DEPARTMENT OF PUBLIC WORKS Portfolio Committee Presentation 10 th October 2012 Parliament of the...

DEPARTMENT OF PUBLIC DEPARTMENT OF PUBLIC WORKSWORKS

Portfolio Committee PresentationPortfolio Committee Presentation

1010thth October 2012 October 2012Parliament of the Republic Parliament of the Republic

of South Africaof South Africa

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Purpose of the Presentation by the Department of Public Works

-To reflect on the achievements and challenges of the Department of Public Works during the financial year 2011/12 based on the 2011 State of the Nation Address theme of JOB CREATION.

Objective of the Portfolio Committee on Public Works

-To consider the achievements and challenges of the Department of Public Works as reflected in the Annual Report.

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… ‘To address the concerns facing the country, we have declared 2011 a year of job creation through meaningful economic transformation and inclusive growth…’

Implications for DPW:

•… ‘Other departments have launched their own initiatives, for example the Re Ya Patala (We Pay) initiative of the Department of Public Works…’

•… ‘Our Expanded Public Works Programme aims to create 4, 5 million work opportunities, and more than a million opportunities have been created already since the beginning of Phase 2.Part of the programme focuses on repairing our roads networks…’

Outcome 4: Decent employment through inclusive economic growth.

Background•Support government stated intention of decent job creation by ensuring service providers are paid on time;•Central point to deal with backlog of unpaid invoices;•Targets unpaid invoices older than 30 days;•Feedback on progress provided within seven working days;•Interfacing with calls logged from Presidential hotline and SEDA’s SMME;

Successes for financial year 2011/2012

•745 calls logged;•R17 million value of calls logged and resolved;

Challenges

•Majority of calls relate to day-to-day and construction;•Lack of feedback by PM to service providers when invoice is queried or lack of supporting document;•Manual system of Operation Re Ya Patala;•Lack of awareness of existence of Operation Re Ya Patala;•Lack of monitoring system to track calls received until payments is effected;•Service providers not having relevant documents for appointment, e.g. Order Number or appointment letter;

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Programmes are assessed based on their contribution to the following:

1.Job Creation – 2011/12 SONA Theme

2.Service Delivery

3.National Policies (NGP, PICC)

4.International Policies and Treaties (MDGs)

1. Improved quality of basic education.

2. A long and healthy life for all South Africans.

3. All people in South Africa are and feel safe.

4. Decent employment through inclusive economic growth.

5. A skilled and capable workforce to support an inclusive growth path.

6. An efficient, competitive and responsive economic infrastructure network.

7. Vibrant, equitable and sustainable rural communities with food security for all.

8. Sustainable human settlements and improved quality of household life.

9. A responsive, accountable, effective and efficient local government system.

10. Environmental assets and natural resources that are well protected and

continually enhanced.

11. Create a better South Africa and contribute to a better and safer Africa and

World.

12. An efficient, effective and development oriented public service and an

empowered, fair and inclusive citizenship.

Government’s Outcomes

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Performance indicator Contributions Challenges

Indicator: Percentage of Asset

Register information fields

populated with essential data

out of the present 108 562

properties.

Target: 90% populated97 705 properties

Actual: 86% (93692 out of 108

562 properties)

DPW appointed 21 graduates through Human

Capital Investment (HCI) Programme to verify IAR

information against Deeds records and conduct

investigation on identified discrepancies.

Change of strategy to enhance IAR. Lack of interface between Property Maintenance Information System (PMIS) and Works Control System (WCS)

Programme: Asset Register Management

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Indicator: Vested State land

Target: 70% 25 022 land parcels

Actual: 13 116 Item 28(1) certificates issued (DRDLR) 37% out of 35 562 land parcels

Confirmed the ownership of land parcels under the correct sphere of government to address political and social government objectives.

Un-surveyed land parcels

Lack of documentation to validate ownership as at 27 April 1994

Programme: Asset Register Management

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Overall Assessment

•DPW initiated the change of strategy to enhance the IAR, as a result the Service Provider was appointed in October 2011 to programme manage the Immovable Asset Register Enhancement Programme to ensure completeness and accuracy of IAR by 31 March 2014.

•An analysis of the IAR was conducted to determine the Term of Reference for the appointment of Service Provider(s) to conduct physical verification.

•DPW is continuously engaging Department of Rural and Land Reform (DRDLR) and provinces to fast track the process of issuing Item 28 (1) Certificates.

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Performance indicator Contribution Challenges

Indicator: Approved C-AMP

document addressing User and

custodian objectives

Target: 80% CAMP completed

Actual: 100% C-AMP

completed

C-AMP completed to contribute towards

improved service delivery by enhancing planning

and budgeting for efficient management of state

immovable assets.

C-AMP completed without U-AMPs, condition

assessments and performance assessments

standards as required by GIAMA. This results in non

alignment of User Department’s requirements and

Custodians plans.

Indicator: Rehabilitated

buildings

Target: 20 Buildings identified

for the implementation of

rehabilitation programme

within MTEF

Actual: 11 buildings

rehabilitated in the first year of

the MTEF

Rehabilitated buildings ensure that User

Departments are accommodated in functional

buildings which contributes to improved service

delivery and reduction of leased accommodation.

Sub Programme: Strategic Asset Investment Analysis

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Performance indicator Contribution Challenges

Indicator: Accessible buildings

to people with disability

Target: 110 buildings

identified and made accessible

Actual: 51 buildings made

accessible

State buildings made accessible contributes to improved service delivery for easy access to all people to government services.

Delays in procurement processes due to non

responsive tenders. In an effort to address the

problem of non responsive tenders, the tenders will

be extended to contractors with a higher CIDB

grading.

Indicator: MOUs signed with RD&LR, Human Settlement, Agriculture, * List of properties sent to relevant Departments*Signed agreements to release land

Target: 2000 hectares of land

parcels for human settlements

Actual: 1,6272 hectares

released

Release in addressing outcome 8 of national policy priorities. Land is released upon receipt of request from

relevant stakeholders.

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Overall Assessment

•GIAMA requires that Custodians on an annual basis compile a Custodian Asset Management Plan (C-AMP) that addresses User Departments needs as indicated in their respective User Asset

Management Plans (U-AMPs). The Chief Directorate has completed 2013/14 CAMP and will submit to National Treasury. However, this was achieved in the absence of key elements; viz. UAMPs, condition assessments and performance assessments standards; required for a comprehensive and compliant C-AMP. The outcomes of the C-AMP will be shared with relevant User Departments so that it informs planning going forward.

•Planning for projects; both planned maintenance and DPW capital; to be implemented in 2012/13 was concluded with all relevant stakeholders. Going forward, planning will be aligned to IDIP. Delays with procurement processes contributed to accessibility projects not being implemented on time. As part of national priorities to reduce energy and water consumption 8 025 752 kilowatts and 4 324 210 kilolitres was saved during the financial year. Improvements with monitoring and verification of savings for energy consumption will be done in conjunction with the Department of Energy

•Progress with regard to release of land to address socio economic development is hampered by requests that are not supported by detailed developmental plans aligned to municipal IDIPs, hence the target was not achieved.

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Indicator:

Approved and signed-off

implementation programs

(CWIP and PMIP).

Target:

100% approved and signed-off

Actual:

100%.

In enhancing service delivery Capital Works

Implementation Programs (CWIP) were

approved by each of nine User Departments for

execution in 2012/13.

In line with its custodial responsibility, the

Department signed off its Planned

Maintenance Implementation Program (PMIP)

for execution in 2012/13.

The annual deadline of end-February for

submission of approved Implementation Programs

by User Departments does not allow adequate time

for planning process ahead of the commencement

of the next financial year.

As a Turnaround initiative, the KAM Branch will

ensure affected User Departments submit

approved Implementation Programs by the end of

September each year commencing in 2013 and will

ensure the inter-departmental SLA’s are amended

accordingly.

Programme: Key Account Management

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Indicator:

Populated templates for 26

National Departments and 7

entities

Target:

90% complete

Actual:

75.7% UAMP templates were

completed for 25 National

Departments and Public

Entities

As a result of general non-compliance with GIAMA:

•DPW continues to work in an unplanned, reactive mode,

•DPW continues to be lambasted for its inability to render appropriate accommodation services,

•User Departments remain frustrated at the time it takes for accommodation to be provided,

•Under-expenditure and belated delivery of required accommodation as a result of poor forward planning, which further frustrates Users in their ability to deliver essential line function services.

•Continuous allocation of funding without UAMP’s subverts the need for User compliance with GIAMA

Inadequate capacity and resources within User

Departments and DPW to implement the

requirements of GIAMA leading to non-compliance.

Allocation of funds to User Department

accommodation infrastructure programs in the

absence of UAMP’s and without the necessary

forward planning.

Remedial measures include appropriate

capacitation to implement GIAMA and strategic

agreement with National Treasury in enforcing

GIAMA compliance.

Programme: Key Account Management

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Overall Assessment:

The Key Account Management (KAM) program, as the Department’s front office servicing the accommodation needs of its significant client base remains a key priority. In the year under review, there was a degree of improvement in the following areas:

1.Enhanced client relations resulted in an additional 6 SLA’s being signed,2.All nine User Departments for whom DPW procures Capital Works submitted their approved Capital Works Implementation Programs (CWIP) in accordance with prescribed timeframes,3.Increased Executive support for the key role of KAM as the Department's front office to User Departments and the need for heightened responsiveness by officials,4.Commence to refocus the Department into a client-driven mode with KAM spearheading the delivery of all User Department accommodation requirements across the entire value-chain.

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Overall Assessment:

The focus moving forwards, in support of the Department’s Turnaround, will include:

1.Ensuring a strong customer-focussed orientation in the Department in order to define, and deliver against, the needs of clients.2.The development of a Client Value Proposition that is responsive to accommodation needs of individual clients across the DPW value chain,3.Appropriate capacitation and resourcing of the KAM Branch to drive the customer focus approach throughout the organization.

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Indicator:

Precincts development in Pretoria,

and other prioritized rural towns

Target:

Bulk infrastructure development of

precincts including Salvokop,

Church Square and others

Actual:

•Salvokop site fully fencing Project

Commenced

Owing to the fact that Inner City

Regeneration joint project with City of

Tshwane in developing town planning

guidelines for Inner City Precinct, the

only project possible for implementation

at Salvokop was the fencing project

which is to be completed in 2012/13.

The construction of the security fence

introduces control access measures into

Salvokop as well as eliminating problem

of illegal dumping of construction waste

on the Government land.

The prolonged conclusion of the town

planning guidelines for Salvokop has an

impact on bulk infrastructure planning and

development of the Site.

The Bulk Infrastructure Planning will resume

in 2013/14 performance year when the town

planning guidelines are completed.

Programme: Projects and Professional Services

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Purpose:


Indicator:

Effective and efficient response to

customer varying needs

Target:

Monthly reports on progress,

challenges experienced in

delivering their projects

Actual:

The overall performance of

expenditure for infrastructure

budget is 79% on all building

programs

The Department has completed 237 Project

(Capital and Maintenance), while 660

Projects continues into 2012/13 performance

year.

The overall expenditure achieved is as

follows:

DPW Capital: 66%

DPW Maintenance: 89%

Clients Capital: 77%

During the 2011/12 fewer than

planned projects where awarded

which impacted negatively on

expending funds allocated for

construction phases of the projects.

Under DPW capital a total amount of R

238 584 894, was not allocated to any

project. Efforts to utilize the funds to

Purchase Land and Buildings or

Purchase Capital Equipment's for

Workshops was unsuccessful. The

funds were not spend.

Programme: 2 Projects and Professional Services

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Overall Assessment

•key projects were concluded and these projects enabled the security cluster Departments to provide the much needed services to the communities around these completed facilities.

•Other completed Projects included:

• Forensic Laboratory in Parow (for SAPS)• New Generation Correctional Facilities in Kimberly and Brandvlei for DCS • Supreme Court of Appeal in Bloemfontein• Pietermaritzburg Magistrate Building• Pietermaritzburg Colonial Building for the Department of Justice.

•The Department has completed and commissioned the printing Web Machines for the Government Printing Warehouse. The operation of this printing warehouse enables the Government of South to have printing capacity for identity documents for South African and other countries that require such assistance from South Africa.

•For South Africa to be on par with the first world in academia and various research fields, its researchers require world class facilities for their research work. For that reason the Department of Public Works has upgraded the Marion Island Research Station, which complies with the standard on environmental sustainability parameters.

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Performance indicator Contributions Challenges Indicator: The creation of EPWP work opportunities and full-time equivalents

Target: 868,000 work opportunities and 361,739 full time equivalents

Actual: 843, 459 work opportunities 251,127 full time equivalents

• 97% of the work opportunity target was achieved.

• 69% of the full-time equivalent target was achieved

• Contributed to Outcome 4 in terms of government priorities

• 296 projects were excluded due to poor data quality based on data validation procedures

• Lack of capacity in public bodies to implement projects labour intensively

• Poor and under-reporting by implementing public bodies

Indicator: Annual EPWP Designated Group Participation TargetsTarget: 55% women40% youth2% people with disabilities (PWD)Actual: 60% Women50% Youth0.19% PWD

• Over-achieved on the target for women participating in the programme

• Over-achieved on the target for youth participating in the programme

• Persons with disability target was not met

• The nature of many Expanded Public Works Programme (EPWP) projects limits the participation of people with disabilities. This includes occupational health and safety issues

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Indicator: Percentage of wage incentive disbursedTarget: 65% disbursement across all sectorsActual: 69% of the wage incentive was disbursed across the Infrastructure, Social and Environment and Culture Sectors

63% of the integrated incentive for the Infrastructure and Environment and Culture Sectors had been disbursed. 100% of the Social Sector Expanded Public Works Programme (EPWP) Incentive Grant for Provinces had been disbursed by the Department of Public Works. This means that 69% of the wage incentive was disbursed across the Infrastructure, Social and Environment and Culture Sectors.

• The disbursement of the incentive is dependent on eligible bodies to meet their annual threshold and report their data properly

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Overall Assessment :

•The EPWP achieved 97% of its 2011/12 work opportunity targets. To ensure that the Programme achieved it annual targets, intensive engagements were undertaken with public bodies to ensure their participation in the Programme.

•In November 2011, DPW hosted the 2nd annual EPWP Municipal Summit. The Summit resolved that EPWP institutional arrangements would be strengthened through the continued formation of EPWP District Steering Committees and the development of EPWP municipal policies. In 2011/12, eight (8) new EPWP District Steering Committees were created, in addition to the eleven (11) District Steering Committees that were already operational .

•Furthermore, by the end of the financial year, 271 municipalities signed protocol agreements, committing them to achieving specific EPWP targets.

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Overall Assessment :

•69% of the wage incentives were disbursed across the Infrastructure, Social and Environment and Culture Sectors.

To ensure an improved draw-down of the incentive in subsequent financial years, the incentive grant model was revised. The model would ensure that especially rural municipalities have easier access in order to intensify employment-intensive programmes and projects. The revised model would be implemented as from the 12/13 financial year.

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Indicator:

Immovable asset life cycle management

guideline for national and provincial users and

custodians covering:

•Planning;

•Acquisition;

•Management;

•Maintenance; and

•Disposal.

Target:

Guideline developed and approved.

Actual:

Draft Immovable Asset Life Cycle Management

Guideline developed.

The purpose of this guideline is to

provide national and provincial

custodians with a user-friendly tool to

assist them in better understanding the

(a) custodian mandate in terms of

GIAMA and related legislation; and (b)

roles and responsibilities of users and

custodians as it relates to the

management of immovable assets.

Policy options and areas of particular concern

(identified during interaction with national and

provincial custodians and users) require further

internal engagement before the guideline can be

submitted for approval.

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Purpose: To regulate and promote growth and transformation in the construction and property industries To promote uniformity and best practice in the construction sector and in the immovable asset management in the public sector


Indicator:

Review of Built Environment approved by

Minister.

Target:

Review completed

Actual:

Review completed.

The review of the Built Environment

Professions will lead to a synergised

sector focused on its growth and

development whilst contributing to

government’s development objectives.

The submission of the review was delayed to

allow for enhancement of the options analysis.

Upon finalization, the options analysis report will

be submitted for approval

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Purpose: To regulate and promote growth and transformation in the construction and property industries To promote uniformity and best practice in the construction sector and in the immovable asset management

in the public sector


Indicator:

Enactment and successful implementation of

revised Expropriation Act.

Target:

Promulgation of Expropriation Act, 2011.

Actual:

Draft Regulatory Impact Assessment (RIA)

developed.

Comprehensive presentations made to

relevant internal authorities. Expropriation Bill

(Draft 7) released to DRDLR for comment (Feb

2012).

The new Expropriation Act will

introduce consistency and uniformity in

the procedure followed by

expropriating authorities in all spheres

of government, to expedite delivery of

essential services and the acquisition of

property in the public interest.

The Draft Expropriation Bill is undergoing further

consultation with internal and selected external

stakeholders.

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Purpose: To regulate and promote growth and transformation in the construction and property industries To promote uniformity and best practice in the construction sector and in the immovable asset management in the public sector


Indicator:

Agrément SA (ASA) listed as a public entity in

terms of the PFMA.

Target:

Table draft Agrément SA Bill in Parliament.

Actual:

Revised Business Case routed in November 2011

for internal approval for submission to National

Treasury.

Business Case subsequently withdrawn in January

2012 and currently being further revised to

remove regulatory role of ASA.

The Agrément SA Act will serve as a

national policy instrument to support

innovation in the construction industry

and accelerate delivery of social and

economic infrastructure.

Business Case withdrawn to remove

proposed regulatory responsibility to allow

for further consultation with relevant

stakeholders.

The process has started with the

development of a revised Business Case

and upon approval, the prescribed

legislative process will be followed.

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Overall Assessment:

Programme What to be done in 2012/13 Contribution to Government’s socio-economic priorities

Review of Expropriation Act, 1975

Finalise Regulatory Impact Assessment and draft Bill for submission to Cabinet for approval to commence public consultation.

Consistency and uniformity in the procedure followed by expropriating authorities in all spheres of government, to expedite delivery of services and the acquisition of property in the public interest.

Establishment of Agrément SA as a public entity

Finalise Business Case for approval. Commence prescribed legislative process.

Support for innovation in the construction industry and accelerated delivery of social and economic infrastructure.

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1. DPW …………………..302. PMTE…………………..44

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2011/12 2010/11

Budget Expenditure Exp % Budget Expenditure Exp %

R'000 R'000 % R'000 R'000 %

Prog 1. Administration 819,135 837,119 102%

679,455

679,455 100%

Prog 2. Immovable asset management 5,426,628 5,001,749 92%

5,203,722

4,968,520 96%

Prog 3. Expanded public works programme 1,520,508 1,163,015 76%

1,415,783

914,940 65%

Prog 4. Property and construction industry policy regulation

32,108 34,353 107%

39,021

28,029 72%

Prog 5. Auxiliary and associated services 31,365 25,201 80%

26,816

24,139 90%

Subtotal 7,829,744 7,061,437 90%

7,364,797

6,615,083 90%

Financial Performance – Economic Classification

Current Financial Year (2011/12)

Previous Financial Year (2010/11)

Economic Classification

Final Budget Allocated

Expenditure % Spent Variance

R`000

Final Budget Allocated

Expenditure % Spent

R`000 R’000R’000 R’000

Compensation of Employees

1,252,469 1,269,579 101.4% (17,110) 1,112 ,717 1,089 ,693 98%

Goods & Services

1,034,900 1,032,905 99.8% 1,995 883,003 818,595 92%

Interest and Rent on land

1,586 1,567 98.8% 19 8,848 8,848 100%

Payments for Financial Assets

2,025 2,025 100.0% 54,836 54,836 100%

Transfers & Subsidies

4,010,396 3,656,222 91% 354,174 3,788,130 3,302,542 87%

Payment for Capital Assets

1,528,368 1,099,139 72% 429,229 1,517,263 1,340,569 88%

TOTAL 7,829,744 7,061,437 90% 768,307 7,364,797 6,615,083 90%

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Compensation of employees:•Expenditure for compensation of employees was R1.270 billion which amounted to 101% against the budgeted allocation. The Department has overspent compensation of employees by R17.110 million and overspending is in both programme one and two. The overspending on compensation of employees is classified as unauthorised expenditure.

Goods & Services:•Expenditure for goods and services was. R1.033 billion and expenditure is equivalent to 100% of the allocation. Programme two had overspending in the amount of R4 million on goods and services mainly due to the energy efficiency project where funding allocated was not sufficient to cover the commitment. Overspending is due to advance being made to the Independent Development Trust (IDT) during 2010/11 financial year with the roll over not being approved by National Treasury. With the project continuing in 2011/12 financial year this gave rise to over spending. This overspending has been classified as unauthorised expenditure.

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Transfers & Subsidies:•Expenditure under transfers and subsidies for the year ended is R3.656 billion and expenditure is equivalent to 91% of the total allocation. Under-spending in the amount of R357 million in transfers and subsidies related to the Expanded Public Works Programme (EPWP) incentives to provinces and municipalities. Programme four resulted in overspending on transfers and subsidies and the overspending has been classified under unauthorised expenditure.

Capital and Infrastructure:•Expenditure for infrastructure is R1.011 billion and expenditure is equivalent to 70% of the total allocation. Under-spending in infrastructure is equal to R425 million.•Under spending on payments for capital assets relate to infrastructure with the budget of R425 million not being spent at the end of the financial year.

Machinery & Equipment:•Expenditure under machinery and equipment (including software) is R87.7 million and expenditure is equivalent to 96% of the total allocation. Under spending in machinery and equipment is equal to R3.9 million.

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• National Treasury Policy Instruction: For the period from May 2011 to July 2011, tender process was interrupted by the NT Circular requesting projects procurement information for concurrence. Three month was lost while awaiting concurrence to advertised.

• Planning and registering projects while having money on hand remain problematic. Ideally the building program must be completed prior to requesting funds from National Treasury.

• Program Approved (Workshops, Water Operators Program, Horticulture Program at Port of Entries) were not allocated funds from DPW Capital - Suspension of Programs.

• Low Expenditure of Allocation by IDT (School Program) affects transfer of Funds

• Late issuing of Procurement Instructions in particular for Accessibility Program. Funded PI where confirmed in September 2011 for implementation in same year.

• Instability of project leadership at Regional Offices were head of Projects Positions cannot be filled (Pretoria, Mmabatho, and Polokwane) due to lower classification of the Post and Strict Criteria of OSD.

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Prog 1 Prog 2 Prog 3 Prog 4 Prog 5 Total

Compensation of employees

R’000

R’0009 997

R’000(7 205)

R’000

(2 792)

R’000 R’000

Goods and services 18 716 44 793 (48 094) (215) 15 200Capital assets 22 898 (38 707) 609 (15 200) Financial assetsTotal 41 614 16 083 (54 690) (2 792) (215)

• Programme 1 was increased by R41.614 million from programme 2 and 3 to offset the over spending on goods and services and payment for capital assets.

• Programme 2 was increased by R16.083 million to offset current payments (compensation of employees and goods and services). The amount of R16.083 million is the net effect of R51.998 million virement of current payments from programme 3,

R2.792 million for compensation of employees from programme 3, and R23.508 million to programme 1 and 3 for machinery and equipment.

The virement also includes an amount of R15.200 million approved by Treasury to move funds from payment for capital asset to goods and services.

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• Programme 3 was reduced by the net effect of R54.690 million to offset goods and services in programme 1 and 2. The R54.690 million is the net effect of current payment of R55.2 million to programme 1 and 2 and R609 000 from programme 2 machinery and equipment.

• Programme 4 was reduced R2.792 million for compensation of employees to programme 2.

• Programme 5 was reduced by R215 000 to offset overspending of goods and services in programme 2.

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• Immovable assets – Immovable asset reconstruction still in progress. – Could not verify completeness, validity and accuracy of the immovable asset register.

• Receivables for departmental revenue – The list of properties currently rented out could not be reconciled with the department’s

immovable asset register. Could not verify completeness.

• Lease commitments: Operating lease revenue– Supporting schedule compiled from PMIS and inability to supply the actual lease agreement

in all instances. Limitation of scope.– Where lease agreements were provided, audit testing revealed an understatement of the

commitments. – Absence of a complete and accurate immovable asset register thus unable to confirm

completeness.

• Operating leases– Could not supply sufficient appropriate audit evidence to substantiate operating lease

expenditure paid to PMTE.

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• Irregular expenditure– The department did not have an adequate system for identifying and recognising all

irregular expenditure.– Inability to supply documentation for unsuccessful bidders for awards amounting to R27

633 288, could not determine whether awards were regular or not.

• Fruitless and wasteful expenditure– The department did not have an adequate system for identifying and recognising all

fruitless and wasteful expenditure.

• Commitments– Could not substantiate contract price adjustment provisions (CPAP) amounting to R128

619 136.

• Related party disclosure– The department was unable to supply sufficient appropriate audit evidence in support of

the assumptions used to determine indirect costs incurred on behalf of the PMTE.

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• Annual financial statements, performance and annual report– The financial statements submitted for auditing were not prepared in accordance with the

prescribed financial reporting framework and supported by full and proper records.– Material misstatements identified by the auditors in the submitted financial statements were

subsequently corrected.• Asset management

– Proper control systems to safeguard and maintain assets were not implemented. Applicable to immovable assets.

• Budgets– The budget for compensation of employees was exceeded.– Transfers that were not originally budgeted for were made without the approval of national

treasury.• Human resources management

– Appointments were made in posts which were not funded..– Funded vacant posts were not in all instances filled within 12 months.– Persons in charge at pay points did not always certify that the employees receiving payment were

entitled thereto.– The organisational structure was not in all instances aligned to the department's strategic plan

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• Revenue management

– The accounting officer did not take effective and appropriate steps to collect all money due.– Immovable state property was sold at below mark-related values.– Sufficient appropriate audit evidence could not be obtained that immovable state property was

let at market-related tariffs. • Procurement and contract management

– Goods and services with a transaction value below R500 000 were procured without obtaining the required price quotations.

– Goods and services of a transaction value above R500 000 were procured without inviting competitive bids. Deviations were approved by the accounting officer even though it was not impractical to invite competitive bids.

– Contracts were awarded to bidders who did not submit a declaration of past supply chain practices.

– Employees of the department performed remunerative work outside their employment in the department without written permission from the relevant authority.

– Allegations of fraud, corruption, improper conduct and failure to comply with the supply chain management system laid against officials and role players in the supply chain management system were not in all instances investigated.

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Procurement and contract management (continued)

–Appropriate action was not always taken against officials and role players in the supply chain management system where investigations proved fraud and corruption and improper conduct and failure to comply with the supply chain management system.–Persons in service of the department whose close family members, partners or associates had a private or business interest in contracts awarded by the department failed to disclose such interest.–The accounting officer did not in all instances report within 10 working days to the Auditor-General all cases where goods and services above the value of R1 million (VAT included) had been procured in terms of Treasury Regulation 16A6.4.–Sufficient appropriate audit evidence could not be obtained that all contracts and quotations were awarded in accordance with the legislative requirements as the entity did not implement proper record keeping in a timely manner to ensure that complete, relevant and accurate information was accessible and available to evaluate compliance.–Sufficient appropriate audit evidence could not be obtained that contracts and quotations were awarded to suppliers whose tax matters have been declared by the South African Revenue Service.

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Strategic planning

–The accounting officer did not ensure that the department had and maintained an effective, efficient and transparent system of internal control regarding performance management, which described and represented how the department's processes of performance planning, monitoring, measurement, review and reporting were conducted, organised and managed.

–The accounting officer of the Department of Public Works did not finalise and approve the business case for running the trading entity and, consequently, did not formulate a policy and reporting framework for the head of the trading entity.

–Banking and cash management

–The entity’s main bank account was overdrawn throughout the reporting period in contravention of the requirements of Treasury Regulation 19.2.3.

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2012 2011 2010

Assets R’000 R’000 R’000

Current Assets

Trade & Other Receivables 3 876 685 3 662 716 3 040 642

Prepayments 310 658 272 679 202 604

Cash & Cash Equivalents 1 399 2 158 8 997

Total Assets 4 188 742 3 937 553 3 252 243

Retrained Income/ (Accumulated loss) 405 647 128 134 (60 472)

Liabilities

Current Liabilities

Trade & Other Payables 2 492 781 2 434 857 1 636 907

Provisions 35 326 35 289 363

Bank Overdraft 1 254 988 1339 273 1 675 445

Total Accumulated Funds & Liabilities

4 188 742 3 937 553 3 252 243

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2012R’000

2011R’000

Revenue 6 450 852 4 437 990

Other Income 664 287 613 673

Total Revenue 7 115 139 5 051 663

Operating Expenses

Other operating expenses (72 973) (102 790)

Rent on land (10 868) (10 769)

Impairment reversal (210 839) 76 192

Garden & Services (77 136) (61 642)

Cleaning Services (62 733) (129 312)

Property Maintenance (2 199 760) (847 834)

Lease Rentals on operating leases (3 689 922) (3 202 079)

Municipal Rates & Taxes (512 854) (583 083)

Total (6 837 085) (4 861 317)

Finance costs (541) (1 740)

Profit for the year 277 513 188 60643

2012R’000

2011R’000

Accommodation charges – State Owned 2 583 958 1 007 691

Accommodation charges – Private Leases 3 736 776 3 318 740

Management fees 130 118 111 559

Revenue 6 450 852 4 437 990

The amount included in revenue includes:

Income collected from immovable properties which are disclosed under the Department of Public Works

2 583 958 1 007 691

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Trade & Other Receivables

Less than 1 to 3 Older than Total 1 year years 3 years R’000 R’000 R’000 R’000 Debt account and fruitless expenditure

60 553 76 - 60 629

Claims recoverable – PACE 374 554 51 146 - 425 700Claims recoverable – CA 128 857 220 100 - 348 957Disallowances 18 041 186 033 18 470 222 544Debtors operating lease 1 733 704 - - 1 733 704Accommodation debtors – State owned

2 292 2 328 20 126 24 746

Accommodation debtors – Private leases

697 895 157 228 4 948 860 071

Debtors – Municipal services 286 827 237 419 100 412 624 658Municipal deposits 2 363 2 885 1 563 6 811Provision for impairment (285 616) (145 519) (431 135 3 305 086 571 599 - 3 876 685

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• Irregular expenditure– No adequate system for identifying and recognising all irregular expenditure.

• Fruitless and wasteful expenditure– No adequate system for identifying and recognising all fruitless and wasteful expenditure.

• Trade and other receivables– Reconstruction/reconciliation of the following receivables ongoing.

• Claims recoverable – PACE• Claims recoverable – CA• Accommodation debtors - Private leases• Debtors - Municipal services

– Inability to supply audit evidence in support of all recorded transactions.– Did not raise receivables for services rendered prior to year-end.– Impairment not done on individual basis according to SA GAAP.– Lack of audit evidence supporting statement that amortisation of debtors are immaterial.– IAS 17 requires that lease income from operating leases shall be recognised in income on a

straight-line basis over the lease term. The calculation was performed

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incorrectly as it was based on information extracted from PMIS, which did not agree with information per actual signed lease agreements and used the incorrect escalation rate.

•Prepayments– Based on estimate, not allowable in terms of SA GAAP.

•Revenue– Planned maintenance erroneously being offset against revenue.

•Trade and other payables– Insufficient evidence to support amounts recorded in advance account.– Lack of audit evidence supporting statement that effect of amortisation is immaterial.– Inability to confirm completeness of accruals and lack of audit evidence for accruals

raised.– Straight-lining of leases performed incorrectly thus unable to verify fair presentation of

lease creditor (see receivables for detail).•Lease rentals on operating lease

– Inability to provide sufficient appropriate audit evidence (signed lease agreements) in all instances.

– Incorrectly allocated refurbishment costs to lease expenditure.

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• Municipal rates and taxes– Lack of evidence to support municipal rates and taxes payments.– Inability to reconcile between IE Works and PMIS.

• Other commitments– The entity could not provide sufficient appropriate audit evidence to support commitments to an

estimated value of R1 776 360 963.– Commitments were overstated with an amount of R173 126 514 due to errors contained in the

schedules supporting the amount disclosed in the financial statements.

• Operating lease commitments– Inability to obtain sufficient appropriate audit evidence supporting operating lease commitments. – Calculation of the operating lease commitment was based on the straight-line lease payments instead

of taking the minimum lease payments into account as per the requirements of IAS 17

• Contingent assets– Lack of evidence of probability assessment: requirement of IAS 37.

• Related party disclosure– Inability to conclude on fair presentation due to matters reported under trade and other receivables.– The entity was unable to supply sufficient appropriate audit evidence in support of the assumptions

used to determine indirect costs incurred by DPW on behalf of the PMTE.

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• Expenditure management– Effective steps were not taken to prevent irregular and fruitless and wasteful expenditure.– Effective and appropriate disciplinary steps were not in all instances taken against officials who

made and permitted irregular expenditure.– The accounting officer did not ensure that effective internal controls were in place for payment

approval and processing.

• Financial misconduct– Investigations have not yet been conducted into all allegations of financial misconduct

committed by officials.– Investigations into allegations of financial misconduct against officials were not in all instances

instituted within 30 days of discovery thereof.– Disciplinary hearings were not in all instances held for financial misconduct committed by

officials.

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• Revenue management – The accounting officer did not develop and implement appropriate processes that

provide for the identification, collection, recording, reconciliation and safeguarding of information about revenue to ensure that all money due to the trading entity was collected.

– The accounting officer did not take effective and appropriate steps to collect all money due.

– Sufficient appropriate audit evidence could not be obtained that interest was charged on debts.

• Banking and cash management– The entity’s main bank account was overdrawn throughout the reporting period in

contravention of the requirements of Treasury Regulation 19.2.3.

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• Procurement and contract management– Goods and services with a transaction value below R500 000 were procured without obtaining

the required price quotations.– Goods and services of a transaction value above R500 000 were procured without inviting

competitive bids. Deviations were approved by the accounting officer even though it was not impractical to invite competitive bids.

– Invitations for competitive bidding were not always advertised in at least the government tender bulletin.

– Sufficient audit evidence could not be obtained that invitations for competitive bidding were advertised for a required minimum period of 21 days.

– Contracts were awarded to bidders who did not submit a declaration of past supply chain practices.

– Person in service of trading entity who, had a private or business interest in contracts awarded only to bidders who submitted a declaration on whether they are employed by the state or connected to any person employed by the state, which is prescribed in order to comply with Treasury Regulation 16A8.3

– Allegations of fraud, corruption, improper conduct and failure to comply with the supply chain management system laid against officials and role players in the supply chain management system were not in all instances investigated.

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Procurement and contract management (continued)

• Appropriate action was not always taken against officials and role players in the supply chain management system where investigations proved fraud and corruption and improper conduct and failure to comply with the supply chain management system.

• The accounting officer did not in all instances report within 10 working days to the Auditor-General all cases where goods and services above the value of R1 million (VAT included) had been procured in terms of Treasury Regulation 16A6.4.

• Sufficient appropriate audit evidence could not be obtained that all contracts and quotations were awarded in accordance with the legislative requirements as the entity did not implement proper record keeping in a timely manner to ensure that complete, relevant and accurate information was accessible and available to evaluate compliance.

• Contracts and quotations were awarded to bidders based on points given for criteria that differed from those stipulated in the original invitation for bidding and quotations.

• Sufficient appropriate audit evidence could not be obtained that contracts and quotations were awarded to suppliers based on preference points that were allocated and calculated in accordance with the requirements of the Preferential Procurement Policy Framework Act and its regulations.

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• Sufficient appropriate audit evidence could not be obtained that contracts and quotations were awarded only to bidders who submitted a declaration on whether they are employed by the state or connected to any person employed by the state.

• Persons in service of the trading entity who, had a private or business interest in contracts awarded by the trading entity, failed to disclose such interest.

• Strategic planning– The accounting officer did not ensure that the department had and maintained an

effective, efficient and transparent system of internal control regarding performance management, which described and represented how the department's processes of performance planning, monitoring, measurement, review and reporting were conducted, organised and managed.

– The accounting officer of the Department of Public Works did not finalise and approve the business case for running the trading entity and, consequently, did not formulate a policy and reporting framework for the head of the trading entity.

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• Conceptualization of the turnaround strategy started in November 2011 with the commissioning of a diagnostic

analysis by TAU of National Treasury.

• Turnaround at operational level started in the current financial year 2012/13.

• Turnaround could not impact on the 2011/12 audit outcome.

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14 projects have been identified which are:

Project 1: Anti fraud and corruption campaign

Project 2: Clean Audit Interventions

Project 3: Finance and SCM stabilisation Interventions

Project 4: Operationalisation of PMTE

Project 5: Compilation of Immovable Assets Register

Project 6: Audit and review of Leases

Project 7: Legislative Matters

Project 8: Re-opening of workshops and building of skills

Project 9: KAM and Professional Services

Project 10: Inner City Regeneration (ICR)

Project 11: Prestige

Project 12: IT Systems (iE-Works, PMIS)

Project 13: Governance and Performance Management

Review

Project 14: Regional Support

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An analysis of the 2011/12 audit report has been undertaken and the following area’s of intervention have been identified to be addressed as a priority.

1.Immovable asset register

2.Irregular expenditure

3.Leases

4.Performance information

5.Budget management

6.PMTE structure and business case

7.Finance policies and business processes

8.Commercial accounting and billing software procure

9.Clearing of trade receivables

10.Enhance Internal Audit capacity

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National Department of Public Works (NDPW)Head Office: Public WorksCGO BuildingCnr Bosman and MadibaPretoria CentralPrivate BagX65Pretoria0001Website: http://www.publicworks.gov.za

http://www.publicworks.gov.za/

DEPARTMENT OF PUBLIC WORKS Portfolio Committee Presentation 10 th October 2012 Parliament of the...

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