Department of Sports, Arts and Culture 2020/21 audit outcomes: AGSA briefing

Meeting report

AGSA briefing on Department of Sports, Arts and Culture 2020/21 audit outcomes
AGSA Deputy Business Unit Leader, Ms Mbali Tsotetsi, mentioned the Auditor General of South Africa (AGSA) had been given new powers by Parliament whereby they can take appropriate remedial action and if an accounting officer or authority fails to comply with the remedial action, it can issue a certificate of debt.

Ms Tsotetsi said AGSA assists the Portfolio Committee in its oversight role of assessing the performance of government entities taking into consideration the Committee’s objective of producing a Budgetary Review and Recommendations Report (BRRR).

Ms Tsotestsi reassured the Committee of the role that AGSA plays in oversight. Oversight includes holding Executive Authorities accountable and to follow up annually on previous commitments made by accounting officers. AGSA needs to ensure the use of information in audit reports on material irregularities for accountability and oversight purposes, insisting in timeous implementation of recommendations.

The audit examines the fair presentation and absence of significant misstatements in financial statements, the reliability and credibility performance information for predetermined objectives and compliance with laws and regulations governing financial matters. The five audit opinions were explained:

Unqualified opinion with no findings (clean audit):
• Produced credible and reliable financial statements that are free of material misstatement.
• Reported in a useful and reliable manner on performance as measured against predetermined objectives in the annual performance plan (APP).
• Complied with key legislation in conducting their day-to-day operations to achieve their mandate.

Financially unqualified opinion with findings:
• Align performance reports to the predetermined objectives they committed to in APPs.
• Ensure that the performance and target indicators are clear in order for targets to measure their performance against objectives.
• Report in a reliable manner on if they have achieved their targets.
• Implement the required policies according to the determined legislation and ensure that procedures and controls are in place to ensure compliance.

Qualified opinion:
• Auditees faced challenges and could not produce credible and reliable financial statements
• This includes having material misstatements on the financial statements in specific areas that could not be corrected before the financial statements could be published.

Adverse opinion:
• The amount of material misstatements in auditees financial statements resulted in AGSA disagreeing with the majority of the amounts and disclosures in the financial statements.

Disclaimed opinion:
• Had the same challenges as those with qualified opinions but, in addition, auditees could not provide AGSA with evident of the majority for the amounts and disclosures reported in financial statements. They could not express the credibility for the financial statements.

Ms Tsotetsi compared the audit outcomes of the Sports, Arts and Culture portfolio over two years. The percentages in the presentation were based on completed audits of 28 entities unless indicated otherwise. The overall outcomes of the portfolio had improved when compared to the prior year: 12 auditees (43%) achieved a clean audit; 11 auditees (39%) received unqualified audit opinions with findings; four auditees (14%) received qualified audit opinions.

Improved institutions from 2019/20 to 2020/21 included:
ArtsCape
Msunduzi Museum
National Museum
William Humphreys Art Gallery
South African Institute for Drug-Free Sport (SAIDS)
National Heritage Council of South Africa (NHC)
Performing Arts Centre of the Free State (PACOFS)
Amazwi SA Museum for Literature
Pan South African Language Board (PanSALB)

The rest remained unchanged, whilst the Robben Island Museum audit remained outstanding. The combined departments of Sport and Arts and Culture (DSAC) was now considered as a new auditee in 2020/21.

Ms Tsotetsi noted the three focus areas of AGSA:
- Credible Financial Reporting:
Seven auditees (25%) submitted financial statements containing material misstatements which were subsequently corrected. Four auditees (14%) were qualified as they submitted financial statements containing material misstatements which were not corrected. Material misstatements to financial statements were due to inadequate review of financial statements. Some findings were recurring despite discussions held with auditees on the implementation of preventive control measures.

- Credible Performance Reporting
The performance reports submitted without errors decreased by 15% in 2020/21. Performance reports adjusted for material misstatements to improve reliability increased by 24% in 2020/21. Reliable reporting of achievements decreased by 4% in 2020/21. The usefulness of performance indicators and targets decreased by 1% in 2020/21.

- Compliance with Legislation
There was a regression in compliance with regulation in the current year. In most instances the non-compliance identified is similar to that reported in the prior year. These auditees did not implement effective action plans to address significant internal control deficiencies for compliance with legislation.

Ms Tsotetsi unpacked the challenges of compliance in expenditure management, procurement and contract management and consequence management.

Irregular, Unauthorised, Fruitless and Wasteful Expenditure:
Total irregular expenditure was R23.97 million The highest contributors in the portfolio are:
NAC: R4 637 254
DSAC: R3 776 000
State Theatre: R3 106 283
PanSALB: R2 511 000
Luthuli Museum: R2 275 220

The majority of fruitless and wasteful expenditure (99%) of R584 474 was incurred by PACOFS due to a payment made to an incorrect supplier.

Irregular Expenditure was reduced by 60% in 2020/21 compared to 2019/20. The nature of irregular expenditure:
NAC: The majority of the non-compliance was to do with the Presidential Employment Stimulus Package (PESP). This was due to the approved budget being exceeded and some applications were not evaluated in line with NAC regulations.
DSAC: Prior Treasury approval of variation was not obtained and splitting on awards.
State Theatre: Overspending on the budget.
PanSALB: Contact extended without prior Treasury approval and supply chain management regulations for awards below R500 000 were not followed.
Luthuli Museum: Three written quotations not obtained. Preference points system was not applied.

Fruitless and Wasteful Expenditure:
This is expenditure incurred in vain that could have been avoided if reasonable steps had been taken – no value for money. This significantly decreased by 99%. The fruitless and wasteful expenditure (99%) incurred by PACOFS was due to a payment made to an incorrect supplier.

Supply Chain Management (SCM):
There had been a slight improvement in SCM. All findings should be investigated. The most common SCM findings are:
Inadequate contact management
Local content
Goods and services procured without obtaining the required price quotations
No prior approval obtained from National Treasury for deviating from normal SCM processes
No competitive and fair procurement practices.

Ms Tsotetsi noted the Public Audit Act was amended in 2019 which gave new powers to AGSA as it identifies findings during the audit process.

AGSA Manager, Ms Omphemetse Setebe, stated that AGSA is implementing the Public Audit Act amendments. She highlighted the definition of 'material irregularity' which is non-compliance with, or contravention of, legislation, fraud, theft, or a breach of fiduciary duty that is or is is likely to result in material financial loss, the misuse or loss of a material public resource, or substantial harm to the public sector institution or general public. This can be identified at any stage during the audit.

Ms Setebe said of the 28 entities in the portfolio, 12 had clean audits, 23 entities had financially unqualified financial statements and three entitles had findings on performance reports. 16 entities had findings on compliance with legislation.

Ms Setebe discussed assurance provided and status of internal control which is broken down into three areas: effective leadership, financial and performance management and monitoring and compliance. Also discussed was the status of the information technology (IT) to ensure that entities meet their mandates.

The key root causes identified by AGSA for its findings included the slow response in implementing adequate and effective preventative controls, instability and/or vacancies and inadequate consequence management.

Second real-time audit report on Covid-19 expenditure (December 2020)
• Double-dipping: In the first report, AGSA reported that the criteria used to evaluate the Sport and Arts Relief Fund applications were not specific enough to prevent disbursement to people with other sources of income, including relief from other funds. The criteria were subsequently clarified, but mechanisms were not in place to prevent such disbursements. Beneficiaries benefited from both the department's Covid-19 relief fund and funds from other government institutions, with a total value of R244 200. The auditors identified 286 beneficiaries who potentially also benefitted from TERS payments, social relief of distress grant, government pensions or who were government employees.
• Design deficiencies in the system used to capture applications resulted in duplicate payments made to 72 beneficiaries and applications processed with key information not being captured.
• Inadequate validations by the system and a lack of reconciliations further increased the likelihood of invalid or inaccurate disbursements.
• AGSA identified weaknesses in the procurement process for digital solution services and the appointment and management of payment agencies, whereby the supplier who received the highest points was not appointed.
• Non compliance on personal protective equipment (PPE) - hand sanitisers were procured at prices above the issued National Treasury price list.
• The Department did not differentiate between the management fee payable to the disbursing agents and the transfer amount to disbursing agents for relief beneficiaries. This resulted in a misclassification of the management fees.

Discussion
The Chairperson asked if the Department of Sports, Arts and Culture (DSAC) is present.

Mr Vusumusi Mkhize, DSAC Director General, replied that he is present including his team.

The Chairperson stated that she had just received an emailed apology stating that the Minister is attending a Cabinet committee meeting. She had responded that this was not the first time that the apology from the Minister is being sent late. Sometimes both the Minister and Deputy Minister attended the Portfolio Committee meetings. However, if they do not attend, they should send apologies before the start of the meeting. It is not the first time she has asked the Office of the Minister to send apologies in time.

Mr B Madlingozi (EFF) thanked AGSA for the presentation. He questioned why the forensic investigation report is being kept away from the Portfolio Committee. This does not allow the Committee to effectively provide oversight. The Committee is unaware of how money has been mismanaged or where it was embezzled. He asked AGSA to explain fully the findings. He asked AGSA to state which entities received clean audits and why some entities still do not have clean audits after discussions on the mismanagement of finances. The Committee is in the dark about finances in the National Arts Council (NAC). He asked what AGSA found in the NAC financial mismanagement of PESP. He asked for the AGSA audit opinion on the disbursement of the Sport and Arts Relief Fund, the double dipping and non-compliance. He asked AGSA about the financial management and internal control systems of DSAC.

Ms V Malomane (ANC) congratulated the two departments on merging, and she recognised the difficulty due to the number of entities that fall under the Department. She congratulated everyone who played a part in ensuring there were clean audits. She referred to slide 21 of the presentation where it stated that investigations were not conducted on all allegations of financial misconduct by officials. She asked if they are still perhaps busy with these investigations. She referred to slide 27 which spoke to assurance and asked why Robben Island Museum was included if the audit is still currently outstanding. The Committee cannot verify the information if the audit is outstanding. She asked about the regression in compliance with legislation as AGSA had raised a similar concern in the previous financial year. She asked DSAC if there are problems in implementing an effective action plan to address internal controls. She questioned what DSAC is doing to correct this. They need to ensure that next year they do not make the same mistakes as the previous year.

On the PESP double dipping, there needs to be a system that can check when paying someone. DSAC needs to engage with other departments to ensure that the double dipping is eradicated. If a supplier is being paid it should reflect to show the department has benefitted. A centralised system needs to be created so that all departments can have access to see if a supplier has been paid. The Committee can learn from this report and so must DSAC and its entities. In the next financial year everything needs to be in order.

Mr M Zondi (ANC) acknowledged the report that at least there is progress if six entities had improved while six remain unchanged but the regression of three entities is regrettable. The Committee would like to know more about these entities which will happen once they report to the Committee on their annual report. This will indicate where DSAC has failed to play a management role. The R23 million irregular expenditure will have to be accounted for by entities like the NAC. AGSA is not going to implement consequence management and it is DSAC and the entities themselves to do so. Where there was no change in 2020/21, what are the factors causing ineffectiveness amongst the entities? He asked if it is due to the incapacity of DSAC, or the entity concerned or if it is the financial challenges. He asked what the causative factors were as far as AGSA is concerned. Why were there no changes and why was there regression?

Mr D Joseph (DA) asked AGSA if there was significant improvement in controlling irregular expenditure and asked for a list of entities that contributed to the improvement. He asked if AGSA has looked at the investigation report about the PESP R300 million. Had AGSA looked at the R300 million disbursement in its overall view of DSAC performance. He asked if all the entities had submitted their financial statements on time, particularly Robben Island Museum.

Mr Joseph referred to slide 21 where it mentions misconduct allegations and asked AGSA to provide feedback on this. Entities are mentioned with regards to consequence management, and it stated that DSAC did not conduct investigations. The Accounting Authority or DSAC itself needs to answer why the entity is not pursuing this avenue. He noted the 12 clean audits out of the 28 entities and suggested there is still work to be done. In the last part of the presentation on root causes, DSAC is raised on numerous occasions as well as Iziko and RIM. These two entities are listed every time when AGSA refers to leadership and it is concerning because DSAC needs to take the lead. The Department needs to ensure good governance and leadership which will enhance the entities and help the to improve their performance. If DSAC is struggling in these areas, then it is understandable why the entities are facing similar challenges. The Committee is doing its role to provide oversight and AGSA itself raised the point about the new amended Public Audit Act. This is the basis of the consequences management. AGSA needs to look at how to implement the powers given to it by Parliament.

Ms V Van Dyk (DA) asked why the Committee has not seen the PESP forensic investigation report and she asked if it has impacted the audit. She has a problem with previous audit recommendations not being implemented, how has this impacted the current audit?

Prior to the meeting, Ms Van Dyk received documentation that was sent to AGSA about the PACOFS situation. These documents have not been addressed by AGSA or shared with the Committee. The documents are proof that companies were overpaid and certain protocols were not followed. It seems that AGSA has exposed the whistleblower to the CEO and CFO. The whistleblower has now to deal with the situation at hand. She asked AGSA to confirm it had received statements about corruption in PACOFS. She asked AGSA to explain the audit outcome in the light of these documents which essentially should affect the outcome of the audit. AGSA was questioned about the unnamed supplier referred to in the presentation because according to these documents there is more than one supplier that has been paid without proper documentation.

Mr T Mhlongo (DA) questioned AGSA about the Public Audit Act amendment as it suggested that it will follow through when departments fail to implement. What action will be taken by AGSA against DSAC and when will this happen? How did DSAC confirm that entities use funds properly? He asked about the NAC relief fund.

Ms R Adams (ANC) stated that AGSA raised similar concerns in the previous financial year and the Committee needs to why DSAC fails to implement effective audit action plans to address significant internal control challenges. Some irregular expenditure relates to lack of compliance with SCM regulations which was not reported for investigation. Six out of 27 reports of irregular expenditure were not investigated – the Luthuli Museum included. In 2019/20 only four of 29 reports of irregular expenditure were not investigated. The Committee has to know why this is the case. PACOFS incurred the majority of the Fruitless and Wasteful Expenditure due to payment to an incorrect supplier. The Committee needs to know how this could have occurred. The Portfolio reduced its fruitless and wasteful expenditure from R68 million in 2019/20 to R1 million in 2020/21. The Committee would like to know what measures were put in place or what existing measures were more strictly enforced to ensure this success. She asked what support DSAC is providing in 2021/22 to improve the overall performance of entities.

The Chairperson thanked Members for their questions and said the Committee has been providing oversight. She thanked AGSA for its report. She was unsure whether to pose her question to DSAC or AGSA about the preapproval of budgets from National Treasury and concerns surrounding over expenditure. The irregular expenditure and fruitless and wasteful expenditure is cause for concern. These entities need to account for their expenditure. There have been massive improvements, but the Committee would like to know what still needs to be done. The Committee would like to see an improvement in reducing irregular expenditure from 60% to 90%. The Committee and DSAC need to monitor the AGSA recommendations and they can assist in reaching 90%.

The Chairperson would like the Committee and Department to fast track the legislation emerging from the White Paper. Many challenges can be solved by the White Paper and this should be implemented. AGSA should not only be recommending to DSAC but to National Treasury itself. If there are no integrated systems in all the departments, the Committee cannot deal with double dipping efficiently. She asked AGSA what its crosscutting role is across all the departments.

AGSA response
Ms Tsotetsi replied about the 12 clean audits and explained what a clean audit entailed. In terms of the focus areas that are audited, AGSA looks at the financial statements and ensures that they are fairly presented with no material errors; it looks at compliance with legislation and at the performance information to see it is accurate or valid and complete in terms of the evidence. An entity then achieves a clean audit if it succeeds in all three focus areas. The 12 entities have achieved this. If there were errors, these would have been corrected. This is how entities obtain a clean audit. These entities have a good internal control environment which allows them to achieve their mandate. Ms Tsotetsi referred to slide 10 where AGSA states that the entities who have received clean audits should ensure that the systems they have in place must also translate to service delivery for citizens because they have shown that they have a good basis on which they can then implement their mandates.

Ms Tsotetsi addressed the questions about the NAC, in particular the implementation of the PESP. The non-compliance identified by AGSA in the PESP implementation resulted in irregular expenditure findings. AGSA identified in the auditing process that there were legal claims issued against the NAC by some aggrieved applicants. The NAC was supposed to highlight this litigation as a part of its contingent liabilities. This was not done prior to the submission of the financial statements. This finding was highlighted and NAC management subsequently made the correction. There were two PESP key findings about lack of legislation compliance as the regulations required the NAC to score the applications. This resulted in irregular expenditure which forms part of the total NAC irregular expenditure. The other finding was the PESP budget was exceeded by the NAC which resulted in irregular expenditure. The Auditor General's focus was mainly on the financial statements to say if it was correctly reported and to ensure there was full compliance with the PFMA and the NAC Act and its regulations and those were the findings identified. AGSA has conducted the audit but has not done the investigation into the matter to identify the root causes reported by the forensic investigations. AGSA has not yet looked at the forensic investigations as this was done subsequent to the audit being finalised. These investigation outcomes will be looked at in the new year to ensure consequence management does take place.

Ms Tsotetsi stated that there were findings in the Covid relief that was provided by DSAC. This included the double dipping. The Department improved the criteria stating that if the applicant received funding from other government entities, they are not allowed to receive assistance from DSAC. In validating this, DSAC was unable to pick up those that have already received funding from other government entities. The Department has indicated that it did not have access to all government databases to validate applicants to ensure double dipping does not occur. She agreed that AGSA should not only raise systems integration with the specific department because it has happened in other areas of government.

Individuals still tried to bypass the process to obtain the relief from other government agencies and institutions. This matter should be raised at various levels to ensure that the message is carried across government. AGSA is finalising its 2020/21 general report for the audit cycle and in this report it will outline the root cause of double dipping. AGSA will recommend that there should be integrated systems across government to prevent this from happening in future.

Part of the findings revolved around the implementing agents as their fees were not allocated in line with the reporting standard. The fees should be paid from Goods and Services and not from the relief fund transfer payment. On the non-compliance in the appointment of the digital solutions provider, this matter was raised in the Second Special Audit Report on Covid-19 funding in December 2020 and it was followed up during the current audit. AGSA confirmed that there was non-compliance with the procurement prescripts as the supplier that received the highest points was not appointed. There had not yet been spending on this particular service provider appointment but once there is spending, it will result in irregular expenditure. These were the four findings on the Covid-19 relief provided by the Department.

Ms Tsotetsi noted the inclusion of the Robben Island Museum under the assurance providers. AGSA worked on anticipated outcomes in the draft presentation and all the portfolio entities were included. The RIM audit had not been concluded and AGSA decided to remove it and it was an error including RIM in the final presentation. It should have been excluded.

Ms Tsotetsi reiterated that entities were expected to do validation and communicate with other agencies to prevent in terms of double dipping and ensure that individuals are not receiving funding from other government agencies. This needs to be improved moving forward.

On the incapacity to address AGSA findings, the answer lies in preventative controls. The entities must build strong preventive controls that will ensure that their reporting is reliable and prevent non-compliance with legislation. There should be continuous reviews and monitoring of non-compliance with legislation in particular supply chain management. Once this is not followed, investigations needs to be conducted. Investigations can be costly as service providers need to be brought in to do investigations. Entities can prevent all of this by ensuring that there are good preventive controls in place. The incapacity lies in preventive controls to prevent these findings from reoccurring.

Ms Tsotetsi confirmed that all entities submitted their financial statements on time on 31 May 2021.

The Chairperson asked if AGSA did in fact receive the Robben Island Museum financial statements.

Ms Tsotetsi confirmed that AGSA has not yet finalised the RIM audit and it is not a part of AGSA's presentation. The effect of the Public Audit Act amendments means that AGSA will conduct the audit as usual however the difference is that AGSA will look at the impact of irregularities such as non-compliance and fraud. If there has been a material financial loss to the entity or DSAC, it will then meet the requirement for a material irregularity and the matter will be reported without delay to the Accounting Officer to address the material irregularity. The Accounting Officer must address the material irregularity which includes investigation into the officials responsible, disciplinary action against the officials and recovery of the funds that were lost. If all the necessary steps are done, the material irregularity will be solved. The Accounting Officer or Authority needs to implement and utilise their responsibilities outlined in the PMFA. If this occurs, AGSA does not need to enforce its powers. These amendments came into place to enforce consequence management and accountability. AGSA will assess each finding and identify if there was an irregularity and its impact. If it meets the criteria to be considered a material irregularity, AGSA will then take it forward in terms of Public Audit Act amendments.

Ms Setebe replied about which entity mainly contributed to the 60% reduction in irregular expenditure. It would be the NAC as previously it had R30 million irregular expenditure in relation to transfer payments and now it was about R4.6 million. The overall audit opinion for DSAC was an unqualified audit outcome with findings. She said DSAC would answer about the investigations that were not conducted.

DSAC response
Mr Vusumusi Mkhize, DSAC Director General, introduced his team. He acknowledged that DSAC had a robust but very professional engagement with AGSA with whom they were constantly working together to ensure the audit is finalised. The positive and constructive engagement by AGSA will assist DSAC in improving where they are lacking. His team will respond to the questions on consequence management, the relief fund findings and the irregular expenditure.

Ms Mandisa Tshikwatamba, DSAC Deputy Director General: Corporate Services, replied that the consequence management refers to forensic investigations that ought to have been conducted. 19 cases were investigated in the respective year under which the report that was closed. DSAC had another ten cases that were not attended to. She gave background stating that in the year of the audit finding, DSAC encountered challenges in the Unit dealing with these investigations. The Head of the Unit had to undergo sick leave and a staff member replaced him and there were allegations against that person. The findings placed the person at the centre of disciplinary measures. A new person was appointed who left soon after. Another two junior officers left the Unit and it was crippled by lack of staff. Since then it has recovered. DSAC has a recovery plan that includes the appointment of additional staff members and the Unit head. DSAC has received assistance on the backlog. In the next two months DSAC hopes to attend to the remaining cases.

Ms Sumayya Khan, DSAC DDG: Recreation Development and Sport Promotion, replied about the irregular expenditure and the management fee. The query came from the sports sector and no management fee was paid. The entity indicated that it would not charge a management fee because the majority of the relief should go to the beneficiaries and therefore no management fee was charged. Bank charges were however charged for transactions where expenses had to be incurred for that service. Perhaps it was the bank charges that are being referred to and the relative departments are aware of that.

Ms Khan noted that when the relief funding came out it was not only DSAC but also the UIF and Department of Social Development and many platforms from which one could apply for funding. The controls that DSAC had in place indicated in the criteria that if applicants were benefiting elsewhere, they would not be eligible for relief finding from DSAC. Applicants were asked for their bank statements so that DSAC could verify if there was any income coming through. The system did not pick up any issues. The Department needs to look at which date the payments were made to those beneficiaries. The suspicion is that they have been paid and subsequent to their being paid by DSAC, they benefited from other sources. AGSA indicated that DSAC does not have access to the other systems. By the time the second query came through DSAC had access to the SASSA database and it was able to identify if there had been any double dipping. Since then, DSAC has requested that the UIF give a list of its beneficiaries to see if there was any double dipping. The Department is awaiting the UIF response. Beneficiaries were asked for two bank statements – one before Covid-19 and one at the time they were applying.

Ms Khan spoke to the irregular expenditure saying there was non-compliance with some of the conditional grants in the Division of Revenue Act (DORA) in terms of withholding funding from the provinces. The Department was expected to inform Treasury that DSAC would be withholding money and as a result the allocation to provinces would change. At the same time that DSAC was withholding funding there was an instance where DSAC had budget cuts. The withholding of funds and the budget cuts had to be implemented. Due to this reason, DSAC had not yet informed Treasury. The Department did not consider it to be irregular. These allocations were informed by these processes and there was no reason to incur irregular expenditure in that area.

Ms Sibongile Mondile, Acting Chief Financial Officer, replied about the irregular expenditure relating to the DORA payment and said DSAC was seeking clarity on the matter. In 2020/21, this occurred in the second quarter when payments were due to provinces. As AGSA suggested, DSAC need to stop and requested the amended schedules because there were penalties on the payment. If provinces remained non-compliant with the DORA framework, penalties were levied on their transfers. The Department needed approval on the adjustment. The Department understood and interpreted the Act suggesting that DSAC needs to get approval of the adjustment. All the scheduled amendments were submitted to National Treasury during the adjustment period. After consulting with National Treasury, DSAC was told that it was supposed to split the request. This split was supposed to state that DSAC is doing the payment schedule for the transfers being requested for approval and only then include them on the adjustment period. The Department has since received feedback from National Treasury and DSAC will disclose the irregularity that was being investigated and close the audit.

Dr Cynthia Khumalo, DSAC DDG: Arts and Culture Promotion and Development, replied about the NAC and R300 million PESP. She did not want to add anything about the PESP because the Department is still looking at the forensic report that came out. Mr Mkhize will touch on how Members can get access to the forensic investigation report on the R300 million PESP.

Mr Mkhize commented that the NAC is currently implementing the recommendations of the forensic report. He has checked up with them and they have undertaken the necessary steps for the officials who were implicated. The Department's duty is to ensure that they do provide DSAC with status reports until the final date in implementing recommendations. According to the report the NAC was given R300 million. They had a management fee and the balance was for disbursement. The R300 million has been used for the benefit of the PESP objectives. There has been no indication that the money has been embezzled in any way. Since the start of the PESP, regular meetings have been held to ensure there has been progress in the use of the funds. The PanSALB issue is perhaps about leadership and instability. The CEO left and the chairperson was instated as the acting CEO. When a CEO was appointed, things were not going well. An audit action plan will be put in place with regards to the integrated systems.

Follow-up questions
Mr Madlingozi said that the Department is referring to these reports as if somehow they are going to change. This forensic report needs to be shared with the Portfolio Committee and the Department needs to stipulate a date by when it will be available. He asked how long the Department still needs to look at these reports. This Department likes to sit on reports including the one from 2019/20. He asked what the Department supposes the Committee does in the meantime. The Director-General knows exactly what was in the report and he needs to share the report with the Committee.

The Chairperson asked the Director-General to please give the report to the Committee.

Mr Mhlongo said that the Committee does need the report but at the same time this meeting is about AGSA and not the DSAC. The Department will have a day where it will account and share the reports with the Committee. To effectively play its oversight role, the Committee needs to digest what was presented by AGSA. He added that the Committee should not find out through the media that the forensic reports have been released.

AGSA response
Ms Tsotetsi replied that the PACOFS allegations were brought to AGSA's attention. On the impact of those allegations on the unqualified opinion received by the entity, she highlighted that it was unqualified because although material misstatements were identified during the audit, these had been corrected. AGSA has reported on the non-compliance as the financial statements submitted to AGSA were not accurate and did not align with the reporting standard which is non-compliance of Section 551 of the PFMA. The financial statements were corrected by PACOFS before the audit was finalised. PACOFS failed to prevent the irregular and fruitless and wasteful expenditure. These matters were reported in the audit report. The report referred to consequence management that the entity has conducted investigations or taken disciplinary action. PACOFS had an unqualified audit opinion but non-compliance matters were still highlighted in the AGSA report. It raised the fruitless and wasteful expenditure due to the entity paying the incorrect supplier. The root cause of this is lack of preventive controls that check to ensure the correct supplier is paid. These steps were missed. PACOFS needs to ensure that it corrects the error and recovers the funds that were lost.

Ms Tsotetsi reemphasized that AGSA has proposed recommendations to the Portfolio Committee in terms of its oversight role. Once all the investigations are completed and the investigation reports shared, consequence management must take place.

Mr Mkhize added that the Department will expand on everything when it comes and accounts.

The Chairperson agreed that the Department will come and present its Annual Report. She thanked the AGSA team and said that the Committee will look at the recommendations.

Committee Programme
The Chairperson took Members through the programme.

The Chairperson said that Robben Island Museum (RIM) was supposed to present its Annual Report to the Committee today and it did not present. By November all Sport and Arts entities are supposed to have submitted their Annual Reports to Parliament and RIM has not done so yet.

Ms Malomane asked if the Annual Report has not been tabled, could it be done before 19 November 2021 when the Committee considers and adopts the Budgetary Review and Recommendations Report (BRRR). She asked if the RIM Annual Report could be featured in the programme before then if possible.

Mr Joseph asked about how does the meeting with the Public Protector impact the Committee. He noted that in his previous Committee in the Western Cape Provincial Legislature, horseracing was under the Finance Committee.

The Committee Secretary said that this agenda item was tabled in the National Assembly for the Committee to consider. The agenda item is on the programme for the Committee to consider it.

Mr Madlingozi agreed with Ms Malomane about adding the RIM Annual Report to the Committee programme before the Committee considers its BRRR.

The Committee programme was adopted.

The Chairperson thanked the Committee for their input and for being committed. The Committee will discuss the RIM matter.

Meeting adjourned.