Department of Tourism & SA Tourism 2017/18 Annual Reports, with AGSA input

Meeting report

The Chairperson welcomed Members and delegates to the meeting, and noted apologies from the Minister of Tourism, Mr Derek Hanekom, and the Deputy Minister, Ms Elizabeth Thabethe.

AGSA: Budget Review and Recommendations Report

Mr Polani Sokombela, Business Executive, AGSA, and Ms Keamogetswe Ruters, Senior Manager, AGSA, presented the Budget Review and Recommendations Report (BRRR), in terms of the Public Finance Management Act (PFMA).

Ms Ruters said that AGSA had a constitutional mandate to strengthen South Africa’s democracy by ensuring accountability and governance in the public sector through auditing and building public confidence.

The purpose of the meeting was for AGSA to reflect on the audit work performed in assisting the portfolio committees’ role of assessing the performance of entities, and to consider the committees’ objective in producing a budgetary review and recommendations report. 

AGSA’s annual audit examines three focus areas:

• Fair presentation and absence of significant misstatements in financial statements;
• Reliable and credible performance information for predetermined objectives.
• Compliance with all laws and regulations governing financial matters.

Ms Suter said the information in her presentation was based on two auditees – the National Department of Tourism (NDT) and South African Tourisim (SAT) -- in the tourism portfolio.

She compared the audit outcomes for 2017/18 against those for 2017/16, and provided the following portfolio “snapshot”:

• Clean audits -- 0%, (2016/17:100%);
• Quality of financial statements -- 50% (2016/17:100%);
• Quality of performance reports --100% (2016/17:100%);
• Material findings on compliance with legislation -- 100% (2016/17: 0%);
• Irregular expenditure -- R4 452 411 (2016/17: R1 093 661).

The entities had received an unqualified opinion on the audit of its annual financial statements (AFS), as its AFS and annual performance reports (APR) were submitted on time, with no material misstatements and in compliance with key legislation.

Regarding the status of internal control, the leadership of the entities was rated as good, but the financial and performance management gave cause for concern, and intervention was required at the governance level.

Although unauthorised, irregular as well as fruitless and wasteful expenditure had decreased over the past five years, there had been an increase in irregular expenditure, from R1 093 661 to R4 452 411, and a regression in supply chain management (SCM) compliance, where there had been no findings the previous year.

The most common findings on supply chain management were that three written quotations were not invited, there were non-declarations of interest, and contract extensions for service providers beyond the 15% limit. The root causes were that management did not respond with the required urgency to AGSA’s messages about addressing risks and improving internal controls, and did not keep up to date with the changes in the reporting framework.

Overall, AGSA had found that:

• The status of the audit outcomes had regressed;
• The majority of performance indicators and targets were useful and reliable;

• Overall, internal controls had slightly regressed;
• Basic financial and performance management controls had also slightly regressed;

• Information Communication Technology (ICT) controls were adequate;
• Vacancies in critical positions were limited;
• Senior management provided some assurance;
• The accounting officer (NDT) / authority (SAT), internal audit units and audit committees, and executive authority provided adequate assurance;
• Compliance with consequence management legislation was unchanged;
• Investigation of the previous year’s unauthorised, irregular, fruitless and wasteful (UIFW) expenditure was unchanged; and
• Investigations into SCM findings which AGSA had reported in the previous year remained unchanged.

AGSA’s recommendations were that there should be a follow-up with the NDT and SAT on progress made on the audit action plans put in place to address the 2017/18 audit outcomes. This would include monitoring and evaluating all deliverables on the agreements entered into with third parties by the department and the entity.

Discussion

Ms P Adams (ANC) commented that it would have been helpful if AGSA had separated the presentation into two sections and given an example of internal controls as an issue to be discussed on its own.

Mr G Krumbock (DA) referred to the Department’s irregular expenditure, and asked the presenters to go over what had been presented, as it had been a very small amount. Did the audit not include the various provinces’ tourism departments?  He lamented peoples’ lack of knowledge of information technology (IT). He was concerned that as the economy was in recession, the country needed to get more money. Was it getting the best possible returns? Were there ways the Department could run more efficiently?

Ms V Bam-Mugwanya (ANC) referred to the regression in assurance levels, and asked AGSA to explain again what was happening there. How had irregular expenditure increased from R1 million to R4 million, as this was not acceptable? Some of these matters were a repeat of the past. Was it possible to arrange in-service training for some Department personnel so that mistakes can be avoided in future?.

Ms EK Mmanoko (ANC) said that the challenge was at the level of the chief financial officers (CFOs).

The Chairperson commented that AGSA had mentioned that two of the officials had not kept up with the changes. It was worrisome if management entrusted with leadership did not perform effectively. How best could management deal with these issues?

AGSA’s response

Mr Sokombela started by addressing the questions regarding key officials lacking appropriate skills, and said that the breakdown in control had happened at the level of the chief financial officer. There were two audit departments -- performance management and finance management. South African Tourism had a very good discipline on financial management. However, obtaining three quotations was a legal requirement from the clients, and it was a concern that this rule was not always followed. 

AGSA gives a warning that issues had to be dealt with, and failure to disclose conflicts of interest and defrauding of an entity may lead to lead to action being taken against employees. The two employees who had not disclosed had been dismissed for non-disclosure. He commented that people abuse their power at times.

The views raised by the Committee were noted by AGSA, which appreciated its input. 

Regarding the irregular expenditure, he said the challenges were related to disclosure, the three quotations and management. He was not saying that there was a total breakdown in this area, but these were issues that could not be dealt with quickly.

The report on the audit would be published soon. A stand-alone performance audit still needed to be done.

Mr Krumbock referred to the fruitless and wasteful expenditure, and asked what had happened to the money.

Mr Sokombela said at the level of the entity, there would have to be a stand-alone engagement on fruitless and wasteful expenditure. The cause of the loss had been due to a change in flight bookings and the cancellation of booked accommodation.  There had been no negligence. Investigations had been done and the expenditure would be written off.

The Chairperson said mechanisms must be put in place. The Committee had a responsibility to ensure that the NDT improved and did not regress.

The meeting was adjourned.