Alexkor Annual Report 2016/17 & Alexkor & SAFCOL 2018/19 Performance Plan

Meeting report

Alexkor annual report 2016/17 financial year & 2018/19 Richtersveld Community progress report
Ms Hantsi Matseke, Alexkor Board Chairperson, Mr Lemogang Pitsoe: Alexkor CEO and Ms Adila Chowan: CFO presented. The 2016/17 was a good year for Alexkor. The company produced a record-breaking 162 000 diamond carats with a 112 000 carats produced from deep-sea mining with a total  revenue of R758 million. It was mining its deep-sea concessions with deep-sea exploration company, International Mining and Dredging South Africa (IMDSA).  Alexkor made a profit of R6 million compared to a loss of R35 million in the previous year.

Between 70 to 80% of what Alexkor produced went back to the contractor because of the model Alexkor had adopted. The model was such that a contractor was appointed and when the contractor produced carats and the revenue was received, there was an agreement on the split. The split varied from 50-50 to 80-20. In the case of IMDSA, the split was 85-15. Alexkor made a profit of R6 million in 2016/17 from a loss of R35 million in the previous year.

Alexkor was faced with the challenge of irregular expenditure. Although certain expenditure was directed at the right services and these were rendered, the documentation was not in order. An example was being unable to find some of its contracts with mine contractors. Another example was when Alexkor had moved offices, Alexkor had incurred a penalty which was classified as wasteful expenditure. The move was necessary as it resulted in Alexkor saving about R100 000 per month. 

Alexkor was still on point in delivering to the Richtersveld community. However, there were challenges with the three items that had still had to be delivered. According to the deed of settlement agreement, Alexkor had to pay the R45 million and the property transfer and had to transfer the township into the local municipality. There were ongoing discussions so that elections in the community are held to ensure that all structures are properly constituted.
 
Discussion
Mr R Tseli (ANC) reminded the Committee that the budget debate would be held soon in the National Assembly. The R45 million had been outstanding for the previous two financial years. He asked what the Committee should report this time around. The Committee had to report something different from what had been reported the previous two financial years.

Mr Tseli asked about the retainer fee for board members. He was concerned about the irregular expenditure caused by staff that had left the company. The presentation seemed to indicate that the matter was closed now that they had left the company. Did it mean that if anyone caused irregular expenditure and left the company, the matter would be closed? He asked if there was a better way to handle this matter. He asked for clarity on whether the bursaries were given to staff or people outside the company. He asked who the people were and what the field of study was.

The Chairperson asked if Alexkor was going to provide a report on community issues.

Mr E Marais (DA) asked if any money had been paid to the Richtersveld Mining Company (RMC) or Richtersveld community to date for the 49%? If not, why not?

Mr Marais asked the Alexkor board chairperson and CEO if they had ever met or had contact with the Guptas or their associated companies at any stage.

Mr Marais asked if the Pooling and Sharing Joint Venture (PSJV) CEO and the State Diamond Trader board chairperson were one and the same person. If that was the case, he asked if the State Diamond Trader buys 10% of Alexkor production as offered in terms of legislation and if this was a conflict of interest.

Dr Z Luyenge (ANC) told the Alexkor board chairperson that she had an obligation to make the organisation work cost effectively. He asked her view on exporting raw materials as opposed to trying to process them internally to see if a profit could be made. He asked if there were any improvements in the safety standards in the mine. He asked for detail about the staff establishment and vacancy rate especially in critical areas. Did Alexkor have a suspense account? In organisations like Alexkor where there is money which is unclaimed, there was need for such an account. He asked where the funds were kept.

Ms D Rantho (ANC) said that the bursaries had to be related to the work done in the company to develop skills. There had been a skills shortage generally in South Africa. It would be better if the company helped to develop scarce skills within its organisation.

Ms Rantho said that the presentation was very casual about the Auditor General’s findings. The presentation was too general. It would have been better if the presentation had a detailed explanation on all the findings that the Auditor General had raised. It was a concern for the Committee that it was not providing detail on this. She asked why Alexkor was not following the PFMA.

Ms Rantho said the Auditor General noted that the accounting authority did not investigate irregular, fruitless and wasteful expenditure. These needed special attention. The findings had to be considered because he would keep raising them they are corrected.

Ms Rantho said that the Board Chairperson had previously mentioned that Alexkor was conducting exploration for coal. She asked if getting into coal meant leaving the diamond mining to a private company. She asked how many years were left with Alexkor mining diamond. The understanding was diamonds were being mined from the sea, rivers and on land. The diamonds on land might be depleting but the sea was moving. The sea could move diamonds from one place to another. She asked Alexkor’s opinion on what should be done given that the moving sea had the potential to move the diamonds to another area.

Ms Rantho noted the presentation showed that the revenue earned by non-local contractors from land and marine looked better than that of local contractors. Was this because the local contractors did not have enough resources to mine?

The Chairperson asked about consequence management for the fruitless and wasteful expenditure. The presentation indicated that the external auditor’s opinion was modified and asked for clarity.

She asked why there were two Alexkor boards, if they could be reduced to one and if any board member served on both boards. She noted that the Annual Report showed that Alexkor was not meeting its BEE target and asked why that was the case and what was going to be done about it going forward.

Ms Rantho asked if Alexkor was part of Public Enterprises as the Department was not a mining department and if Alexkor complied with the mining charter.

Response
Ms Matseke apologised for not having prepared a presentation on the Richtersveld community issues. However, she assured the Committee that Alexkor was ready to speak when asked about them.

Mr Kgathatso Tlhakudi, DPE Deputy Director General: Manufacturing Enterprises, said that an update would be provided on the Richtersveld community according to the responsibility given to the Department of Public Enterprises (DPE) and Alexkor.

Ms Matseke replied that Alexkor moved the R45 million into a trust. The R45 million was supposed to go hand in hand with the transfer of property. The money was supposed to be transferred to a property holding company. The reason the money was not transferred into a property holding company was because the property holding company was not properly constituted. There had been discussions with the community, DPE and Department of Rural Development and Land Reform (DRDLR) that elections should be held so that all structures of the community were properly constituted. DPE would be able to give feedback on the discussions. The R45 million was now in the trust. No payment had been made to the RMC. Dividends of R10 million were declared and 49% of that R10 million was also put into the trust because RMC itself was not properly constituted. Alexkor was still waiting for the process of elections so that all the structures were properly constituted. In the deed of settlement, there was an allowance for about R6 million that should enable Alexkor to assist the community to be properly constituted. Alexkor had spent about R5 million on that but nothing was properly constituted yet.

On the irregular expenditure, Ms Matseke replied that the contracts were old – they were more than five years old. Alexkor had just changed its external auditor to SNG. When SNG asked for those old contracts, they were not found but the services had been rendered. Alexkor had to go back and regularise that and get the contracts.

Ms Matseke replied that the students who were being sponsored were studying mining engineering and in the environmental space related to mining. The intention was to incorporate them into Alexkor after their studies if there were vacancies.

Ms Matseke said that there were media reports that her husband had a relationship with the Guptas. However, that was not true. She said the CEO of the PSJV was also the Board Chairperson of the State Diamond Trader.

Mr Lemogang Pitsoe: Alexkor CEO replied that the State Diamond Trader (SDT) was a DMR entity that regulated the trading of diamonds in the country to encourage the beneficiation of diamonds by previously disadvantaged communities. Ten percent of local production of all South African diamond producers should by law go to the SDT. Alexkor is obliged to send 10% to SDT. There was no conflict in that regard. It was a national regulation that had to be observed by all diamond producing companies.

Ms Matseke replied that there were two boards and the two boards were chaired by one person. There was a question of conflict there. DPE would probably best respond to why that was the case because it was part of the shareholder compact that the Chairperson of Alexkor must be the Chairperson of PSJV.

On Alexkor’s follow through on the Auditor General findings, Ms Matseke replied that most of the findings resulted from the fact that Alexkor did not have a supply chain practitioner. However, it now had one. She committed to ensuring that going forward, there were improvements. The CFO worked very closely with the supply chain practitioner. This was to ensure that it did not face the same audit outcomes going forward.

Ms Matseke replied that there was the need for diversification into coal. The auditors had said that Alexkor needed to diversify as its business case was only the diamond mine and that was a risk. This was because only 51% was directed to Alexkor and the other 49% remained for the community. The deed of settlement allowed for a put option or a call option. Either of the two parties could exit the relationship. Alexkor would cease to exist if the community decided to own 100% of the mine. The auditors, therefore, advised Alexkor to diversify into other areas.

Ms Matseke replied that beneficiation was very important. The CEO would explain the approach that Alexkor was taking in on beneficiation.

Mr Pitsoe said that Alexkor was currently doing five percent of the production at the factory with small scale industries (SSI). Five percent for Alexkor, which produces around 50 000 carats per annum, was nothing compared to what Alexkor as a company could do. The insourcing and outsourcing of beneficiation comes down to the feasibility of it. There used to be 4000 cutter and polishers in the country but currently the number had reduced to 950. Out of the 950, 12 of them were historically disadvantaged people. This was a high entry capital business. For anyone to claim the space, they need to have money for stock, machines and most importantly resources to cut and polish the diamonds so that when they beneficiate, they can be sold at a profit. Alexkor was busy with due diligence to see what would benefit Alexkor going forward. It had also had sent 10 students to Kimberley International Diamond and Jewellery Academy for cutting and polishing training.

Mr Pitsoe said not all diamonds were cutable or polishable so there was need to assess which diamonds were going to be cut and which were not. Currently, Alexkor and DPE, DMR and State Diamond Trader and the regulator, tried to come up with a formula whereby they could look at beneficiation benefits more especially for Northern Cape and the nation in general. Last year when the dollar-rand exchange rate was 1:14, it was great cutting diamonds in South Africa. In December with the ANC elective conference, the rand dropped in value and it was not such a good idea. There were many factors that affect diamonds. Diamonds were not sold in South Africa; they were sold outside and were sold in dollars. International events affect the price of diamonds. Currently with Alexkor producing around 50 000 per annum, it was taking one step at a time towards beneficiation.

Ms Matseke replied that the Minister of Public Enterprises Pravin Gordhan had asked about the forensic audits they had done. He noted that the three forensic audits were based on matters that happened before the new board came. The Minister was informed about these. The Minister said that DPE was going to do its own forensic investigation and Alexkor welcomed his decision.

Mr Pitsoe said that there was a wellness program at the mine. Alexkor was very aware of the stresses and fatigue related to mine work. Therefore HR had developed a wellness program.

Mr Pitsoe explained that a suspense account for unclaimed money was related more to underground mining. where money was put aside for underground incidents. Therefore, Alexkor did not have a suspense account. Alexkor did not mine in rivers but rather mined in the ocean. The diamonds were not in the sea but were buried about 10 meters into the sea floor so there was no movement and they did not migrate.

Mr Tlhakudi replied that PSJV was an unincorporated entity. It was therefore not subject to the PFMA and this had been a challenge for DPE in playing an oversight role over Alexkor and the PSJV. There were two boards, one that was directly appointed by the Minister composed of the non-executive directors of Alexkor. That had been a suboptimal arrangement for DPE. It had tried to address this during the term of Minister Brown. DPE pushed for the appointment of Alexkor executives. Normally having 51% interest in another entity would automatically make that entity a subsidiary. Proper arrangements suggest that the executives should have the oversight role over their subsidiary, but that was not the case with the PSJV. This had been raised again now with Minister Gordhan. DPE’s oversight role stopped at Alexkor and it could not go into the PSJV to address the matters raised. If the PSJV arrangement was going to be amended, the consent of the community was needed as it owned 49% of the Richtersveld Mining Company. So, those discussions would have to be held with the community.

On the mining contracts, Minister Gordhan had directed that a law firm be appointed to do a forensic investigation into that. Complaints had reached Minister Brown at the time and she directed that DPE do an investigation. DPE went to Richtersveld in January 2018 for a criminal investigation. A report was written and Minister Brown had consented that DPE proceed with its recommendations. However, with the change of ministers, Minister Gordhan had to ratify that decision. That had happened and the process was unfolding. Currently, DPE was waiting for the Director General to issue the appointment letter to the law firm that had already been identified to do the investigation.

Ms Morongwa Mothengu, DPE Director: Mining, replied about progress with the R45 million payment. In 2017, DPE had visited the four communities to advise them on what needed to be done to amend the court order. The court order said that the R45 million should be paid to a property holding company but the community requested that the money be paid directly to their beneficiaries. DPE had informed the four communities on the process needed to amend the court order to enable the payment to the beneficiaries. In December after briefing the Portfolio Committee, DRDLR appointed a legal advisor for the community to assist them with preparing the court order papers for the variation to be put into effect. It was believed that the legal representative had compiled proper amendments and those amendments would be discussed in the AGM with the community for the community to ratify the amendment to effect the R45 million payment, then it would be taken to court for ratification.

Ms Mothengu said that there was also another obligation in the deed of settlement. This was the township establishment where Alexkor was required to upgrade the Alexander Bay engineering infrastructure and then hand it over to Richtersveld municipality. The Alexander Bay township was converted from a mining compound into a formal township. The township was ratified in November 2013 as one of Richtersveld townships. DPE had experienced challenges with the handover of the Richtersveld Municipality as it had capacity challenges in terms of funding and the skills required to manage the infrastructure. However, that had been taken over by the DG of Northern Cape. On 17 May, the Northern Cape DG would facilitate the handover of the engineering services to Richtersveld municipality.

Mr Tlhakudi said that while DPE was pushing for this R45 million to be paid out, there were other monies that had been paid to the Richtersveld company. There was about R300 million sitting with the investment holding company. He urged the Committee to consider that because it was outside the jurisdiction of DPE as a Department and how that money was being managed and if it was benefiting the community. The Portfolio Committee should consider all that. There was a lot more that could be done in the development of Richtersveld if that money was to be properly used. The understanding was that the CPA did not even have control over that money. The investment company and the trust were refusing to report into the CPA so that they can be guided into how that money should be spent.

Alexkor performance targets for 2018/19
Mr Lemogang Pitsoe: Alexkor CEO presented the performance targets for 2018/19 (see document).

The PSJV performance target for land and marine carats was projected to be 52 000 on an annual basis. Deep sea production was not budgeted for because at the time of submission, IMDSA was not compliant for deep-sea operation. However, it should be ready by the end of May 2018. Concerning mid-waters, the projection was 5000 carats based on the number of contractors. The Alexkor expansion and exploration program was looking at exploring the land. The sea so far had been explored. The number of artisans was to be increased to three. The number of engineers was projected at four.

In terms of commodity diversification, Alexkor was diversifying into coal. However, the coal project was put on hold until further notice.

Mineral beneficiation was one of the key KPIs. There were discussions with SDT, DPE, DMR, the regulator and Northern Cape Economic Development. The aim was not to look at it from Alexkor’s point of view but from the national point of view.

Discussion
The Chairperson reminded the member that when asking questions, it was important to note that the minister had said that whatever was presented on 2018/2019 by the entities was a draft. He requested that Committee should take them as drafts. He further requested that he should be given six weeks to complete his exercise in terms of intervening in these entities. The Committee should be mindful of that when asking the questions.

Mr N Singh (IFP) asked Alexkor to explain what informs their corporate social investment targets. Looking at what happened in 2016/2017 in terms of spending on BEE companies, black owned companies and black women, they had achieved virtually zero. Now suddenly from zero or 15 %, Alexkor was projecting 60, 70 and 80% on some of these areas. He asked if Alexkor had sustainable plans on how to achieve that.

Dr Luyenge asked if there were a mechanism that Alexkor wanted to employ to improve the relationship between the institution and the community. He did not think that it was cost effective to have two boards. He encouraged having one board and a mechanism to incorporate communities much more than before.

Dr Luyenge asked if there was any part of the land Alexkor was operating in which was under claim. If that was the case, he asked what the attitude of the land commissioner and the community was.

Ms Rantho was worried about what the Auditor General had raised about non-compliance to laws and regulations. The auditor’s findings were worse than before. She asked Alexkor to explain if it had problems with the use of its finances. She asked if the reason was due to having an Alexkor board and a PSJV board and one executive. Perhaps it found it difficult to manoeuvre between the two boards.

Ms Rantho said that Alexkor reported that a trust had been opened and it was not clear who opened the trust. Would the interest on the trust money go to the community or to whoever had opened the trust? Was the trust under the name of the community or was it under the name of a certain lawyer?

Ms Rantho asked the Alexkor Board Chairperson if there was a relationship between the company and the Guptas.

Ms Rantho referred to the “proper constituting” of the Communal Property Association (CPA). What does it mean? Who is missing to make the CPA properly constituted?

Response
Ms Matseke said there was no relationship between Alexkor and the Guptas and between her husband’s company and the Guptas.

Ms Chowan replied about the non-compliance to the PFMA. What transpired was that the auditors modified their report on the basis that contract documentation could not be found. This had to do with historical procurement. Due to Alexkor moving offices and changing auditors, documents were lost. Alexkor had now put processes in place to ensure that documents were well kept. This is to avoid a repeat of a modified audit opinion because the auditor does not have a document that they can rely on to audit it.

Mr Tlhakudi replied that the two boards was an anomaly that was being addressed by the Ministry.

SAFCOL 2018/19 performance targets
Mr Tsepo Monaheng, SAFCOL CEO, and Ms Vuyo Tlale, Acting CFO, presented the SAFCOL strategy, accompanied by Mr Lungile Mabece, SAFCOL Board Chairperson. Here is the strategy summary:

• Driving organisational efficiencies and turnaround;
• Collaboration with industry in areas such as fire-fighting, security, weed control and skills development;
• It intends to integrate horizontally by potentially accessing other plantations such as the category B&C plantations currently managed by the Department of Agriculture, Forestry and Fisheries (DAFF);
• Reviewing its harvesting policies to potentially increase volumes;
• Increasing processing capacity by investing in the upgrade and modernisation of Timbadola sawmill;
• A concerted effort will be made in creating a wood culture in South Africa;
• As part of vertical integration, developing new products such as timber-frame structures, poles and engineered wood to extract maximum value from its logs. This includes potential collaboration with others;
• Increasing capacity in SAFCOL including a focus on business development, marketing and sales;
• Driving rural economic development and enterprise development;
• Utilising SAFCOL’s abundant forestry assets to grow its eco-tourism business to the maximum;
• Utilising its capabilities to provide forestry management services locally and in other countries.

SAFCOL key performance indicators and targets were outlined (see document).

Discussion
Dr Luyenge asked SAFCOL if any corrupt activities had been found at SAFCOL. He asked for the reasons the previous executives decided to resign. People tend to steal money and then run away when things changed. He asked if there was a corruption element to the resignation of the executives. He asked if SAFCOL was contemplating expanding.

Mr Marais asked for an update on the Mozambique investment. Previously, there were reports about how problematic the operations in Mozambique were. What was going on with the investment there?

Mr Singh said that it was remarkable that the company had achieved R1 billion turnover. He encouraged SAFCOL to keep it above that all the time.

Mr Singh asked what informs the number of board members in state owned companies. Was it the size of the company; was it the turnover? He asked because there was a problem with one board member, Mr Mnguni, as he did not attend any of the three meetings of the social and ethics board committee, he attended one out of four meetings for the HR and Remuneration board committee and his board meeting attendance rate was 36%. He was also due pack pay and total payments for that year 2016/17 was around R450 000. Do you retain board members who do not attend? And do you need them?

Mr Singh referred to the resignation of the CFO. Was the CFO involved in any corrupt activities? He recalled a SAFM radio programme two years prior where a person had been very unhappy about what was happening at SAFCOL. The person complained about corruption and all sorts of things. He asked if there were elements of corrupt activities that the Committee should know about.

Mr Singh said that irregular expenditure was a concern. He asked how SAFCOL was dealing with it. He asked SAFCOL to explain the impact of land claims on the forests that it was managing.

Mr Tseli said that SAFCOL had tried to achieve its targets. He was impressed especially the socio-economic deliverables. His only worry was some of the KPIs were very broad. The KPIs for the approved strategy for the whole year were not very clear measures. At the end of the year, it becomes difficult for one to check the performance in each area. He encouraged SAFCOL to have targets that were measurable in the future. The overall impression was that the company was doing quite well.

Response
Mr Lungile Mabece, SAFCOL Board Chairperson, replied about corruption, saying there were investigation reports and those included corruption. This was being pursued through the law enforcement agencies. Unfortunately, that process had been very slow. There had been struggles to make progress.

Mr Mabece said that the CFO appointed in 2016 had resigned in 2017. Part of what led to her resignation was an internal audit report that implicated her in irregular procurement. It was as a result of that process that she decided to resign.

Mr Mabece said that there were four executives previously. The then CEO and CFO resigned after the board realised that it was not being given appropriate information to make decisions. When the board decided that it was entitled to the information, it was basically changing the culture on how management used to interact with the board. Those were part of the possible reasons for resignation.

He asked the Committee to recall that SAFCOL had to restate its financials in the year that followed and that was because certain things were put differently to make the company appear different from what it was. One of these was the inclusion of what came from minority shareholdings on behalf of the community that were included as part of the SAFCOL performance. It was supposed to be reported separately.

He said that there was also the matter of the equity targets which led to the resignation of the head of Human Capital Management (HCM). The equity targets were found not to be the way they were reported by the business units to the HCM head who reported to the board. This was the main reason for the previous executive to resign, which was mainly caused by the board was not paying critical attention to details.

Mr Mabece said that there was a process that that involved the law enforcement agencies. Now, the board had requested management to do a review of all the forensic investigation reports, at least starting from 2014 to present, to determine whether all the reports were fully dealt with.

Mr Mbece replied about arrangements for SAFCOL to expand, saying that SAFCOL was looking to getting to the DAFF forests. The understanding was that DAFF was managing about 150 000 hectares of land. There was an extract in the DAFF Annual Report of 2015/16 which stated that the state’s poor upkeep of categories B & C plantations had reduced their productivity. SAFCOL is one of the best companies when it comes to forestry management. It was believed that if SAFCOL was given DAFF land to manage, the country was going to get better quality than what was currently available. The country would also benefit in terms of the revenue.

Mr Mabece said that when SAFCOL goes around on projects, communities ask why SAFCOL was not extending what it was doing to other provinces. SAFCOL’s access to management of DAFF forests would enable SAFCOL to do the same thing in Eastern Cape and Western Cape where there were such forests.

Mr Mbece said  the performance targets made two references to the Mozambique investment: Ifloma Manica and Ifloma Sofala. These were the two provinces were Ifloma had operations in Mozambique. There was movement in both projects and it was believed that it was SAFCOL’s responsibility to perform well on both projects so that it can be a point of reference for the African strategy.

Mr Mabece spoke to board attendance. Mr Mnguni had serious challenges with attendance. When spoken to him, he said he was acting municipal manager but doing the work of the municipal executives whose positions were all vacant. The matter was discussed with the Minister Brown. The minister was the one who was responsible for the appointment of the board members and she was the one who was supposed to decide. That was brought her attention.

He said that the back pay arose from the fact that at the time of his appointment, he was an employee of government. As he was an employee of government, they are not entitled to payment unless they are given special instructions to do otherwise. Mr Mgnuni was not paid until Minister Brown raised it saying he was appointed to be paid. Hence the back pay had to happen.

Mr Mabece replied about the SAFM radio interview where somebody claiming to be a member of the community talked about how SAFCOL was mistreating its workers and underpaying them. Investigations were made to see if there was a possibility that SAFCOL was underpaying its workers or doing something wrong in how it treated its employees. According to management reports that the board was provided with, no one at SAFCOL was underpaid. SAFCOL pays higher than the minimum wage requirement of the sector.

He said that the board then decided to interact with the employees themselves and hear what they had say. The board did just that and interacted with the staff members without management present. The board believed that what was reported in the radio interview that workers were mistreated and underpaid was not the case. The lowest paid person at SAFCOL was already at the level of the proposed minimum wage.

On SAFCOL's relationship with communities, Mr Mabece replied that there was a good relationship with the communities that SAFCOL was interacting with. Between 2015 and 2016, there were issues to the extent that at some stage, a group of people from Mpumalanga came and submitted a petition. Based on interaction, those matters were in the past now. Currently he knew of no adverse relationship between SAFCOL and the communities.

Mr Tsepo Monaheng, SAFCOL CEO, referred to the DAFF Annual Report which it predicted that South Africa would soon become a net importer. That was a major concern because South Africa has a lot of plantations and it was not proper to predict that in future the country would be importing instead of exporting. That was why SAFCOL was pressuring to assist and manage DAFF plantations for the benefit of the country.

On the impact of land claims, Mr Monaheng said SAFCOL was planning to work better with DRDLR and DAFF so that there could be a holistic view. The land was needed and if anything was to happen to the land, SAFCOL was going to suffer. It was the biggest risk for SAFCOL.

Mr Monaheng replied that SAFCOL would ensure that its performance targets were measurable.

Ms Vuyo Tlale, Acting CFO, replied to the question on irregular expenditure. An accounts control management (ACM) structure has been approved and there was only one more resource that needed to be appointed which was a committee secretariat. There had been a lack of policies and procedures for irregular expenditure. SAFCOL had now developed an irregular expenditure register which has been submitted to the board on a quarterly basis for review. SAFCOL submitted a draft of the irregular expenditure policies to the board. The board sent it back and SAFCOL was refining it to submit to the board again.

She said that there was sub optimal use of the enterprise resource planning system. What had happened was that they modified it too much which had led to a lot of processes being done outside of the system. This was why SAFCOL got into the situation where it had irregular expenditure. SAFCOL had updated the system now. SAFCOL requested a vanilla product and it went live in January 2018. SAFCOL was now paperless. All the documents were being stored on the system to avoid incidents of documents not being found.

She reported that there had been a high attrition rate in the chain supply management function and a lack of handover and as a result there was a lot of tension in that area which then led to problems when there were audits as there were findings of irregular expenditure due to information not being available. The function had now been capacitated and so this should eliminate some of those problems.

She noted that there had not been a demand planning function. The SAFCOL board had approved this resource and for the first time SAFCOL had submitted a procurement plan to National Treasury on 31 March. The board also approved the development of a contract management resource and register to monitor contracts. That was one of the areas there were huge findings on irregular expenditure as people would procure outside of the contract values. This was being monitored monthly.

The meeting was adjourned.