Issued by: Government Communications (GCIS)
Minister Mtshali today released a report by the auditing firm Deliotte & Touche on its forensic audit into certain aspects of the Trust Funds created by PACT.
The Director General of the Department of Arts, Culture, Science and Technology (DACST) commissioned a forensic review on certain aspects of the setting up of Special Reserve Funds by PACT in the late 1980's. The review was conducted by the forensic division of auditing firm Deliotte & Touche. A final report issued on 8 June 1998 contains the following key findings and recommendations:
FINDINGS BY DELIOTTE AND TOUCH:
PACT set up a Special Reserve Fund in or around 1989. Funds intended for the promotion of the arts were channelled into this Special Reserve Fund and were not reflected in subsequent annual financial statements of PACT. In 1995, these funds were subsequently transferred to two further funds, a "Senior Fund" and an "Employee Fund". These funds were utilised by PACT to pay severance packages to its employees. The report found that PACT acted in contravention of Section 21 of the Companies Act (Act 61 of 1973) by setting up these Funds, and by subsequently paying voluntary severance packages.
The actions of the appointed Board members at the time were also ultra vires. However, the contracts entered into with PACT employees are valid and enforceable against PACT. PACT has no future obligations in terms of the above agreements with employees. PACT can also not renege on or claim any monies back in terms of these agreements. The Report pointed out that, despite the fact that the overwhelming majority of severance packages paid in terms of the agreements reached with the relevant trade unions were in all aspects legal, they were not justifiable or reasonable in terms of South African labour law and practice.
Senior employees in management positions, who were probably in a better position to be re-employed elsewhere than artists, were paid double the basic severance package of artists in addition to substantially enhanced benefits.
Available information suggests that the PACT Board attempted to act in the best interest of its employees, but that it neither acted in the best interest of the organisation itself nor the performing arts in South Africa.
The accounts and supporting documentation relating to the Special Reserve Fund were incomplete and were not properly reconciled. No proper financial statements were ever compiled for the Special Reserve Fund. This prevented the funds in the Special Reserve Fund from being properly reported on and audited. The information made available to the PACT Board was insufficient for it to exercise proper control over the Fund. A minimum amount of R741 754 remains unaccounted for. To date these unaccounted for funds could not be explained by the Administrator of the Special Reserve Fund.
Steps to be take by the Department of Arts, Culture, Science and Technology (DACST).
The Audit found that PACT, in the payment of severance packages, acted incorrectly by declaring too little to the then Receiver of Revenue when applying for a directive in respect of the calculation of the tax deduction on some retrenchment packages DACST will inform the South African Revenue Service accordingly.
The audit found that a minimum amount of R741 754 remains unaccounted for, and that to date it could not be explained by the Administrator of the Special Reserve Fund. DACST will obtain legal advice on what further steps have to be taken with respect to all funds unaccounted for.
Other accounting deficiencies were also identified during the course of the forensic investigation. DACST will therefore, be commissioning an independent auditing firm to investigate PACT's current compliance with generally accepted accounting practises and financial accountability. These findings would be used to ensure that PACT is being held accountable, as well as appearing to be transparent in terms of its management and governance.
Copies of the Report can be obtained from the Department of Arts, Culture, Science and Technology, contact person: Mr Johan Jooste, Tel: (012) 337-8000/337-6276
Enquiries: Frans Basson: (021) 465-4650/70