1. INTRODUCTION AND BACKGROUND:
- To ensure the implementation of effective, efficient and transparent financial management and internal control systems;
- To utilize the allocation provided by the Department exclusively and solely for the purpose of the project;
- To keep full and proper records of its financial affairs and do all things reasonably necessary to ensure effective implementation and completion of the project;
- Applicants being approved and contracted for more funding than they had applied for;
- Over 55% of approved beneficiaries had not been allocated funding;
- The NAC had approved more beneficiaries than there was funding allocated.
Driven by the commitment to ensure that public funds were going to be disbursed based on principles of fairness, equity and administrative justice, the New Council applied the following principles;
- All Approved and compliant applications must receive a PESP Grant;
- All compliant applicants approved must not receive more than what they originally applied for;
- Approved projects must not exceed R2 million, however Council will consider projects that create jobs at scale and have a national footprint;
- No organisation could be funded for more than one project.
3. INSTITUTING AN INDEPENDENT FORENSIC AUDIT
4. FINDINGS OF THE INDEPENDENT FORENSIC AUDIT
4.1 ADMINISTRATIVE FINDINGS:
- Failure to adequately resource the PESP project with competent staff;
- A lack of adequate oversight and review processes resulting in non-compliant projects being approved;
- Failure to meet the timelines for the delivery of the PESP;
- Failure to manage and monitor the process such that accurate information in respect of approved applications were correctly captured in the grant management system
4.2 GOVERNANCE AND FINANCIAL FINDINGS:
In addition, the Auditors found multiple governance and financial mismanagement actions that included the following:
- Contravention of S11(2) of the National Arts Council Act and failure to observe Council Resolutions;
- Non-compliance with Section 57(c) of the PFMA, in respect of ensuring adherence to the system of internal control and financial management;
- Failure to take effective and appropriate steps to prevent irregularities in the adjudication process, including irregular spending;
- Failure to provide financial oversight regarding the implementation of the PESP within the allocated budget of R285 million, resulting in over-commitment amount of R637,705.80 (More than double the allocated budget);
- Failure to ensure that a system of internal control was carried out;
- Conflict of interest in respect of some former Council members who were in the previous Council, who contravened Section 8(5) of the NAC Act.
- The investigation found that all the funds have been accounted for at the NAC.
- No new Council Members were found to be conflicted. The investigation confirmed the findings of the State Law Attorneys that all Council Members appointed from the 1st January 2021 whose organizations were funded from the PESP and had declared their applications, were not conflicted, as they were not part of the adjudication process of the PESP (which was concluded by the 30th December 2020).
5. WAY FORWARD
5.1 CONSEQUENCE MANAGEMENT
5.2 GOVERNANCE INTERVENTION AND CORRECTIVE MEASURES TAKEN BY THE NEW COUNCIL
- Promoting the effectiveness of Council oversight committees. We will ensure the Terms of References are reviewed and that they are fit for purpose.
- Capacitating Councilors to effectively discharge their fiduciary duties.
- The audit and risk committee has been requested to evaluate the areas of our internal control environment that require urgent attention.
- The NAC will review all its financial management policies.
- Risk management is receiving urgent attention both at a strategic and operational level with a view of enhancing the risk maturity level of the organisation.
6. CURRENT STATUS OF THE PESP:
- R272 million has been distributed to artists and organizations, constituting 96% of total distribution of all PESP funding
- The remaining balance (4%) is still being distributed as beneficiaries continue to submit all required reporting.
- 1,309 applicants have benefitted from the PESP programme, yielding more than 20 000 job opportunities in the Creative sector during a very trying time.