Media briefing on the outcome of the National Arts Council (NAC) Forensic Investigation
1. Introduction and background:
The Department of Sport, Arts and Culture (DSAC) entered into a Memorandum of Agreement (MOA) with the National Arts Council (NAC) for the delivery of the Presidential Economic Stimulus Programme (PESP) in October 2020.
The responsibilities assigned and agreed to by the NAC were outlined as follows:
To ensure the implementation of effective, efficient and transparent financial management and internal control systems;
To utilise 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;
The value of the project was R300million, with 5% being retained by the National Arts Council for administrative purposes, with R285million set aside for project funding, broken down as follows:
Stream 1: For Job Retention – Allocated R85 million
Stream 2: For Job Creation – Allocated R200 million
2. Context:
The Minister of Sport, Arts & Culture appointed a new Council on the 1st January 2021. Shortly after the new Council commenced its term, a National Arts Council external Adjudication Panel Member wrote a letter to the Minister which was passed to the NAC detailing allegations of mismanagement and maladministration of the PESP.
This was followed by the new NAC Council halting all PESP payments to approved beneficiaries so it could conduct its own internal investigation regarding the allegations.
The NAC Council discovered a myriad of challenges which included;
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.
After consultation with affected applicants, the NAC issued revised grant notification letters and contracts with adjusted guiding figures to ensure that all approved beneficiaries would receive funding.
3. Instituting an independent forensic audit
Following multiple claims of mismanagement of the PESP and complaints from the creative sector, the NAC Council Members launched an independent forensic enquiry. On 29 July 2021, the Council of the NAC appointed an independent, highly reputable and leading international audit, tax and advisory firm (Mazars Forensics), to conduct the independent forensic investigation into the implementation of the PESP.
The investigation was completed and shared with the Minister on 17 September 2021. This was followed by a formal presentation to the Department of Sport, Art and Culture on 22 September 2021.
Results of the investigation point out to wrongful doing, maladministration and mismanagement in the process of implementing the PESP. The report further clearly identifies the individuals responsible and who are to be held accountable.
4. Findings of the independent forensic audit
After a thorough process and independent enquiry, which lasted almost twelve (12) weeks, the findings of the forensic investigation revealed some of the following findings;
4.1. Administrative findings:
The investigators discovered a number of administrative failures attached to the PESP programme as it relates to the following:
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 to the 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 1 January 2021 whose organisations 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 30 December 2020).
Way forward
5.1 consequence management
Consequence Management processes will be instituted against all those implicated in the report, and the process is being categorised into three (Council Members, Senior Management and Staff):
Council Members: All findings related to Council Members will be dealt with by the Ministers Office as the National Arts Council does not have jurisdiction over them;
Senior Management: All findings related to Senior Management will be dealt with through an internal disciplinary hearing process by the Council of the National Arts Council in accordance with the relevant legislation and company policy;
Staff: Disciplinary Action to be taken against the staff will be managed by the NAC CEO’S Office, with an oversight role played by the NAC Council in accordance with the relevant legislation and company policy.
5.2 Governance intervention and corrective measures taken by the new council
The New Council will continue to prioritise restoring strong internal processes and controls to the NAC. This will continue to be performed in commitment to promote good governance and to create an NAC that provides an impactful service to the sector.
In its strides towards actively strengthening good governance and management, the NAC has highlighted the following areas as critical in pursuit of it.
Promoting the effectiveness of Council oversight committees. To ensure the Terms of Reference 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:
In spite of the administrative challenges of the PESP programme, the new Council duly intervened, based on principles of fairness and administrative justice. This intervention has yielded the following positive achievements:
R272 million has been distributed to artists and organiSations, 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 this very trying time.
Source: Government of South Africa