the surveying legislation. Universities and technikons were currently not able to produce sufficient graduates to meet the demand. She said that there was a discrepancy under the current Surveying Act, but a Surveying Profession Bill was being drafted, in terms of which the South African Qualifications Authority (SAQA) would be able to recognise prior learning and experience to address the scarcity of skills. In regard to the Deeds Offices, she stated that some of the information was already available over the internet. The old system of four Surveyor General’s Offices still applied, but the offices were being decentralised, and attempts were being made to integrate the information to benefit clients, so that in the new offices both deeds and surveying information could be accessed at one point of service.

The meeting adjourned.