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PRESENTATION: CONSOLIDATED REPORT ON PUBLIC HEARINGS ON COMPLIANCE WITH GOVERNMENT’S 30 DAYS PAYMENT PERIOD TO SERVICE PROVIDERS COMMISSIONER P NZIMANDE 04 AUGUST 2015. Overview of the Presentation. Introduction Objectives of the public hearings Participants at the public hearings

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  1. PRESENTATION: CONSOLIDATED REPORT ON PUBLIC HEARINGS ON COMPLIANCE WITH GOVERNMENT’S 30 DAYS PAYMENT PERIOD TO SERVICE PROVIDERS COMMISSIONER P NZIMANDE 04 AUGUST 2015

  2. Overview of the Presentation • Introduction • Objectives of the public hearings • Participants at the public hearings • Figures on compliance with the 30 days payment period • Key findings • Key Recommendations • Engagement on the PSC findings and recommendations • Impact and challenges of the public hearings • Developments in the Public Service • Conclusion

  3. Introduction • Section 38 (1)(f) of the Public Finance Management Act (PFMA), 1999, requires Accounting Officers (AOs) to settle all contractual obligations and pay all money owing, including intergovernmental claims, within the prescribed or agreed period. • Treasury Regulation 8.2.3 clarifies the “prescribed period” by determining that “all payments due to creditors must be settled within 30 days from receipt of an invoice”. • Despite the above measures, departments were still not complying with the PFMA and the Treasury Regulation. This practice was “severely affecting the sustainability of businesses involved in outsourcing projects, especially small, medium and micro enterprises (SMMEs)” that relied on these contracts as their sole source of income. It was therefore viewed as counterproductive to government’s efforts to ensure that these businesses benefit from inclusive economic growth. • In his State of the Nation Address, the President emphasised the importance of 30 days payment of invoices. • Therefore, the PSC decided to conduct public hearings at national and provincial level during 2012/13.

  4. Objectives of the public hearings • The overall aim of the public hearings was to ensure proper consultation and public participation in the payment process with regard to outsourced services. The specific objectives of the public hearings were: • To raise awareness amongst all relevant stakeholders on government’s supply chain management processes with regard to the timeous payment of service providers of outsourced services. • To raise awareness amongst relevant stakeholders on the challenges experienced by government departments in the payment process with regard to outsourced services. • To determine the challenges experienced by service providers in the payment process. • To facilitate the identification of bottlenecks in the payment of service providers and the fast-tracking of the process. • To generate appropriate recommendations based on the engagements with all the relevant stakeholders.

  5. Participants at the public hearings • The public hearings were attended by government officials, especially from supply chain management (SCM) and/or Chief Financial Officers (CFOs), National/Provincial Treasuries, SARS and SEDA officials as well as government service providers. • The public hearings were preceded by a national meeting between the PSC and business organisation representatives. • The purpose of this meeting was to understand the challenges experienced by businesses in the 30 day payment process. • It also provided an opportunity to business organisations to suggest possible solutions to these challenges. • Seven public hearings were conducted at national and provincial level.

  6. Provincial Departments included in the public hearings

  7. National departments included in the national public hearing

  8. Figures on compliance with the 30 days payment period • National level • In May 2012, it was reported by NT that, with regard to national departments, 3 470 invoices had not been paid amounting to approx. R73m. • Of these, the top five defaulters were Stats SA which recorded 1 838 invoices to the amount of approx. R17m not paid, The Department of Public Works, 884 invoices to the amount of approx. R42m, and Home Affairs, 343 invoices over 30 days to the amount of approx. R8m that had not been paid. • The Department of Rural Development and Land Reform and the Department of Police recorded 118 (to the value of approx. R2.5m) and 129 invoices (to the value of approx. R1m) outstanding invoices respectively.

  9. Figures on compliance with the 30 day payment period (cont…) • Provincial level • In May 2012, it was reported that with regards to the provinces, there was a total of 21 847 invoices to the value of approx. R1bn not paid after 30 days by the various provinces. • In terms of the provinces involved in the public hearings, the Free State had 3 260 invoices to the amount of approx. R99.5m, Gauteng 4 294 invoices to the amount of approx. R306.2m, and Limpopo had 3 163 invoices to the amount of approx. R161.6m not paid after 30 days. • Data on the Eastern Cape was not available at the time.

  10. Key Findings • Reasons for late payment advanced by departments • Service providers did not adhere to the requirements of proper invoicing. • Service providers often did not have official purchase orders when they submitted invoices. • Quality assurance of goods and/or services that took place after capturing invoices delayed payment. • Accrual of unpaid invoices from one financial year to the next caused cash flow shortfalls. • Departments did not monitor their payment processes effectively. • Capacity related constraints hampered departments’ ability to pay service providers on time. • Fraud and corruption resulted in late and/or non-payment to service providers and some service providers receiving preferential treatment.

  11. Key Findings cont… • Reasons for late payment advanced by service providers • There was no measure in place to track progress with payments. • Departments took very long to pay closer to the end of a financial year. • Even invoices less than R1 000 were not paid within 30 days. • Departments did not always issue written purchase orders. • Departments made last minute changes in specifications without issuing new purchase order. • Payment was delayed where the power to approve payment was not delegated to other officials. • Fraud and corruption existed as an obstacle to ensuring that service providers were paid on time. • Often service providers had no other option than to sue departments.

  12. Key Findings: Best practices These best practices were identified and shared by departments during the public hearings: • Development of standards in terms of the different steps of the payment process ( on-line invoice tracking system). • Ring-fencing of monies for the payment of service providers. • Training of all SCM and financial management staff on the proper procedures and best practices in the payment of service providers. • Instituting disciplinary measures against officials failing to comply with the 30 days payment period. • The designation of employees within SCM responsible for specific categories of service providers. • Regular reviews and improvement of the payment process. • Conducting regular reconciliations. • Decentralisation of payment functions.

  13. Key Recommendations • Departments should ensure that purchase orders, specifications and invoices correspond. • Departments need to effectively monitor compliance with 30 day payment period. • Merging the different complaints/dispute systems of SEDA, the Presidency/Treasury and individual departments should be considered. • Departments should implement an electronic payment system. • National Treasury should include a best practice standard in the service level agreements between government departments and private service providers where sub-contracting applies.

  14. Engagement on the PSC findings/recommendations • Commitment was reached with departments and service providers at the different public hearings to rectify concerns from government and service providers emanating from the public hearings. • Individual reports (national and provincial) were circulated to all departments that participated in the study and key stakeholders to obtain inputs. • The final Consolidated Report was also forwarded to the Minister of Small Business Development for discussion. A meeting with the Minister was requested. • The PSC solicited written comments from departments involved in the hearings via relevant treasuries (national/provincial) as important role players in the payment process and in the hearings.

  15. Impact and challenges of the public hearings

  16. Impact and challenges of the public hearings (cont)

  17. Impact and challenges of the public hearings (cont…)

  18. . Developments in the Public Service • The Unit has been established in the Department of Planning, Monitoring and Evaluation (DPME) to investigate cases of late or non-payment within 30 days. • The unit will work closely with National Treasury (NT) and the Department of Public Service and Administration (DPSA). • It will report on a quarterly basis to Cabinet on departments’ compliance with the 30 day period and will make recommendations regarding possible disciplinary action, where needed. • The Unit will also report to the President’s Coordinating Council. • Reports will be informed by investigation of cases, the resolution of these cases and monitoring reports from NT, the Office of the Chief Procurement Officer and the DPSA. • To give immediate effect to the Cabinet resolution to establish the Unit, DPME has allocated existing staff to the Unit.

  19. Developments in the Public Service cont… • The Management Committee of FOSAD resolved on 13 April 2015, that NT, in association with DPME and DPSA, should convene a workshop with all Chief Financial Officers (CFOs) of national departments with a view to: • identify challenges experienced by departments in the payment of service providers on time, • develop strategies to resolve issues of late or non-payment of service providers, and • to identify best practices in this regard. • The workshop will take place on 13 August 2015 June 2015. Delegates from provincial treasuries were also invited given their responsibilities to monitor provincial departments compliance with the PFMA with regard to the 30 day payment period.

  20. Conclusion The PSC has observed the following: • Lack of empowerment (provision of information) of service providers. • Lack of implementation of Batho Pele principles. The public hearings also had an impact in the following areas: • Strengthening public participation. • Bringing an understanding of the impact of late payment and effects on small businesses. • Empowerment of service providers through the information provided first-hand by the relevant departments.

  21. Thank you! PSC Website: www.psc.gov.za National Anti-Corruption Hotline for the Public Service: 0800 701 701

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