Covid-19 Expenditure Audit; Capacity Building Session on AGSA’s role as an assurance provider

Meeting report

The Acting Chairperson welcomed Members and representatives from the Small Enterprise Development Agency (SEDA) and the Auditor-General of South Africa (AGSA).

AGSA audit on Covid-19 initiative

Ms Aphendule Mantiyane, Senior Manager: Small Business, AGSA, said that the purpose of the special audit on the Covid-19 initiative was to allow for quick and responsive changes to the processes and preventative controls involved, to enable enhancements and necessary corrective actions by management where necessary.

There were two flagship programmes to support small businesses during Covid-19 -- the debt relief finance scheme and the spaza shop support programme. The debt relief finance scheme had a budget of R513 million, and R316 million of that was spent. The Department did not have sufficient funds to support all the applications for the debt relief finance scheme - the balance of the 12 954 completed applications required an estimated budget of R4.4 billion. The bulk of these applications required assistance for the payment of salaries. The applicants had been referred to the Department of Labour to apply for the Unemployment Insurance Fund’s (UIF's) temporary employee/employer relief scheme (TERS).

The spaza shop support programme had a budget of R175 million, and actual expenditure had been R18 million. Only 9 317 spaza shops' applications were received, and 5 276 applications were approved, with 4 041 applications declined. Due to the low uptake of the spaza shop support programme, the Department could utilise only 10% of the available funding to support spaza shops in financial distress. The Department had finalised an online applications process and updated the standard operating procedures. As of 1 October 2021, spaza shops could apply for the programme online.

There was still a risk of double-dipping in the South African Social Security Agency's (SASSA's) social grant, and other support initiatives, which could result in government not achieving its objective of poverty alleviation due to limited resources and pressure on its already strained finances.

Some notable findings included vacancies in key positions in several auditees. At the SEDA, these included the chief executive officer (CEO), chief financial officer (CFO), chief information officer (CIO), head of strategic planning, and head of supply chain management (SCM). At the Department of Small Business Development (DSBD), the two Deputy Directors-General (DDGs) positions and one chief director were still vacant. The positions had not been filled due to pending parliamentary approval of the incorporation of the Small Enterprise Finance Agency (SEFA) and the Cooperative Banks Development Agency (CBDA) into the SEDA with effect from 1 April. Although action plans were developed, they were not adequate to address all internal control deficiencies previously identified, and in certain instances, they were not monitored adequately.

The Auditor-General made a list of recommendations to the various executives within the DSBD and to SEDA. A recommendation was also made to the Committee to monitor and regularly follow up with the executive authority and accounting officer on various aspects and a culture of consequence management should be enforced at the Committee level.

Discussion

Mr G Hendricks (Al Jama-ah) thanked AG for the report because the communities where Members worked had consistently accused SEDA of fraud and corruption, even though several disciplinary processes were taking place. He said it was the responsibility of Members to take an oversight role of service delivery in the communities. The Chairperson and Al Jama-ah had also gone out for visits in the Western Cape communities, such as Mitchells Plain, and SEDA had also visited some communities for information sessions on loans, grants and opportunities. It was said that parliamentary offices and constituencies must extend the footprint of SEDA, which was largely through educational information, and Members of the Committee had done that. Once this was done, Members left the process in the hands of SEDA -- and later, SEFA. As a result of this intervention, ten people who qualified for grants were chosen from the Cape Flats to apply for loans. He had observed the process from the outside and had since discovered that SEFA in the Western Cape was still very corrupt. Of the 100 people recommended to SEDA during this oversight process, only ten had qualified and were sent to SEFA by SEDA. One of the ten had written an official statement about the corruption at SEFA and given it to SEDA and SEFA officials in Cape Town. He hoped these organisations would act on it.

He asked what audit action plans the AG could implement to address ground
-level issues.

According to the report, Mr J de Villiers (DA) noted a 61% spending on the debt relief programme and 10% on the spaza shop programme. It was a sad situation when money was available to assist people, but it did not reach them. He asked what recommendations were implemented and the root cause of money not reaching the people.

He asked whether the lists of businesses who were helped by these two programmes were verified and audited by the AG as legitimate businesses with legitimate needs. The Committee had not received that information, despite asking for it on various occasions. He added that these lists should typically include the names of directors and shareholders.

He also mentioned that in the legacy report given to the Committee, it was noted that there was an outstanding forensic report. He asked when the report would be finalised and when the Committee could expect to receive it from the AG.

He concluded that the report highlighted the need for filling key executive positions.

Ms K Tlhomelang (ANC) was also concerned about the under-expenditure in programmes meant to offer great support to small businesses. She said small businesses, including spaza shops, suffered and did not receive enough support. She asked whether it was possible to redirect those funds allocated specifically for the two programmes. It would not be good for funds to be returned while people were suffering and in need of them.

She said the report had been an eye-opener. Previously it was said that most of the spaza shops were owned by foreigners, but the constituency offices had made great strides and encouraged people to open and own spaza shops so that Members could assist them through the relevant support structures.

She said that online application platforms prejudiced some business owners. It would be better to use constituency offices and work with municipal offices for in-person help, as South Africans were still accustomed to physical human interaction. She asked the AG how the Committee could address this challenge.

She lastly asked for advice from the AG about what could be done practically to address the challenge of under-expenditure because the recommendations in the report were not clear on the solutions to be implemented. She asked whether it was realistic to assume that if the 1 144 businesses were supported, they would have created 16 544 jobs. She asked why these businesses had not been supported if this was a realistic assumption.

Mr H April (ANC) commented that the AG’s role was to report on the findings of the DSBD's work, so most of the questions asked by Members of the AG should be answered by the DSBD.

He wanted to raise the point unequivocally in the Committee that when Members came with questions related to corruption in any state department, they also had a fiduciary responsibility to ensure these matters were reported to the police, where investigations should take place. He cautioned Members that they should not come to meetings and make accusations of corruption without taking the necessary oversight steps of reporting it. Members needed to represent the communities in all spheres of government, and one of these was the judiciary, which should be used.

He asked how the AG would rate the consequence management and accountability in the DSBD. It appeared to him that people could do what they liked – underspend in some areas and overspend in others.

At the last meeting, the Department had reported that it had obtained a clean report for non-financial performance but not for its financial performance. He said the DSBD seemed to struggle to achieve clean financial audits. He asked what the problem was and what capacity or resources the DSBD needed to ensure their financial performance received a clean audit.

He had heard about the appointment of independent forensic auditors who had investigated. He asked if the AG had received the report of that investigation.

Inkosi B Luthuli (IFP) asked the Chairperson to whom a person could turn if they had applied, and the application was rejected despite their having a viable business, and neither SEFA nor SEDA wanted to listen to them.

The acting Chairperson also raised concern about the under-expenditure at SEDA and SEFA and wanted to see consequence management because access to funding was important for small businesses. It was almost a sin for money to be budgeted for and not be spent. Government officials were paid good money to be diligent in spending the money efficiently. It was also a concern that the big banks did not spend money to support businesses during Covid.

He also expressed concern about the spaza shop programme because the government wanted South Africans to buy South African products at local outlets in the townships and rural towns.

Responding to Inkosi Luthuli’s question, he said the Committee should be that recourse. He asked him to give details of those rejected parties to officials in the meeting. He also encouraged Mr Hendricks to share details of corruption with the officials in the meeting, and the Committee would follow up as part of its oversight.  

He lastly commented that consequence management must happen and said that there would be an opportunity to address the respective departments, agencies and even the Minister on some of the questions raised. The purpose of this meeting was for Members to receive direct feedback from the AG.

AG's response

Ms Mantiyane said that this report was first published and tabled by the AG in December 2020, during the 2020/21 cycle.

She said that generally, the prevention of corruption and fraud was not the responsibility, nor within the mandate, of AGSA. It was a duty assigned to the accounting officers through the Public Finance Management Act (PFMA) and legislative requirements. Departments were then required to put systems and processes that promoted ethical behaviour and establish platforms where corruption could be reported and investigated. The accounting officer could then make a range of recommendations. However, because this was a risk raised in the Committee, the AG had a responsibility to go back and draw up procedures to respond to this risk.

Part of consequence management included reviewing matters like corruption brought to a manager's attention and assessing the manager's response and action taken to address such issues. The matters of non-compliance would then be taken through the processes of material irregularities to see if those conditions were met or not. If they meet the definition of material irregularity, they were taken to the accounting officer.

Referring to the under-expenditure, she said approximately R300 million had been spent as at 30 December 2020, when the second instalment of the report was presented, and which had been made available to the AG as part of the audit process. The AG had verified that information. However, as at 31 March 2021, the AG had confirmed that 100% of budgeted funds were spent on deserving beneficiaries. No issues of material misstatements were identified.

With regard to spaza shops, there were processes that verified legitimacy of an applicant. As part of that process, the Department reviewed applications, and only those who were successfully verified were approved to receive funds. There had also been a challenge of uptake among businesses. The Department had gone a further mile in putting the application process online, as movement had been restricted.

Ms Mantiyane said the AG had not received an update on what had transpired since the last reporting period of 31 March 2021. The Department may have more information to assist the Committee and the AG to understand what had transpired since the last reporting date.

Concerning redirecting funds, she said the programme was shifted to Nedbank, a financial institution that already had processes and internal control mechanisms to manage applications, approvals and the awarding of funding. As a secondary role, they could monitor that the funds were used for their intended purpose.

She suggested that the Committee engage the Department for an update on the expenditure and also get an update about other initiatives and incentives that the DSBD had implemented to support businesses.

She apologised that she had no knowledge of the forensic report because of her being new in this position. However, she assured the Committee that she would investigate it and revert to the Committee.

On the challenge of key vacancies, the AG received word that the positions were not filled due to pending parliamentary approval of incorporation of SEFA and the CBDA into SEDA with effect from 1 April. It seemed that the Department was busy with the legislation.

She believed the Department had played its role in marketing the available resources to spaza shops, but it was up to the public to act to access these resources. She added that businesses should adhere to the processes to ensure that each stage was documented and could be traced accordingly when issues arose.

As one who had grown up in rural South Africa, she raised concern that spaza shops were an important contribution to the well-being of the community. Those shops had been closed, with buildings left vacant or occupied by non-South Africans from neighbouring countries. She said the Department might need support in intensifying its drive to spark interest and for spaza shops to see themselves as an integral part of entrepreneurial life in townships and rural areas to take up the available resources offered to them.

She agreed that the online platform could be a challenge for the uptake in funding. The Department could look at partnering with hubs, where people could go to access the internet and make applications for funding.

Closure

The Acting Chairperson thanked the Members and all officials present for attending the meeting.

The meeting was adjourned.