15 October 2014

Calvin Manganyi

Researcher, Portfolio Committee on Defence and Military Veterans

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AN ANALYSIS OF THE CASTLE CONTROL BOARD 2013/14 ANNUAL REPORT

• Strategic Objective Performance and Budget

• Financial Performance

• Findings of the Auditor General

• Chief Executive Officer’s Overview

• Additional Matters

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SCOPE

Programme 1: Administration through good Corporate Governance (P. 3-4)

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STRATEGIC OBJECTIVE PERFORMANCE AND BUDGET

Strategic objectives Actual Achievement 2012/13

Planned Target2013/2014

Actual Achievement2013/2014

Number of Castle Control Board meetings

9 4 7

AchievedNumber of Audit and Risk Committee meetings

4 4 3

Not achievedThe reason provided for not achieving the target was that the engagements with the AGSA were not recorded as such.

Budget allocated: R2.526 million Spent: R2.345 million Underspending: R181 000 (Saving)

Question What were the reasons for not recording the engagement with the AGSA as Number of Audit and Risk Committee meetings, (see Table 1 above) leading to the under achievement of the set target?

Programme 2: Preservation, interpretation and showcasing of the Castle (P. 4-5)

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STRATEGIC OBJECTIVE PERFORMANCE AND BUDGET

• Budget allocated: R1.463 million • Spent: R678 000• Underspending: R785 000

Key Performance Indicators

Actual Achievemen

t 2012/13

Planned Target

2013/2014

Actual Achievement

2013/2014

Deviation from planned target to Actual

Achievement for 2013/2014

Repairs and Maintenance of the Castle of Good Hope

R122 006 R797 000 R117 518

Not Achieved

Missed target by R679 482

Programme 2: Preservation, interpretation and showcasing of the Castle (Cont.)

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STRATEGIC OBJECTIVE PERFORMANCE AND BUDGET

Questions oWhen will the overhaul of the Castle be completed? oWhat were the reasons for imprecise budgeting leading to a missed target by R679 482? oWas all planned refurbishing for the year completed or is there any outstanding work that may need funding?

STRATEGIC OBJECTIVE PERFORMANCE AND BUDGET

Programme 3: Maximising the tourism potential of the Castle (P. 5-6)

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Key Performance Indicator Actual Achievement 2012/13

Planned Target

2013/2014

Actual Achievement

2013/2014Total expected number of visitors to the Castle of Good Hope.

140 888 145 000 141 084

Not Achieved

The reason provided for the underachievement of the target is the closing of the Castle on 15 December 2013 and the activities on the Grand Parade around the passing former President Nelson Mandela.

Budget allocated: R67 000 Spent: R48 000 Underspending: R17 000

STRATEGIC OBJECTIVE PERFORMANCE AND BUDGET

Programme 3: Maximising the tourism potential of the Castle (Cont.)

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Questions

•For how long was the Castle closed? •Would the Castle have achieved its set target for tourist numbers if it wasn’t closed for that period? •How much estimated revenue was lost during the closed period?

Programme 4: Increased public profile and positive perception across all sectors of the community (P. 6-7)

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STRATEGIC OBJECTIVE PERFORMANCE AND BUDGET

Key Performance Indicators

Actual Achievement 2012/13

Planned Target

2013/2014

Actual Achievement

2013/2014

Projected income from events, film and fashion shoots.

R426 950

R275 625 R585 200

Achieved

Printing, publication and marketing of the Castle of Good Hope.

R95 234

R104 000 R69 011

Not Achieved

Budget allocated: R104 000 Spent: R211 000Overspending: R107 000 (on corporate events)

Programme 4: Increased public profile and positive perception across all sectors of the community (Cont.)

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STRATEGIC OBJECTIVE PERFORMANCE AND BUDGET

Questions•What were the reasons for setting the target so low for projected revenues from events, film and fashion shoots during 2013/14 even though the previous achievements have indicated an upward trend (increase)?

•What were the reasons for low budgeting on ‘Increased public profile and positive perception across all sectors of the community’ leading to overspending of R107 000?

•Given that the Castle did not achieve its target for the number of visitors, could the underspending on marketing be linked to that?

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FINANCIAL PERFORMANCE

2012/13 2013/14 Percentage difference

Revenue R3 417 000 R3 504 000 +2.54%

Expenditure R2 534 000 R3 463 000 +36.66%

Surplus R883 000 R41 000 -95.36%

Accumulated Funds R14 155 000 R14 196 000 +0.29%

Revenue and Expenditure

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FINANCIAL PERFORMANCE

2012/13 2013/14 Percentage

differencePossible reason

Revenue

Net ticket sales R1 838 000 R1 943 000 +5.33% Increase in visitors and Inflation-related increase of ticket prices

Staff Costs

Chief Executive Officer R89 000 R695 000 +680.89% Appointment of CEO

Salaries R731 000 R941 000 +28.73% UnknownBonuses R44 000 R112 000 +60.71% CEO BonusIncrease in Leave Pay - R28 000 - -Operating expensesAdvertising R71 000 R141 000 +98.59% UnknownCommunications R19 000 R23 000 +21.05% UnknownMilitary Tattoo R44 000 R145 000 +229.54% UnknownCCB Special Days

-R144 000 - Unknown

Selected notable variations from the preceding financial year

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FINANCIAL PERFORMANCE

Questions •According to the Annual Report, R111 000 was spent on Performance Rewards for Top Management. A total of R112 000 was spent on bonuses. Is it only the CEO that qualified for a performance bonus?

•R28 000 was spent on Increase in leave pay; (a) Who was it paid to, (b) for what, and (c) Why is was no money spent in 2012/13 on this item?

•R144 000 was spent on CCB Special Days. Is it the first time these days were held? If not, why is it not indicated in the previous Annual Reports? What does these Special Days entail?

•What led to the increase in expenses for the Military Tattoo to R145 000 in 2013/14 as compared to R44 000 in 2012/13?

•What are the reasons for a 98 % increase in Advertising versus a 5.33 % increase in Net Ticket Sales?

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FINDINGS OF THE AUDITOR GENERAL (P. 8-10)

• Unqualified audit opinion.

• Problems identified:oPredetermined Objectives: In Programme 2, 75 % of targets not specific and

well-defined; and in Programme 3, 50 % of targets not specific and well-defined.

oCompliance with legislation: Internal audit, Procurement and Contract Management, Expenditure Management, and Strategic Plan.

o Internal control: Leadership, Financial and Performance Management, and Governance.

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FINDINGS OF THE AUDITOR GENERAL (Cont.)

Questions •What measures are in place to ensure that targets for Programme 2 are specific and well-defined, and which targets does this problem refer to? •What measures are in place to ensure that targets for Programme 3 are specific and well-defined, and which targets does this problem refer to? •Is an Internal Audit Function for the full financial period currently in place? If not, what are the challenges in this regard and what plans are in place to resolve it? If yes, since when has it been operating and is it adequately resourced and functioning? •In terms of Procurement and Contract Management, what were the reasons for procuring goods and services with a transaction value below R500 000 without the required price quotations?

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FINDINGS OF THE AUDITOR GENERAL (Cont.)

Questions •As required by Treasury Regulations 16A9.1(d) and the Preferential Procurement Regulations, were quotations awarded to suppliers whose tax matters have been declared by the South African Revenue Services to be in good order? If not why not? •While the CCB is commended that no fruitless and wasteful expenditure have been incurred, how will it address concerns to prevent irregular expenditure as R93 000 was recorded for 2013/14?•What plans are in place to address the Leadership concerns identified by the AGSA be addressed? •How will the Financial and Performance Management concerns identified by the AGSA be addressed? •How will the Governance concerns identified by the AGSA be addressed?

“The bottom-line is that the CCB has managed its finances exceptionally well and only realised an underspent of R41 k for the past financial year; a massive improvement on the R883k of the previous year”.

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CHIEF EXECUTIVE OFFICER’S OVERVIEW

Remarks •Financial Review. A surplus of R41 000 was recorded for 2013/14 as compared to R883 000 and R813 000 in 2012/13 and 2011/12 respectively. Taking into consideration that the revenue for 2012/13 and 2013/14 was R3 417 000 and R3 504 000, respectively, while the expenditure for the same period was R2 534 000 and R3 463 000, the Castle recorded increases of 2.54 % (revenue) and 36.66 % (expenditure) in 2013/14. However, the surplus has decreased by 95 % from R883 000 in 2012/13 to R41 000 in 2013/14. Given the increase in Staff Costs from R864 000 in 2012/13 to R1.775 million in 2013/14, and the fact that R619 482 was not spent for maintenance as planned, the entity would have made a loss for 2013/14 if it was not for the savings on maintenance. If the trend continues without an increase in revenue, the overall surplus of R13.9 million will decrease significantly in coming years. •Economic viability. It should be noted that the increase in Staff Costs will decrease the accumulated surplus in the next 10 years unless there is a significant increase in revenue. 17

CHIEF EXECUTIVE OFFICER’S OVERVIEW (Cont.)

Additional matters include:• Vagrancy and crime• Het Bakhuys Restaurant

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ADDITIONAL MATTERS

Remarks and questions • Time-lines are required detailing the City or relevant authority’s response to the

challenge of vagrancy and petty crime. It should be noted that if the issue is not addressed, petty crimes may escalate from muggings, robberies and thefts from vehicles, to more serious crimes. Should this happen, the number of visitors to the Castle may decrease because the surrounding areas may be viewed as unsafe.

• What is the current status of the Het Bakhuys Restaurant? How much revenue the restaurant generated in 2013/14, and how is it utilised?

•Thank youThank you

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•QuestionsQuestions

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Calvin ManganyiResearcher: PC on Defence and Military Veterans

cmanganyi@parliament.gov.za021 403 8100