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Section 100(1)(b) Progress and Challenges

Section 100(1)(b) Progress and Challenges. Limpopo Progress Report to Inter Ministerial Committee 30 July 2014. Presentation Outline. Background on key focus areas of intervention Objectives and iutcomes Departmental Diagnostic Analysis and recovery and turnaround plans i.r.o.

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Section 100(1)(b) Progress and Challenges

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  1. Section 100(1)(b) Progress and Challenges Limpopo Progress Report to Inter Ministerial Committee 30 July 2014

  2. Presentation Outline • Background on key focus areas of intervention • Objectives and iutcomes • Departmental Diagnostic Analysis and recovery and turnaround plans i.r.o. • Provincial Treasury • Roads & Transport • Public Works • Education • Health • Concluding Remarks (outstanding issues) • Recommendations

  3. Purpose The purpose of this presentation is to: • Provide a background on the intervention, its objectives and expected outcomes as well as key findings thereof • Provide progress report on the implementation of the section 100(1)(b) intervention in each of the departments • Identify outstanding issues to be implemented • Recommendations

  4. Background • On 05 December 2011, the National Executive (“the Cabinet”) resolved to intervene in five provincial line function departments in Limpopo in terms of section 100(1)(b) of the Constitution of the Republic of South Africa, 1996, namely:- • Provincial Treasury; • Public Works; • Roads and Transport; • Education; and • Health

  5. Background cont… In the main, the province-wide service delivery challenges that triggered the intervention were the following:- • The province has an accumulated unauthorised expenditure of R2.7 bn • The province started the 2011/12 financial year with an overdraft of R1.7 billion and there was insufficient cash management across the province; • The province was on the verge of running out of cash and would have failed to pay its employees as well as honouring payments of suppliers and providers of goods and services rendered; • Some departments, particularly Health and Education implemented the Occupational Specific Dispensation without making the necessary provisions in their budget; and • Poor supply chain and contract management, including the use of Programme Managements Units (PMUs) were being used to obviate normal procurement procedures.

  6. Objectives of the Intervention The objectives of the recovery programmes were inter alia to:- • Strengthen the oversight responsibility and central control of finances by Provincial Treasury; • Introduce systemic improvements in key processes for the whole Limpopo Administration; • Hold responsible officials accountable for any serious transgressions. • Restore the province to a sound footing and to ensure that a “new normality” is entrenched; • Make every effort to ensure that sustainable capacity is built in the province; and • Assist the province to upgrade its systems and capabilities to ensure full compliance with all legislation, including the PFMA.

  7. Expected Outcomes The implementation of the recovery plans was expected to result in the achievement of the following measurable outcomes:- • Right people placed in the right positions leading to enhanced effectiveness and control in financial management; • Reduced provincial overdraft; • Upgraded systems and capabilities to ensure full compliance with all legislation, including the PFMA; • Improved financial management through skills development and capacity building; and • Raised level of accountability in managing finances.

  8. Provincial Treasury

  9. Diagnostic Analysis The section 100(1)(b) Intervention diagnostic analysis found the following key matters that must be addressed in the Limpopo Provincial Treasury. • Organizational Realignment and Strengthening the Provincial Treasury; • Financial management skills and capacity • Budget allocations • Fund the R2.7 billion accumulated unauthorised and limit new unauthorised expenditure; • Improve cash position and cash management procedures and internal controls; • Expenditure management and accruals • Cost containment measures to be developed, implemented and monitored; • Compliance with the prescribed 30 day supplier payment turnaround; • Revenue generation • Infrastructure spending • Contract Management • Electronic accounting system used in Limpopo; • Improved Audit outcomes

  10. Progress Made on key findings Strengthening Provincial Treasury • The organizational structure of the department was reviewed by the s100(1)(b) Intervention Team and DPSA and aligned to the generic structures of Provincial Treasuries. Improving financial management skills and capacity • National Treasury appointed consultants funded by the EU to conduct the capacity and skills audit assessment of CFO offices – consultants started in July 2014. Surplus budget • The province tabled the 2012 budget with a surplus of R907 million. An amount of R748 million was set aside to finance the unauthorised expenditure and the balance thereof was utilised to fund recovery projects and provincial specific priorities. • R640 million surplus budget tabled for 2013/14 to fund accumulated unauthorised expenditure. • R235 million surplus budget tabled for 2014/15 to fund accumulated unauthorised expenditure.

  11. Progress made … Fund the R2.7 billion accumulated unauthorised • Limpopo Unauthorised Expenditure Act No.1 of 2012 and Limpopo Second Unauthorised Expenditure Act of 2012 - Legislature approved a total amount of R2.218 billion with funding. • In March 2013 Provincial Revenue Fund funded R822 million • In March 2014 the Provincial Revenue funded an additional R728 million. • During 2011/12 and 2012/13 the province incurred unauthorized expenditure to the value of R175.2 million and R322.2 million respectively, which has not yet been considered by SCOPA and the Legislature. • During 2013/14 the province incurred unauthorized expenditure to the value of R15.6 million.

  12. Progress made … Improve the provincial cash position • Currently, Provincial Treasury stringently monitors each department’s cash flows and daily bank balances in order to enhance cash management and assist the province to maintain smaller cash balances in commercial bank accounts where lower interest is earned and to optimize interest returns in the CPD (Provincial account in South African Reserve Bank) account. • At the end of March 2014 the province had a total favorable bank balance of R2.5 billion comprising R18.1 million in the CPD account and R2.482 billion in the commercial bank accounts (viz. departmental PMG accounts and the Exchequer account), after accounting for the unprocessed bank transactions. • It will be noted that the provincial cash flow has improved from R209.9 million as at 31 March 2011/12 to R1.698 billion as at 31 March 2012/13 and R2.5 billion as at 31 March 2014.

  13. Progress made … Improve expenditure management and spending trends • Overall spending for 2013/14 was at R46.8 billion or 96.6 percent of the total available budget of R48.4 billion, the province under spent by R1.6 billion or 3.4 percent. • Previous year spending (2012/13) was at R45.7 billion or 95.4 percent of the adjusted budget of R47.9 billion with the total under spending of R2.2 billion or 4.6 percent. • There is a small spending performance improvement of 1.2 percent from 95.4 percent in 2012/13 to 96.6 percent in 2013/14. • Key to the under spending in 2013/14 was the high percentage of under spending on conditional grants amounting to 13.85% (R889.7 million). • The province did well to spend 98.2% of the equitable share appropriation.

  14. Progress made … Improve expenditure management (ACCRUALS) • The accruals were substantially reduced from R1.160 billion as at 31 March 2011/12 to R691.3 million as at 31 March 2012/13 but increased again in 2013/14 to R1.042 billion, as tabulated below. • While it is of concern that the total accruals have increased it is encouraging to note that there is the reduction in the accruals older than 30 Days from R279.2 million as at 31 March 13 to R80.6 million as at 31 March 2014. • This is also an indication that the 30 day payment processes have improved and that “old invoices” in the systems have been reduced substantially year on year. • Further, it is also encouraging to note that, if the province was required to pay for all the 2013/14 accruals as at year end the funds available would cover the services delivered at year end.

  15. Progress made … Payment of suppliers within 30 days • The province has improved its compliance to the 30 day payment requirement over the past two years. • The average compliance rate for 2012/13 was 78% and has improved to 80% in 2013/14. June 2014 has improved to 86% • During 2013/14 eight (8) departments had an average compliance rate above 90% and five (5) departments were below the 90% benchmark. Provincial Own Revenue Enhancement • Provincial Treasury implemented the Provincial Revenue Enhancement Strategy by embarking on and financing sustainable revenue enhancement projects within departments and public entities in 2013/14. • By end of March 2013 – R703 million collected against the original annual budget of R509.9 million.

  16. Progress made … Infrastructure delivery • In the 2012/13 financial year EXCO approved the Limpopo IDMS and the implementation of the supporting Human Resource Capacitating Programme. • Treasury has provided R5 million to assist with capacitation plan in Public Works so that a conducive environment is created for the department to play that pivotal role in the delivery of infrastructure, and appointments thereof are underway. • Provincial Treasury infrastructure technical team has developed an “Provincial Infrastructure Development Hub” concept document which will be implemented to coordinate and better plan, control and manage all infrastructure in the Province.

  17. Progress made … Integrated electronic accounting systems • This lack of an integrated accounting system in Limpopo has been identified as a major risk which leads to improper reporting on commitments, accruals, inventory and assets. • The National Treasury decision to remodel the IFMS system development, province implementing national system the Logical Information System (LOGIS). • LOGIS will assist to record all procurement transactions in a single system which also integrates into the assets and inventory modules in LOGIS and interfaces seamlessly into BAS. • The province has applied to National Treasury to implement a centralized supplier database system to manage all suppliers for all departments in the province.

  18. Progress made … Audit assistance • Through the S100 (1)(b) intervention team a firm of auditors (PWC) has been appointed to provide technical support and assist the intervention department and other 2 departments (i.e. Social Development and Sport Arts and Culture) to develop sustainable interventions to address their 2011/12 and 2012/13 audit findings. • The audit outcomes in the Province not showing a positive trend in order to achieve the objective of Clean Audit 2014. Data integrity • Treasury partnered with Statistics South Africa to assist the department of Education and Health with the verification of learners, educators, health professionals in their respective departments.

  19. Department of Roads & Transport

  20. Diagnostic Analysis The causes for the implementation of Section 100(1)(b) in the Department of Roads and Transport were the following: • Qualified Audit Opinion for 2011/12 • Bloated Organisational Structure • No contract management • Weak internal controls • No oversight over agencies viz RAL and GAAL • Over commitments • Irregular tender awards

  21. Progress made on key findings Qualified audit opinion • The department developed a turnaround / recovery plan that was incorporated into the department’s revised 2012/13 and 14/15 APPs. • The Department received an unqualified audit opinion for the 2012/13 financial year. Oversight over Agencies • The department turned the financial management around, developed proposals to the Minister to fill vacancies at RAL and GAAL, brought additional capacity from DOT to improve financial management and SCM at both RAL and GAAL. Irregular tender awards • The department has provided technical and legal support. The department has further implemented the findings of the forensic reports and corrected the gaps in the policies as identified in the forensic reports.

  22. Progress made … Weak internal controls • Internal controls have been developed and implemented. Brought additional capacity from DOT to do quality checks and invoice verification w.r.t two main cost drivers, viz; roads infrastructure and bus contracts. Organisational realignment • The review of the department's organogram is in process and will be reviewed by the DPSA. Restructuring of public entities • Mobilisedlegal support and roped in turnaround teams for RAL and GAAL. All financial management (especially SCM related policies) for the two agencies have been reviewed. • Study on service delivery model for roads infrastructure and the management of GAAL is being undertaken to be completed July 2014.. • The Boards for both RAL and GAAL have been appointed.

  23. Progress made … Financial management • Identified internal control weaknesses fixed the gaps. Developed new delegations. Appointed new procurement committees to bring back legitimacy and reliance. Introduced an invoice verification system. Contract management • Completed a manual checklist of all infrastructure contracts and started with the collection of critical but missing information in the contracts files. Forensic and related investigations • The intervention team referred 33 suspicious invoices to the forensic investigators. • The handling of the cases is at an advanced stage. 5 haves have been handed to the police, and the other cases are still under forensic investigation

  24. Outstanding issues • All the issues sighted as the raison d’etre for the intervention in the Department of Roads and Transport have been addressed. • The technical teams have been withdrawn, however there is according to the Administrator a need to retain the legal support to finalise among others, the following outstanding issues:- • Legal advice on the CCMA case of the former CEO of RAL and other high profile labour relations matters • Legal advice on litigation cases; • Finalise amendments to the RAL Act to deal with “responsible shareholder” issues; • Legal implications of the pending roads infrastructure delivery model for RAL and management model for GAAL; and • Continued legal support to the intervention. • Financial delegations in terms of procurement has been handed back to the Head of Department by the Administrator.

  25. Department of Public Works

  26. Diagnostic Analysis There was no clear process of diagnosis followed but the following key areas of Audit Disclaimer were identified as key intervention areas in the Department of Public Works:- • Immovable Asset Register • Movable Asset Register • Leases • Rental Management • Municipal Accounts (which were later cleared with the AG as the responsibility was with client Departments)

  27. Progress made on key findings Immovable asset register • The intervention project delivered a reduction of immovable asset register findings from 8 to 2. All findings on the immovable assets have been resolved. • Currently finalising the electronic asset verification (July 2014). Once completed a detailed report will be available that indicates all the exceptions raised during the verification. Lease review • A project closeout report has been submitted to the Intervention Team with recommendations. An action plan to implement has been adopted. • The department has adopted a 3-year plan to reduce the backlog on expired Leases with improved systems in the procurement of office accommodation. • An audit on space utilisation in office buildings has commenced to reduce the provincial lease portfolio.

  28. Progress made … Building capacity for infrastructure delivery • The intervention project delivered a reduction of immovable asset register findings from 8 to 2. All findings on the immovable assets have been resolved. • The department has appointed 9 out of 36 identified professionals required by March ‘14. • The department transferred 60% of own projects to IDT to alleviate incapacity pressures. • The Department has completed an MoU with DBSA as a delivery partner to complement IDT. • The procurement of a Project Management Information System (used by Northern Cape) has been finalized.

  29. Progress made … Building capacity in the CFO’s Office • The Department is being assisted by PWC Rakoma Consortium appointed in February 2013 by National Treasury to provide technical support in Financial Management and dealing with Audit Matters. • Treasury has appointed a Service Provider to perform skill audit in the CFO Office. Organisational realignment • An oganizational functionality assessment has been completed. • Following the pronouncement of the Premier on 21 May 2014 regarding the new department of Public Works, Roads and Infrastructure a new proposed high level organisational structure has been developed. Disciplinary matters • The handling of disciplinary cases is in progress and a detailed report is available (process handled by the intervention team).

  30. Progress made … Capacity building • The Infrastructure Strategic Planning Hub (ISPH) is earmarking to recruit 201 professionals over the MTSF. • The Department has a capacitation plan detailing a total number of built environment professionals planned to be recruited over a period of five years. A Budget of R31 Million has been allocated in the 2014/15 FY for this initiative. • The Department has furthermore, entered into partnerships with large private construction companies to assist the existing infrastructure officials to register with various professional bodies.

  31. Department of Education

  32. Diagnostic Analysis The following factors were identified as the main causes for the implementation of section 100 (1)(b) in the Department of Education:- • Financial management, in particular on the following:- • Accruals, • Unauthorised expenditure • Over-expenditure on the compensation of employees budget • Lack of compliance with supply chain practices • Inability to fund key strategic educational priorities • Human resource management particularly on the following:- • Non-adherence to the post provisioning norm, resulting in large numbers of excess and temporary teachers • Large vacancy rate for support staff in schools as well as districts and head office, resulting in ineffective service delivery

  33. Progress made on key findings Accruals • The department has cleared long-outstanding accruals and has also developed procedure manual on accruals. Unauthorised expenditure • A project closeout report has been submitted to the Intervention Team with recommendations. An action plan to implement has been adopted. • Unauthorised expenditure considered up to 2010/11 and R 1, 8 billion approved with funding and R 1, 2 billion of this already received by Department. R 336 million was approved without funding. • Since 2010/2011 COE has been fully funded. • Qualifying temporary teachers have been absorbed. Only 6 still to be placed. • All vacant unfunded posts were abolished on PERSAL.

  34. Progress made … Compliance with supply chain practices • SCM policies were reviewed and procedure Manuals were developed. All SCM officials were trained by the Provincial Treasury. • A contract management unit has been established. Funding key educational priorities • LTSM: additional R 560 million provided for LTSM during 2012/13 and R 390 million over the MTEF. Textbooks and Stationery were procured in 2012 and subsequent years. • LTSM retrieval strategy has been developed. • Transfers to schools: allocation has increased from 62% of the national norm to 90%. Plan still to be developed to fund schools at the Nationally determined level

  35. Progress made … Non adherence to post provisioning norms • The department is in process of implementing the new post provisioning model. Large vacancy rate for support staff in schools and at H/O • The initiative has not been completed due to budget constraints. The implementation of the new post provisioning model should leverage funds for the appointment of support staff particularly in schools. • The process to fill critical posts of Circuit Managers, District and Head Office staff is underway. • The Department is currently reviewing its organizational structure to align it to the Strategic Plan and the Service Delivery Model. The DPSA is providing assistance in this regard. Disciplinary cases • The handling of disciplinary cases is in progress and a detailed report is available (process handled by the intervention team).

  36. Progress made … Contingent liabilities • A total amount of R 639 million including R 26 million for suspended Aerocon contract for management of PMU; R 150 million for cancelled Edusolutions contract and R 115 million for suspended Heymath contract. • There is interest incurred on contracts that were suspended but never cancelled (Heymath, Aureocon ) Under-expenditure on conditional grants • There has been a considerable under-expenditure on conditional grants due to blanket implementation of austerity measures on even conditional grant expenses governed by approved business plans. • Delegations that were suspended at intervention were never reviewed nor re-instated leading to delays in decision making service delivery, processing of submissions, late payment of invoices and claims which is likely to lead into huge accruals (all delegations were centralised in the administrator’s office)

  37. Challenges - Unintended consequences Non adherence to post provisioning norms • The department is in process of implementing the new post provisioning model. Large vacancy rate for support staff in schools and at H/O • The initiative has not been completed due to budget constraints. The implementation of the new post provisioning model should leverage funds for the appointment of support staff particularly in schools. • The process to fill critical posts of Circuit Managers, District and Head Office staff is underway. • The Department is currently reviewing its organizational structure to align it to the Strategic Plan and the Service Delivery Model. The DPSA is providing assistance in this regard. Disciplinary cases • The handling of disciplinary cases is in progress and a detailed report is available (process handled by the intervention team).

  38. Department of Health

  39. Diagnostic Analysis The following factors were identified as the main causes for the implementation of section 100 (1)(b) in the Department of Health:- • Lack of policies and SOP for SCM • Major deviations from SCM policies • Lack of systems and procedures • Poor record keeping of major transactions • Lack of accountability • Poor leadership and Management • Critical Vacant Posts unfilled • Poor management of pharmaceuticals and consumables • Lack of capacity in key areas including Risk and Financial management • Poor cash flow management • Unauthorised expenditure of R340.19m dating back from 2006/07 • Poor contract management • Aged infrastructure and equipment including boilers and autoclaves • Unavailability of key items at hospitals such as medicines, food, linen, security, cleaning consumables etc.

  40. Responses to the previous NCOP recommendations

  41. Responses to the previous NCOP recommendations

  42. Progress made on key findings Governance and management structures • The HoD is driving a Turnaround Strategy addressing all Section 100 Interventions & Service Improvement Plans. Financial management • The current CFO’s position is one of the high-profile disciplinary cases and is in the process of being resolved. • Improved SCM SoPs have been approved to guide SCM practices and SCM decision-making has improved. • Centralised the payment verification process at Districts and provincial level in order address the weaknesses identified by the intervention team; • Incidences of unauthorised expenditures have been reduced significantly

  43. Progress made … High CoE expenditure • Statistics South Africa assisted with the Head Count. Persal clean up reduced number of approved and funded posts from 62 430 to 38 000; • DPSA and National Health are leading a process for designing a generic Macro structure for the Health Sector – this will enable the department to realign its organisational structure accordingly. Disciplinary cases • The handling of disciplinary cases is in progress and a detailed report is available (process handled by the intervention team). • The Intervention Team has finalised 2 of the 11 high-profile (SMS personnel) cases. 129 cases from the Districts were referred to the Intervention Team in 2012 for processing. All these cases were sent back to LDoH in 2014 for processing and finalisation.

  44. Progress made … Health infrastructure • The department adopted a strategy to conduct Conditions Assessments (mainly for Electro-Mechanical equipment and installations)in all the facilities • A total of 30 hospital assessments (out of 42) have been done. The remaining 12 to be finalised by the end of July. • The full magnitude cost of the project to be determined once all facilities have been concluded. Pharmaceutical and surgical supplies • Pharmaceutical and Surgical supplies have remained stable at 86% and 62% availability respectively, against a target of 95% (was at 48% when Sect. 100 processes began);

  45. Unintended consequences Outstanding disciplinary cases • The staff members that were implicated in the transgression of Departmental policies and procedures still occupy their positions due to outstanding investigations.

  46. Concluding Remarks

  47. Outstanding issues Unauthorised expenditure in Education • Fund the R667 million unauthorised expenditure balance for Department of Education: R225 million already reserved for 2014/15 and balance in the next financial year. • New unauthorised expenditure of R513 million to be considered by SCOPA and funded by the PFR where necessary. Outstanding disciplinary cases • There is a need to finalise outstanding disciplinary cases not finalised by Intervention • In some departments, the staff members that were implicated in the transgression of Departmental policies and procedures still occupy their positions due to outstanding investigations. • In other departments, a number of Units have been without any officials as the cases of suspended officials have been on-going.

  48. Recommendations It recommended that the Inter-Ministerial Committee:- • Notes the report on the progress made in the implementation of Section 100(1)(b) of the Constitution. It is further recommended that the Inter-Ministerial Committee:- • Notes the resident capacity in Limpopo to sustain the gains achieved by the intervention; and • Notes the need for clear-cut and workable guidelines to regulate section 100 interventions.

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