Independent Development Trust (IDT) on its 2009/10 Annual Report

Meeting report

Independent Development Trust (IDT) on its 2009/10 Annual Report
Ms Thembi Nwedamwutsu, CEO, acknowledged the oversight role of Parliament in Section 55(1)(b) of the Constitution, over organs of state which enabled the IDT to account to the Committee on the performance and financial well-being of the development agency. She went on to touch on key lessons learnt in 2009/10, such as the significant improvement in achieving its targets compared to previous years. She said that the IDT was striving to retain people who were technically proficient and committed to social justice. The IDT had sustained its proud record of achieving its eight successive unqualified report, but there were some legal and regulatory reporting requirements that needed correction with the new challenge of reporting on non-financial performance information introduced from 2009/10. The reported achievements against targets were not reliable as inadequate supporting information was provided. The financial statements were fully compliant with the Public Finance Management Act and Generally Accepted Accounting Practice.

Ms Pumla Radebe, Chairperson of the IDT Board, talked about the significance of 2010 as the IDT's 20th anniversary. The Board had expanded its oversight from the boardroom to the villages where the IDT works and the Board has witnessed the concrete manifestation of the IDT mission at work when visiting its projects. Despite being impacted by the global economic crisis, the IDT performed well. The IDT shareholder and the Board had a shared concern and commitment to decisively address the IDT's sustainability challenges.

The Trustees Report spoke about the mandate of the IDT in supporting government in the delivery of its social policy agenda of attaining a better life for all. Sound corporate governance was integral to the IDT's business enterprise and ethics and the board was assisted by five board committees. Due to resignations and appointments 10 Trustees were in office at the start and 9 Trustees by the end of the financial year.  The board met quarterly and held special meetings when necessary. On corporate governance she touched on the structure, responsibilities and functions of the Board and the five Board Committees.

Ms Radebe provided a financial overview, noting that the mandate of the ID required finances beyond its capacity. IDT was established with a R2bn government grant in 1990. Until 2005, investment income from the balance of this grant covered operational expenses. Growing volatility in market impacting on interest rates has resulted in a growing margin between expenditure and revenue since 2006. The capital base was depleting challenging the financial sustainability of the IDT post the 2011/12 financial year. IDT has recorded its future funding requirements with National Treasury. The Board had agreed to write off an amount of R 29, 6 million to restate the balance sheet item in respect of programme expenditure. The IDT had spent 95 per cent of its budget of R 370, 2 million. She said that the Capital base was depleting and the financial sustainability of IDT was threatened.

Ms Thembi Nwedamwutsu spoke to the CEO's Report in the Annual Report 2009/10 and spoke of the economic recession and the Minister of Finance's call for maximum value for money, severe austerity measures and the elimination of all possible leakages of public funds. She said that the IDT's 200/10 performance attested to it being a responsible public entity and a responsive development agency. Since 2005 IDT had embarked on a journey to shift focus from outputs to the delivery of development outcomes. IDT has maintained the trust of its clients and delivered on its targets and commitments. It had raised the bar setting targets. Thus, for the first time the IDT broke through a barrier by delivering programmes in excess of R1.5 bn. Improved responsiveness and rapid planning ability and balanced innovation and  accountability with four Business Units:
Office of the CEO, Development Programmes Services, Integrated Development Services, Corporate Services, Financial Services

Went through the Auditor General's Report in more detail. One issue was the impairment of programme recoverables to the amount of R 29 602 826. It was noted that the expenditure base exceeded revenue generation capacity and revenue generating capacity volatile due to bonds in investment portfolio. There was now a deliberate thrust to increase cost recoveries on managed infrastructure programmes. As was evident from the map at the front of the report, the IDT had clear and definite footprint in all provinces. The Committee was invited to visit the IDT projects during the current year.

Discussion
Mr C Kekana (ANC) said that the IDT had been in existence for the past 20 years, but the audit report said that the achievements against targets were not reliable as inadequate supporting source of information was not provided. He felt strongly that it was unacceptable that an entity of good stature like IDT could not provide proof required by the Auditor General. He asked the reason that one school could cost R23 million and another R46 million.

Ms Nwedamwutsu replied the she was proud that the IDT had an unqualified report, but some of the things done had to be seen with a naked eye. She said that the IDT would provide proof such as photographs. Clients had different specifications for school buildings, some required sanitation and ablution facilities while others required IDT to build a whole school building with library and a sophisticated laboratory hence the variation in costs.

Ms N Madlala (ANC) asked the reason that R29 million was written off and what were those Departments that were not paying. She asked if the IDT charged the Departments fully or not.

Ms Nwedamwutsu explained that the R29 million would not be recovered because the money for payment had to come from Government Departments. Some Departments paid less than the charged amount or did not even pay at all. The IDT only charged 2% in cost recovery, the money was invested in Government Bonds that were also dependent on interest rates fluctuation.

Ms N November (ANC) applauded the work of the TDT and the unqualified audit report. She encouraged the IDT board and management to strive for a completely clean audit report. She enquired if the IDT had offices in all provinces, and why provinces such as the Northern Cape seemed to be neglected by the IDT. She mentioned that children in the Northern Cape attended school in shipping containers. She asked for the list of the municipalities that were working with the IDT, and wanted to know how the remuneration of Board Members was determined.

Prof Edith Vries Executive Head: Office of the CEO, explained that there were offices in all the provinces including the Northern Cape, but that province got the smallest share of the equitable share. She added that the IDT work in Riemvasmak, Northern Cape was directed by the Department of Public Works to build infrastructure. The Department of Cooperative Governance and Traditional Affairs identified municipalities that were in distress and recommended them to the IDT. Remuneration was benchmarked against other State Owned Enterprisse in conjunction with Deloitte.

Ms Nwedamwutsu explained that some Board members sat in more than one Committee and they sometimes act as Chairpersons in those Committees, hence some earned more than others.

Mr Kekana urged the IDT delegation to be specific on the number of meetings that Board Members were remunerated for.

Mr L Gaehler (UDM) asked if the benchmarking of Board members remuneration was benchmarked against State Owned Enterprises (SOE) or the private sector.

In reply to Mr Gahler's question, Ms Nwedamwutsu said that the benchmarking was done against organisations such as the Post Office, Telkom and the Eskom.

Mr Sithole K (IFP) asked the number of members of IDT Committees that made quorum. He asked if the IDT had reached its target of eradicating mud schools countrywide.

Ms Pumla Radebe spoke about the rules for a quorum and that absent members usually sent their contributions through email. The Chairperson also sat on all the board committees except the Audit Committee, so there were few chances that a quorum could not be met. The IDT response on school buildings was triggered by the floods that wiped out many mud schools in 2007. Some schools had already been built and the IDT had to build only the sanitary facilities. The Eastern Cape experienced floods in 2007 and R150 million was allocated for that province alone. Other provinces were then recommended by the Department. The Western Cape had challenges with land that had recently been sorted out. She also mentioned that some contractors had filed for litigation and sued the IDT, because Departments had failed to pay for the work that had been done.

Ms Radebe asked what the Committee could do to make political heads of Departments speed up the processing of payments.

Mr T Magama (ANC) pointed out that page 109 of the Annual Report contradicted what Ms Radebe had said about salaries and board member remuneration being benchmarked against the SOE. The report mentioned that the remuneration of executives was determined by the Remuneration Committee having regard to the performance of individuals. He said that public service officials were paid far less than the IDT executives. It was a disturbing trend with all the SOE. Most of these executives earned more than the State President. He then pointed out that the 2010 Annual Report repeated exactly what the 2009 Annual Report - that the recoverables were unlikely to recur. He was deeply disturbed that the IDT did not honour the commitment they made the previous year and had repeated it in 2010. The R29 million lost would impact negatively on the sustainability of the organisation. On page 68 of the Annual Report the Auditor General pointed to the validity of the information because its source could not be tracked and the supporting documentation was not available during the audit process. Documentation was important in substantiating claims; such systemic weaknesses had to be addressed. He asked the reason that more than R2 million was spent on audit fees while the IDT had the necessary expertise. He asked for clarity on the lower insurance costs as compared to the previous financial year. As organisations grew their insurance costs usually escalated. Travelling and telephone costs had been siphoning too much money.

Ms Radebe explained that market trends referred the market of state owned entities, and apologised for the unintended tone of the sentence in page 109 of the report. Studies were undertaken in 2007 on remuneration trends in the executive, and the IDT used the median and 50 percentile to determine the packages of the executives. It was difficult to quantify the CEO against the Director General of a Government Department. Things such as the scope of the work, salaries of people that were on the same level of leadership and organisational turnover affected the remuneration of executives in organisations such as the Coega Industrial Development Zone, the Development Bank of Southern Africa and the Industrial Development Corporation. She said the figures reflected in the report were the total cost to company. Cost to Company can also be used to refer to the total cost that an organization is spending towards their employee including the Salary, Perks, Cost related to benefits, Cost related to hiring, Training, Statutory Contributions etc.

Ms Radebe explained that the R29 million was not new money, the Eastern Cape Department of Education operated from a negative bank balance. All the money in that Department's balance was used the previous year. There was no way that the IDT could recover the R 29 million. On proof of proper documentation, Ms Radebe explained that the Auditor General did not require documentation before therefore it would be sorted out the following financial year. The IDT had no internal audit unit because it was difficult to attract auditors with specialised skills without matching what the private sector offered in remuneration. Most qualified auditors were used to dealing with one big project while the IDT dealt with small projects like schools; the work was often tedious in nature. The reduction in insurance premiums was related to equipment that was written off and no longer was insured. Travel expenses was a result of frequent travelling of executives. The IDT had decided to use video conferencing to minimise travelling costs. A new telephone system had been introduced recently to curb escalating costs, that system enabled all calls within the organisation to be free irrespective of the distance.

Mr Gaehler enquired about the role of the Executive in the Office of the CEO, and how did the IDT arrive at the bonus amount for the executives. He mentioned that he had written a letter to the IDT about some service providers that claimed that the IDT had failed to pay them for the services rendered. He enquired about the number of schools that had to be built.

Ms Radebe promised the Committee that she would forward the job profile of the Executive in the office of the CEO. She said that Ms De Vries was responsible for the roll out of strategy in the Office of the CEO and the whole organisation. The IDT had no information on mud schools, they simply responded to the disaster and worked with the poor communities that were recommended by the Department of Education. The reason that some service providers were not paid was that the Education Department in the Eastern Cape did not have money in their account. The IDT could not transfer liability to the beneficiaries of the project. Another factor that contributed to the lowering of insurance costs was that the building contractors were responsible for their own insurance. The IDT used to be responsible for the insurance of the work of the contractors.

Mr Manana said that he sympathised with the IDT regarding the late payment of accounts. He cautioned the IDT that if youth development was neglected then the whole country would be in flames because of anger. He enquired about progress on the building of a health centre in Mapongwe, North West.

Ms Radebe said that the IDT would consider all the questions that could not be answered. Information on the health centre in the North West would be forwarded later. She said that youth was the priority of the National Youth Development Agency; the IDT had made some headway by strengthening youth contractors. 

The Chairperson asked the IDT to forward information on the youth development programme per province.

The meeting was adjourned.