1. Concerns and Queries

The Manager: MDB and the Chief Financial Officer appeared before the Portfolio Committee on Provincial and Local Government on 11 October 2004 at Parliament, to brief the Committee on the 2003/04 Annual Report and Financials, and to ask for the support of the Portfolio Committee in the Board’s quest to secure the additional funding that its requires for the current financial year of 2004/05.

During the briefing, members of the Portfolio Committee raised a number of concerns and reservations about a number of issues:

• Expenditure on the table below being excessive, and possibly exacerbating the financial difficulties that the Board finds itself in:

• Consultants employed by the Board, such as Dataworld, possibly taking a substantial portion of the Board’s funding;
• Need to spell out exactly what consultants do for the Board, whether money being spent on consultants is justified, and whether the Board could scale down on present consultants and rather use many of the unemployed graduates around the country to work for the Board;
• A former Member of the Board leaving the Board to set up a consultancy and get work from the Board, clearly indicating that it is more lucrative to work for the Board as a Consultant, than to stay at the Board as a Board Member;
• Need to break down the Staff Salaries, to show exactly what is being paid to staff members, and thus determine how appropriate the salaries are;
• The possibility that the Board may be spending its money on other things rather than on its core work, and thus the financial difficulties that it faces;
• Why Staff Salaries had to "jump" from 4,7 million in the 2002/03 year to 5,1 million in the 2003/04 financial year;
• Why Office Expenses "jumped" from 1,8 million in 2002/03 year to 2.03 million in 2003/04. There is a need to spell out fully what the Office Expenses are, as Note 12.3 in the Financial Statements does not reflect the full picture.
• What steps have been taken by the Manager to rectify issues raised under "emphasis of matter" in the 2003/04 year.

The Portfolio Committee therefore concluded that they have reservations about the financials of the Board and about the Board’s expenditure. For the Portfolio Committee to support the Board in its quest to obtain the additional funding that it requires for the current (2004/05) financial year, it must be sure that the Board’s finances are being used properly.

This document seeks to explain all of the concerns outlined above, as raised by the Portfolio Committee on the Board’s Finances and their usage, with the aim to ultimately secure the support of the Portfolio Committee in our quest to obtain the additional funding that we need.

2. Professional Fees

It is important to indicate at the beginning that the figure indicated as Professional Fees in the financial statements, is made up of payments from the MTEF funding (fiscus) and from Donor Funding. The amount is therefore made up as follows:

All of the above expenditure was incurred in pursuance of the core mandate of the Board. Taking away any of the above expenditure would have seriously compromised the Board’s ability to do its core work.

The Norwegian Funding for GIS projects was depleted at the end of the year 2003/04, and is no longer available.

It is also important to note that the vast majority of the consultants that we have always employed at the Board are emerging Black graduates and professionals, who actually gain a major boost in their careers as a result of working for the Board.

It is therefore a misperception that the Board employs consultants without any consideration to uplifting young and unemployed graduates and professionals.

Consultants such as Dataworld and Wendy Ovens & Associates – who incidentally have added substantial value in their work with the Board – have actually taken a relatively very small portion of the professional fees that we have paid. The professional fees we pay are to a large number of individuals around the country.

It also needs to be confirmed that no Board member has ever left the Board to set up a consultancy and work for the Board as a consultant.

Another factor to note is that consultants at the Board are employed over short periods of time, only when they are needed. This means that we do not carry any additional staff that are not fully utilised at any point in time.

The alternative route of scaling down on consultants would mean employing additional staff at the Board, and having all work done internally by Board Staff members. In this regard, we would need the following additional staff:

In addition to the above addition to the salary bill, we would need:

The total additional expenditure on new staff will therefore amount to R4,813,552 per annum.

This additional expenditure will amount to a nett increase in expenditure

from the MTEF funding (the donor funding must be excluded in this regard, as it is for very specific projects that have their own timeframes), of R1,485,157-02. And, because the additional staff will be with the Board throughout the year, the additional expenditure will never decrease, but will have to increase annually to keep pace with inflation.

Office Expenses are made up as follows:

Office Expenses increased by R211,779-27 (11,6%) from 2002/03 to 2003/04, because of:

• Annual increases in items such as office rental and water & electricity;
• Additional expenses we did not have before, such as Off-Premises storage, which we secured as a result of an audit query;

It is important to note that all of the above Office Expenses are incurred precisely to ensure that the Board is able to fulfil its mandate properly. An attempt to "save" by cutting any of the expenses would simply handicap the Board and compromise its operations and its ability to carry out its mandate.

4. Staff Salaries

The figure shown in the financial statements as "Staff Salaries":

• Reflects a total cost to employer with respect to each employee. Thus expenses on employees such as housing allowances, medical allowances, and motor vehicle allowances have also been included in the total figure;
• In addition, other expenses such as staff training and reimbursements, were also included in the total figure;
• Also, the figure comprises salaries to both permanent and temporary employees.

The increase of staff salaries from 2002/03 to 2003/04 was by R466,369 (9.8%) because:

• The Board granted an inflationary increase of 6% to each staff member, in line with Treasury Guidelines;
• Some individual staff members were rewarded with additional notches as an incentive for good performance in the year ending;
• Two staff members resigned and the services of the third staff member were terminated. In turn, five new staff members were employed, and thus we had a nett increase in staff numbers, of two.

There is therefore nothing extraordinary or excessive about staff salaries, nor their increase from 2002/03 to 2003/04.

4. Board Member’s Remuneration

Board Members’ remuneration comprises:

• Remuneration for serving as a Board member, as determined by the Minister for Provincial and Local Government;
• Reimbursements for actual expenditure incurred while doing duty as a Board member.

Board Members’ remuneration are therefore simply what has been determined by the Minister for them, as well as what their reimbursements of their out-of-pocket expenses while in the course of their duties as Board Members.

They are not paid anything extraordinary, and their remuneration cannot be said to be excessive.

4. Travel and Accommodation

The amount spent in this regard is perfectly justified because:

• If the Chairperson of the Board and Staff members at the Board were to become largely office-bound, and do little travelling, that would render the Board totally ineffective, and its work would not have any credibility at all;
• All Board members with the exception of the Chairperson are part-time members, based in different parts of the country. For them to hold meetings and to deal with all matters that require their attention in terms of the Board’s mandate, they must travel, have accommodation, and hire cars;
• The Board is well known for its frugality in its modes of travel. All Board Members and Staff travel economy class without exception, the highest group of car hire is generally "Group B" – not a luxury car by any standard- and, hotel accommodation for all Board members and staff is generally no more than "Three Stars" – also very basic by any standard.

4. Steps to Rectify issues raised under "emphasis of matter" in the Annual Report

• New leadership with better expertise in financial accounting and management, has been put in place in the current 2004/05 financial year;
• Full stock of all issues that have to do with compliance by the Board with Treasury and other Financial Regulations, has been taken and addressed. These include:
• Expenditure monitoring system that holds cluster heads accountable for their clusters’ expenditure. This helps to co-ordinate and monitor expenditure against the budget. It must however be indicated that the Board has never overspent on its MTEF allocation;
• The process of moving funds from one expenditure item to another has been formalised, to ensure strict monitoring and adherence to regulations;
• A separate banking account and set of books has been opened for the Danish Donor Funds, separate from the MTEF funds;
• The employee who misappropriated funds from map sales has been given a final warning, and a system that separates the issuing of maps and the receipt of money from maps, has been implemented;
• All the money that the employee concerned misappropriated, have been fully recovered from him.
• The matters that are mentioned under financial management are actually some of the recurring weaknesses, which could not be rectified in time for the 2003/04 audit;
• Also, the matters are not material, and have not resulted in any serious financial loss to the Board;
• I have in my capacity as Accounting Officer made an undertaking to the Board that I will achieve full compliance with all laws and regulations, and fully address all internal control and monitoring shortcomings at the Board.