Department of Tourism Annual Report 2019/20 & Auditor-General input: with Minister

Meeting report

The Chairperson acknowledged Minister Kubayi-Ngubane who would be leaving earlier due to Covid-19 Ministerial Advisory Committee commitments.

Auditor-General South Africa (AGSA) on 2019/20 Audit Outcomes
Ms Lehlohonolo Rapodile, Senior Audit Manager, AGSA informed the Committee that the overall audit outcome for the National Department of Tourism (NDT) and South African Tourism (SAT) had improved compared to the previous year. NDT received an unqualified audit opinion with findings on compliance. SAT also received an unqualified audit with findings on predetermined objectives and compliance. The SAT financial statements had material misstatements which were corrected to achieve the unqualified audit opinion. Both NDT and SAT had incurred irregular expenditure as a result of non-compliance with procurement prescripts.

She updated the Committee on NDT previous year’s internal control deficiencies with qualifications on immovable tangible capital assets (EPWP infrastructure projects) and fruitless and wasteful expenditure. The findings from last year showed that there is adequate system measures in NDT project management in consistent upkeep of infrastructure projects through site visits and implementing agents that did not follow the correct procurement prescripts when procuring goods and services on behalf of the department.

The resolution to address the qualifications and project management was to appointed consulting engineers to review the onsite audits and retain them for future progress reports. The engineers were also assisting in adjusting the immovable tangible capital assets balance and monitoring the fruitless and wasteful expenditure of the assigned projects. National Treasury was able to provide the guidance requested by NDT to comply with section 42 of Public Finance Management Act (PFMA) for handover of infrastructure assets.

On preventative controls, more accurate recordings of infrastructure projects and training was provided to implementing agents on supply chain management (SCM) prescripts. National Treasury approved NDT approaching Development Bank of Southern Africa (DBSA) to address project management concerns about the infrastructure projects. Projects were verified by quantity surveyors.

AGSA was satisfied with the control measures implemented which resulted in the successful resolution of the project management and qualification items. It was noted that there was a non-material item that needs to be addressed which is the lack of close-out reports, completion and occupation certificates for the projects to ensure compliance with National Building Regulations and Building Standards Act.

The SAT performance reporting for 2019/20 did not correspond with the supporting evidence provided. This impacted negatively on the performance report submitted by NDT.

The disregard for compliance with legislation to do with supply chain management resulted in irregular expenditure of R49.9 million for SAT and R8.4 million for NDT.

On internal control mechanisms, NDT and SAT both scored well on effective leadership, risk management and daily and monthly controls. However, there was concern noted for how risk management and effective leaderships are functioning overall. It was found that the NDT had an adequate system for record keeping although there was concern for how SAT was lacking in successfully implementing record keeping systems. There were also concerns for the inadequate system to ensure compliance. AGSA warned that an intervention is required for NDT’s compliance processes.

Both entities provided reasonable assurance within first and second level management (accounting officer or authority, executive authority, internal audit and audit committee). However, assurance still needed to be provided for senior management in both entities. Overall, both had not changed in terms of assurance.

Fruitless and wasteful expenditure decreased over the two years, however both NDT and SAT are still investigating this.

There has been a stagnation in supply chain management compliance which has resulted in all SCM findings to be investigated for the two-year period.

On consequence management for the NDT fruitless and wasteful and irregular expenditure in EPWP infrastructure projects, the Director-General had conducted an independent investigation on these projects. The report was completed by external auditors in June 2020 with recommendations the DG will follow-up on during the 2020/21 audit period. In the case of SAT, the increased irregular expenditure in the previous year resulted in an investigation by the internal auditors which reported there was no financial loss.

The root cause of both NDT and SAT not receiving a clean audit is the slow response from management in not addressing the risk areas: non-compliance with regulations and internal control processes.

Overall, AGSA recommends that NDT and SAT should develop a timely detailed audit action plan to resolve the audit findings on performance and consequence management, SCM procurement by agents of the infrastructure projects. She reports that would benefit NDT and SAT’ management in the complying with the National Building Regulations and Building Standards Act.

To the Portfolio Committee, AGSA recommends that it requests timely follow-ups on the systems NDT has implemented or promises to implement. In doing so, they would be assisting both entities with their compliance work which would strengthen the culture of consequence management in the portfolio.

Discussion
Mr K Sithole (IFP) raised concern about EPWP implementation and how NDT seems to lack capacity in managing EPWP. He asked what processes or systems does the department have to resolve this.

Ms P Mpushe (ANC) appreciated the AGSA presentation and commended NDT for making improvements and she remains hopeful that NDT will further progress.

Ms M Gomba (ANC) praised NDT for achieving an unqualified audit opinion in comparison to the qualified audit received the previous year. She wondered if consequence management was addressed appropriately in the recommendations by AGSA in the previous audit. She was concerned if the internal administration issues found in the “management letter” were adequately addressed or if they ended up appearing as matter of emphasis in the audit. She agreed with Mr Sithole on the implementation of successful EPWP systems. She did not hear explicit mention of fruitless and wasteful expenditure in EPWP implementation and asked AGSA to provide sufficient details on the irregular expenditure for the Committee to be aware and increase its oversight role as instructed by the audit report. She noted more irregularities occurring with project management as outlined previously. She wanted feedback on what has been concluded to prevent future re-occurrence of 2019/20 irregularities. The irregularities do not seem to be resolved and seem to be continuing based on the audit report. This negatively impacts project management in the completion of projects and the money spent on projects. Money is paid upfront for EPWP incomplete projects. She would like AGSA to comment on the project management irregularities and the recommendations made. There was no information on the deliverables required by NDT compared to the expenditure. She would like a response from AGSA on this as well.

Ms L Makhubela-Mashele (ANC) appreciated AGSA’s input and its value as a Chapter 9 institution and oversight body assisting NDT to make the correct financial decisions as per prescripts and regulations. NDT has projects that are not completed or halted because a company pulls out and this forces NDT to re-advertise to complete the project. This impacts negatively on service delivery particularly where tourism is positioned to benefit all South Africans, particularly those previously disadvantaged. This influences how NDT creates strategies to meet their planned targets and execute them well. She asked how AGSA prevents re-occurrence of audit findings once reported by AGSA.

Mr H Gumbi (DA) raised concern as the audit reported that suppliers were unsure if they were employed by the state and what bearing this had on their supply chain management process. What assurance is provided that SCM processes have improved, particularly in the current political climate of corruption in the country and what findings or reasons were provided. He asked about the findings in the internal auditors investigation report on EPWP fruitless and wasteful expenditure – what assurances were presented.

The Chairperson praised AGSA for the audit report noting the excellent execution of its mandate. This shows that Parliament's and citizens' expectations delineated for Chapter 9 institutions have been met. On behalf of the Committee he applauded the Minister, South African Tourism and NDT for collaborating well with AGSA and encouraged them to improve on and resolve the audit report findings and recommendations. Matters related to EPWP, contract management, immovable assets, internal capacity in both SAT and NDT should be treated as a priority to improve on the findings.

Continuous assessments and reporting will help with contract management and the prevention of failed infrastructure projects. He suggested external capacity be hired to assist with the lack of internal capacity in their divisions. Risk management strategies should be strengthened for future projects to mitigate against failed infrastructure projects. For example, NDT using international market systems for their finances has created conflict or misunderstanding with the Minister, National Treasury. Risk management strategy should also be applied to EPWP. This risk strategy will be audited by AGSA later. He asked if there is an exit strategy in place for DBSA as it cannot be involved with SAT and NDT forever.

Ms Rapodile replied about the EPWP and supply chain management concerns. The overall audit process during COVID-19 required management to answer timeously to AGSA findings and the findings not addressed impact the overall audit report issued. SCM procurement, irregular expenditure and non-compliance influenced the NDT audit report. For SAT, the matters not resolved during the audit process were performance management information on the tourism experience and SCM non-compliance. All other matters where addressed. She acknowledged that project management is a problem but the action taken by NDT to approach National Treasury is good step to help mitigate the problem with assistance from DBSA which has an infrastructure development division in place. This will prevent future infrastructure project management challenges and also ensure there is no leakage in the system through fruitless and wasteful expenditure.

Ms Rapodile explained that AGSA and NDT do a status review before the official audit to follow-up on prior outstanding issues monitored by the accounting officer. This is done to prevent these impacting the audit process and results. This also allows NDT to become aware of the outstanding issues.

The procurement process in offices in other countries found that the SCM process was not completed due to privacy laws in those countries. In particular, the Standard Bidding Documents (SBD) forms are not completed so they cannot determine what interests those directors have with the state. This means it will continually be a challenge if not managed.

She said that assurance is performed annually through third party checks against government databases to ensure all agents used by NDT and SAT are still registered compliant service providers.

As stated in the AGSA presentation, the Director-General received the audit report in June 2020 on the investigations conducted on past EPWP projects affecting consequence management. Those findings will be shared in due course. The Director-General has started implementing the report recommendations which involve approaching SAPS as well as performing disciplinary action.

Ms Sangeeta Kallen, AGSA Deputy Business Executive, agreed with Ms Rapodile answers. AGSA also identifies the department or entity's risk level depending on whether there is non-implementation of prior AGSA recommendations. They evaluate the recommendations on the identified deficiency to find out the true root cause of why the internal controls put in place are not working.

Mr Nicolas Mokwena, AGSA Senior Technical Manager, agreed with the Chairperson's suggestions. He was satisfied with the report provided on the consequence management processes that NDT has set up.

Minister Mmamoloko Kubayi-Ngubane remarked that NDT does have feedback sessions with the Auditor-General and his team. She noted her appreciation of the Auditor-General and his team for highlighting concerns that NDT may not be aware of. The regression in last year’s audit had improved which indicates that NDT will steadily improve in its progress. This was aided by the assistance from DBSA and National Treasury per the recommendations by the Auditor-General’s audit report.

The Minister said community projects concluded through EPWP projects where lodges or restaurants would be established have started the process of transformation for NDT. The Department has committed itself to focusing on projects that will benefit the communities identified. Transparency of how NDT’s resources are spent remain important to her tenure. A strategy has been devised to categorise the projects scheduled to be completed and those that will not be completed. The Minister will sign-off on projects scheduled to be completed on a project-by-project basis.

National Department of Tourism (NDT) Annual Report for 2019/2020
Minister Kubayi-Ngubane said that South African Tourism will present tomorrow. According to the suggestion made by the Portfolio Committee last year NDT has set up processes to contribute to skills development programmes that will increase internal capacity and fill vacancies within NDT. She noted the resignation of DDG  for Tourism Sector Support Services, Ms Morongoe Ramphele. The policy review process has started with a seven-panel team. The grading process highlighted in the previous committee meeting will be reviewed. She is comfortable with the annual performance report to be presented. She stressed the importance of working on and regaining the tourism sector with agility and sourcing markets that benefit South Africans. The relationship with the African market needs to be developed so that South African tourism can profit from it.

Financial report
Mr Ralph Ackermann, NDT CFO, stated that the Department had spent 99.7% of the budget for 2019/20 divided amongst its four programmes. The Administration programme variance was R951 000; Tourism Research, Policy and International Relations was R82 000; Destination Development was R327 000 and Tourism Sector Support Services was R6 918 000. Compensation of employees was R4 917 000. This expenditure meant NDT was not able to meet its target of filling vacancies due to depleted funds. The financial audit findings that AGSA has raised will be resolved.

Administration
Ms Nomzamo Bhengu, NDT Chief Director: Governance Support, spoke to the Administration programme targets. It achieved targets for an unqualified audit opinion and  its 9.2% vacancy rate did not exceed 10%. NDT did not meet its annual target of 50% women representation at SMS level but achieved 46.5%. Female employees left and were not replaced which resulted in six vacancies at the SMS level. NDT hopes to fill these positions in the coming years. NDT was able to maintain representation of people with disabilities at 4.3%. They maintained representation of black employees at 96%. NDT invested in a Workplace Skills Plan by enrolling six staff members in a programme on analysing financial statements. Unfortunately, the programme was cancelled by University of Pretoria as it could not attract sufficient participants to the course. The internal audit plan catered to the demand for risk management to improve governance to address previous audit reports to consolidate its SCM systems. The communications strategy implemented will improve its communication towards the public using social media platforms and community radio stations to make information accessible. Overall this will strengthen the NDT ministerial team in analysing the feedback provided by the public. NDT expenditure was on enterprises that meet B-BBEE contributor status levels 1 to 5. SMME expenditure was 59% which higher than the annual target of 30%.

Tourism Research, Policy and International Relations
Ms Aneme Malan, NDT DDG: Tourism Research, Policy and International Relations, stated that 11 of the 12 targets for the Tourism Research, Policy and International Relations programme were achieved. The South Africa Missions policy framework for promotion and facilitation support for tourism was developed to establish South Africa’s international networks. NDT implemented Go Live, a database of black-owned products and services and developed the Enterprise Development and Transformation Portal. The research seminar planned for 20 March 2020 was postponed due to the Government Gazette published on 18 March 2020 prohibiting social gatherings. NDT communicated to the stakeholders through its research seminar webpage that a research webinar would be held next financial year. The Digitalisation Framework targeted for the tourism sector was developed. This project will involve consultations with stakeholders to structure how the implementation of digital platforms will assist the tourism value chain. NDT plans to use this project as blueprint for digitalisation and modernisation integration into the tourism sector. NDT was able to host the Best Practices Workshop on 4-6 March 2020 in Gauteng targeting African countries and with whom agreements were signed. 13 countries and 35 delegates attended the workshop.

Destination Development
Ms Shamilla Chettiar, NDT DDG: Destination Development, said it was able to finalise the Tourism Master Plan for Port Nolloth to Hondeklipbaai; Sutherland to Carnarvon; Orange River Mouth to Vioolsdrift; and Port St Johns to Coffee Bay. The budget resort network and brand concept were developed. Content development and facilitation of a session per province for the implementation of the niche (township/rural) tourism development methodology was completed. The pipeline of nationally prioritised tourism investment opportunities was managed. The implementation of interpretative signage in Kruger National Park was supported. The implementation of interpretative signage in Golden Gate Highlands National Park was supported. The construction for this project has continued. The implementation of interpretative signage in Kgalagadi World Heritage Site (WHS) was supported. There were challenges with the construction of the Leopard Trail in Baviaanskloof (Cape Floral Region World Heritage Site) were the contractor appointment was unable to work due to impediments with supply chain management. NDT was able to resolve this and construction has commenced and the project is due for completion. A contractor for the Visitor Interpretation Centre in Baviaanskloof was appointed. The engineer appointed as Shangoni Gate project manager resigned in February 2020. This resulted in SANParks appointing a consulting engineering firm in June 2020 which has worked to finalise the designs for Bridge 1 and revise the bill of quantity.

NDT concluded facilitation of statutory authorisations and approvals for Phalaborwa Wild Activity Hub site. The designs for the coastal and marine project were completed. These were for Harold Johnson Nature Reserve (KwaZulu-Natal), Hole in the Wall (Eastern Cape) and Orange River Mouth (Northern Cape). NDT implemented the infrastructure and maintenance programme for Golden Gate Highlands National Park, Kgalagadi National Park. The Tourism Blue Flag programme was implemented.

NDT exceeded appointing 4331 full time equivalent jobs through its Working for Tourism projects and created 4558 jobs.

Tourism Sector Support Services
Mr Victor Tharage, NDT Director General, reported that Tourism Sector Support Services had 29 targets and was able to achieve 21 targets (72%).

Tourism information sharing sessions were hosted in KZN (eThekwini Metro, Ugu, Harry Gwala, uMgungundlovu & uThukela Districts), Western Cape (Central Karoo & Overstrand Districts), North West (Dr Kenneth Kaunda & Dr Ruth Segomotsi Mompati Districts) and Limpopo (Waterberg District). MASP was implemented with 39 applications approved. The Tourism Grading Support Programme was implemented which resulted in 2 762 discounts. The Green Tourism Incentive Programme was implemented with 31 applications approved. Tourism Transformation Fund was implemented with six applications were approved. The Tourism Equity Fund was approved however it was not implemented. The formal launch of the fund will start in Q4.

Domestic Tourism Incentive scheme to increase local tourist accessibility in partnership with SANParks was implemented at five National Parks: Kruger National Park, Addo National Park, Augrabies Falls National Park, Golden Gate National Park and Marakele National Park. The activations planned to take place in March in the Eastern Cape and Mpumalanga will commence after the national lockdown period has subsided and the precautionary restrictions amended.

The Tourism Month campaign in KZN was successful. The four existing enterprise sites – Pilanesberg, Manyeleti, Phalaborwa and Mier are still being supported. The Innovation Incubator initiative will be implemented in 2020/21. The Tour Operator Incubator had not been implemented as site visits for the premises of the identified service provider had not been done. NDT has not been able to meet this bid requirement for the service provider being appointed.

Feasibility studies for community-based enterprises within the proximity of Kruger National Park, Golden Gate National Park, Kgalagadi WHS, Marakele National Park and Addo Elephant National Park will be finalised in Q1 of 2020/21 as NDT found that a few service providers submitted work of poor quality – in particular, Augrabies and Addo Elephant National Parks community-based enterprises. No issues were found with the implemented Tourism Monitors Programme.

The upskilling programme trained 20 tourist guides from Cape Town, Mdantsane, Langa, Mitchell Plain, Dobsonville, Pretoria, Lusikisiki, Tembisa, Kayamandi, King Williams Town, Johannesburg, Krugersdorp, Plettenberg Bay in the Mandarin language. NDT hopes to use this initiative to cement itself in the emerging Chinese market. NDT hosted the National Tourism Careers Expo 2019 on 19-21 September 2019 in North West. The Hospitality Youth Programme was launched with 3650 unemployed youth enrolled instead of the 3900 prioritised. Due to dropouts and other employment opportunities 1877 youth remain in the programme.

The National Chefs Training Programme has 368 youth remaining in the programme. They are scheduled to complete the programme in December 2020. NDT met the target of enrolling 560 youth. 536 youth graduated and 381 youth remained to continue with a Diploma in pastry. The Wine Service Training Programme implemented is still continuing with 241 youth instead of the targeted 300.

Food Safety Quality Assurer Programme targeting 1 500 youth was not implemented due to procurement challenges. The service provider did not comply with PFMA principles. It is unclear when the programme will continue however NDT has begun the process of finding stakeholders to ensure the programme continues.

Training of 60 Youth on Resource Efficiency was conducted in North West, Northern Cape and Mpumalanga to assist youth with practical skills on assessing project sites for this grant. This programme is linked to the Green Incentive Programme. The youth trained received a stipend. 20 Black women were trained from the Executive Development Programme through UNISA School of Business.

The Mentorship Pilot Programme was not implemented as the MoU was not signed within the stipulated time. The draft for the programme was approved. NDT plans to host a virtual implementation of the programme in 2020/21.

Mr Albert Mafanele, NDT Chief Director: Corporate Affairs, said top management had 10 employees  (4 African males, 1 white male, 3 African females, 1 Indian, 1 white female). Senior management had 61 employees (29 African males, 1 Coloured male, 2 Indian males, 1 white male, 21 African females, 1 Coloured female, 3 Indian females, 3 white females). Professionally qualified and experienced specialists and mid-management had 231 (94 Africans males, 1 Coloured male, 4 Indian males, 4 white males. 108 African females, 8 Coloured females, 6 Indian females, 6 white females). Skilled technical and academically qualified workers, junior management, supervisors, foreman and superintendents had 137 employees (46 African males, 4 Coloured males, 77 African females, 6 Coloured females, 1 Indian female, 3 white females). Semi-skilled and discretionary decision-making had 32 employees (16 African male, 16 African female employees). In the unskilled category there was 1 African female employee. NDT has 18 interns (4 African males; 14 African females). Workforce representativity was 87.9% African; 4.4% Coloured; 3.6% Indian; 4.0% white and 4.4% people with disabilities.

Discussion
Mr Sithole wanted clarification on NDT exceeding the PFMA appointment levels, the achievement level of the budget being 82.43% rather than 99.7% and if NDT had stringent measures for their spending practices.

Ms Gomba praise NDT for spending its money. She raised concern that the presentation did not address the AGSA audit report and focused on the NDT quarterly performance. She asked if NDT receives instructions from National Treasury on how to spend its money and if this impacts how NDT spends more than needed. She noted the irregular expenditure and yet no audit action plan has been structured.

Ms Makhubela-Mashele appreciated that NDT had introduced systems and mechanisms to monitor EPWP projects and various rural area projects, as well as the explanations for NDT programmes not being implemented.

The Chairperson wanted the reasons the private sector has provided for not cooperating in developing the tourism sector. NDT needs take into consideration the relationship between the agents and suppliers in the supply chain management process.

Response
Mr Tharage replied that the point of EPWP projects are to support emerging entrepreneurs that would not have support from banks to fund the resources needed to start their business. A provision was made within EPWP policy that allows emerging entrepreneur to receive resources upfront from NDT. He gave the example of buying uniforms for workers and tools of trade to be used on-site. The aim of the policy to cultivate entrepreneurs was for them eventually to compete with established business in the private sector. This idea was also developed to strengthen their role as agents.

Mr Ackerman replied that NDT contacted National Treasury to move R100 million from NDT funding to the SAT relief fund when it realised that the tourism sector was going to struggle from March 2020 onwards. The relief fund received a further R100 million from SAT and Tourism Business Council of South Africa. 4000 businesses benefitted from the relief fund with R50 000 each. This amount allowed for NDT spending to reach 99.7%. The non-compliance of implementing agents resulted in irregular expenditure. Overall, irregular expenditure was not fruitless and wasteful expenditure. NDT achieved value for money because the opening balance and closing balance for 2019/20 equalled zero.

Ms Chettiar replied that infrastructure projects have improved. DBSA input has provided technical support on implementing projects on time and within budget. Its presence is also to provide skills transference to NDT staff. She stressed that NDT is a client of DBSA and still owns the business case.

Mr Tharage replied that the mentorship programme required consultations that they were unable to meet at the time of proposal of the programme. NDT has now budgeted appropriately the programme and has identified the relevant candidates.

Mr Tharage explained that it is normal for the achievement of a specific target to incur cost which is more than the actual achievement. The investigators hired to investigate irregular expenditure were thorough and identified specific indicators influencing irregular expenditure. This has resulted in disciplinary action which has commenced.

The Chairperson commented that procurement consistency needs to be applied across government departments. The focus of the Portfolio Committee was trying to understand how the different procurement processes of the agents contracted by NDT influenced department expenditure and how the audit report considers this. NDT needs to focus on improving EPWP contract management, infrastructure projects and monitoring the performance of the appointed agents.

The meeting was adjourned.