Government Printing Works Annual Report 2008/09 & Financial Statements: briefing

Meeting report

Government Printing Works (GPW) 2008/09 Annual Report
Mr Tom Moyane Chief Executive Officer (CEO), Government Printer Works, stated by way of introduction that he trusted that the Annual Report would give the Committee an insight into the progress and developments at the GPW for the 2008/2009 financial year and beyond, and would provide insight into the key priorities for the future, the conversion plan, the action plan to address the plans, and the funding requirements.

Mr Moyane noted that although much had been done, the sustainability of the Government Printing Works (GPW) still remained a challenge. Although GPW was long established, there had been asset stripping over many years due to lack of investment by the Government in the printing infrastructure. Further, although the GPW had operated as a trading entity under the Department of Home Affairs (DHA), it had been unable to secure adequate revenue to capitalise and invest in the modern facilities and equipment required of a state of the art security printer. GPW was the key to the delivery of security printing to DHA and other National Departments, and therefore the efficient and secure functioning of GPW was critical to South Africa’s external image, performance and commitment to its stakeholders. Whilst the conversion process received attention, the GPW was suffering operationally. The main loss had been a loss of skills due to poor facilities, uncompetitive salaries, poor working conditions and restructuring fatigue.

Mr Moyane reminded the Portfolio Committee that the Auditor-General (AG) had raised various issues leading to qualified audit certificates over the previous years and that these had not been addressed in full. He added that although some funds had been provided in the Medium Term Expenditure Framework (MTEF) the GPW still required additional government funding, as the amounts provided remained inadequate to meet its capitalisation requirements, and there was uncertainty on future allocations.

Mr Moyane then briefly described the priorities of GPW in the future.

Firstly, in respect of financial management, GPW was aiming for accurate planning and forecasting, the maintenance of optimal cash flows and working capital, better management of financial risks, the development of a new financial system for the GPW print environment and a reduction in adverse findings and qualifications by the Auditor-General. Cost management would mean a change and / or review of the cost and product pricing system and strategy and a concentration on reduction and elimination in the field of wastage and spoilage;
Operations Management; a replacement of outdated technology and machinery; optimisation of production capacity and efficiencies and a striving for product and service excellence.

Priorities for the future included ICT management, embracing a master system plan and ICT strategy, the development of a disaster recovery plan, ensuring compliance testing for all new initiatives, a constant review and updating of policies, and the upgrade and integration of ICT systems for the printing environment (ERP System). With regard to supply chain management, GPW planned a reduction of stock levels, the phasing out of slow moving items and redundant stocks, a strategic supplier management system, the updating and development of an electronic suppliers database and order information system, and contract and service level agreement management systems. Insofar as human resources strategy was concerned, the GPW was planning the development and implementation of a human capital strategy, together with policy development and strategy alignment, the alignment of human resource management practices and strategies, and ensuring a well-trained, skilled and service orientated staff. GPW also intended to assess its security risks, place a new and updated physical, personnel, production and documentation security system and introduce vetting for key personnel.

In respect of the internal audit, GPW was developing internal audit and risk management plans, and the monitoring of compliance with Public Finance Management Act (PFMA) and related regulations. In respect of marketing, it was developing a GPW brand, local customer retention, and local business development, and also was developing an aggressive regional marketing strategy on face value documents.

Mr Moyane stressed that the key to all of the plans was the turnaround and conversion of the GPW during the next three-year period. He said that the technical outcomes would include technological upgrading and modernisation. Thus far, R293 million had been spent to optimise and modernize equipment, the bulk of which was spent on the new passport facility and equipment. There were further plans to spend an additional R367 million to complete the process over the MTEF period. The relocation of this secure printing facility had progressed steadily during the year, the installation and commissioning of new machines had commenced in January 2009 and there was planning to secure the remainder of the facility in consultation with the Department of Public Works (DPW). The marketing focus had primarily been on South African government departments, but  and as capacity improved over time, GPW would aggressively target other governments on the continent of Africa, in order to expand the range and value of products that could fall within the security printing segment, and would concentrate on the governments within Southern African Development Community (SADC). Mr Moyane reminded the Committee that research and development was the cornerstone of security printing organisations.

Mr Moyane stated that it was imperative that all government copyright issues be identified and resolved, for the government was the sole shareholder.

Mr Moyane then explained the pricing, noting that tariffs were charged in terms of GPW policies, established after consultation with the National Treasury (NT). The prices were calculated on a full cost recovery basis, bearing in mind that the GPW needed to be sustainable, both now and in the future.

Mr Moyane moved on to describe the challenges. The main one was that GPW continued to lose experienced and qualified staff as the private sector offered more attractive remuneration packages. To counter this challenge, GPW had appointed several strategic management and operational resources on a contract basis and a new top management structure was approved. In addition, there had been favourable support from the Department of Public Service and Administration (DPSA) for an Occupation Specific Dispensation (OSD), and also consideration of a special remuneration dispensation for artisans, which should be finalised in 2009/2010.

The successes of the GPW had included the successful launch of the new passport, the finalising of phase 1 of the new facility, marked progress with the upgrading of the recapitalisation programme, and the development of a plan of action to address all the major issues raised by the AG and SCOPA. He wished to acknowledge the support and assistance from the DHA regarding consultants to address the capacity constraints.

Mr Rasie Barnard, Acting Chief Financial Officer, GPW, outlined the Annual Financial Statements and the Audit Reports over the period 2002/03 to 2008/09. He stated that the issues had been identified and were being addressed. GPW was aware that it would be getting a qualified audit report for 2008/09, which was not satisfactory, but at least this was an improvement on some of the past audit reports. In the forthcoming year further improvements would be made. He added that much of the AG's disquiet arose from legacies of the past systems. The issues were old, but remediable, and answers would then be given both to the AG and Standing Committee on Public Accounts (SCOPA). He added that there were 11 different systems which had to be married into more modern and efficient systems, and this included examining, evaluating and disposing of old or redundant stock. In order to do a proper evaluation, new references had to be established. When GPW tried to do this task, the shortage of skills and capacity became more apparent, and this had further impacted upon the difficulties. He added that the Minister had been briefed, in respect of the shortage of skills, and the necessity for re-training and new training, as also the need to develop a new remuneration base to retain and encourage development of skills. He added that the real question was whether GPW’s policy was sustainable. He suggested that it was at the moment, but only just, and that if just one or two key personnel were to leave, the consequences would be enormous. He conceded that currently there was no internal audit department or function but stated that this was being remedied.

Mr Barnard then provided slides that showed that the revenue had dropped over the immediate past years but that it was projected to increase significantly in future. In addition, transfers by NT would also increase in line with projections. In addition, the number of debtor days outstanding had been reduced from 148 days to 87 days and the aim was to arrive at the commercially prevalent 45 to 55 days. In line with this, debt collection had improved from an average of R35 million to R50 million per month. One concern was that payments were receipted from unidentified payers, meaning that large amounts would be retained in the suspense account until the source and reason for the payment was identified.

Mr Moyane stated that the main criterion for the GPW’s business remained the Government Gazette. This was published regularly at 14:30 every Friday. In September 2008 a panel evaluated the business case for GPW. This addressed the issues raised originally by NT and DPSA in relation to the structure and functioning of the GPW. It involved extensive consultation with the Minister, the Deputy Minister, the National intelligence Agency (NIA), the South African Police Service (SAPS) the Government Communication and Information System (GCIS) and the Department of Labour. A Section 36(3) application was approved and implemented by NT. An application was made to the Minister. The Minister of Finance and DPSA had both concurred that GPW should be converted to a government component. The relevant notices and a Presidential Minute were signed on 12 August 2009, and published in the Government Gazette on 11 September 2009 and 9 October 2009. Financial  delegations in terms of the PMFA had been prepared.

In addition, he noted that in respect of the new passport processes, the equipment was delivered by 8 April 2009, and was currently fully operational. The new passport was launched on 8 April 2009. Employees had been trained on the passport machine and the equipment was installed at the “Old Mint,” which was re furbished and handed over during April 2009. To date there had been capitalisation of R307 million towards the new passport, and attention was now being directed to the rest of the asset modernisation.

The future “home” of the GPW had been identified as the second pavilion of the “Old Mint'. Plans for the handover were being finalised. Whereas the costs for Pavilion 1 were borne by the Department of Public Works (DPW) the GPW would be funding some of the future expenses. GPW would enter a concession for 20 or 30 years, dependent on building costs funded by DPW, and the monthly rentals. The building development should commence shortly and Pavilion 2 should be completed at the end of the current financial year. The estimated renovation costs for the pavilion would be R44 million, and these would be funded by DPW. The new facilities would be the key to the production environment and production processes, and should also boost employee morale and productivity. However, the transformation and modernisation would require additional capital injections by the State to ensure the conversion and success of GPW.

Mr Moyane therefore appealed to the Portfolio Committee to provide the necessary advice and support, to give critical evaluation of its plans for the future, and support by way of ensuring that the necessary funds were forthcoming, as these were the key to the success of any turnaround initiative.

In an aside he mentioned that the reports regarding the leaking of examination question papers in Mpumalanga had nothing to do with the GPW and its employees, although investigations were ongoing and as yet the perpetrators could not be revealed.

Discussion
The Chairperson said that it seemed to him that the DPW was a major yet non-performing player in the conversion and development of the GPW. Clearly, the lack of funding was also a hindrance. In addition, it was clear that retention and ongoing training of staff was of major importance to allow the new equipment and technological advances to be utilised to the maximum. Aside from these points, there were no other original issues that needed to be discussed in depth. He suggested that a meeting with DPW at a high level should be arranged between DHA and GPW.

Mr Z Madasa (ANC) expressed concern that the issues raised by the AG still continued to be unresolved with the current skills capacity. He appreciated the assurance that the audit reports would be improved in 2009/10. However, he asked whether this was a realistic statement. He also expressed concern about the lack of an Internal Audit Department and facility mechanism, which he regarded as a challenge. He added that he had been an observer during the recent Botswana elections and had noticed that South Africa’s GPW had failed to deliver voting papers timeously. He felt that not only did this militate against marketing campaigns in the SADC countries, but it indicated a lack of capacity in the GPW.

Mr J McGluwa (ID) said that an elaborate plan had been presented, but there were shortcomings, such as the lack of sufficient capacity, which was in itself a root cause of the challenges. He too wondered whether the envisaged plans were feasible, and he viewed this in a very serious light. He asked whether the lack of capacity also prevailed in the DPW, and whether this might not be a reason for the DPW's lack of co-operation. He added that he was interested in the 'smart card' identity document but he wondered whether the GPW had the capacity to deliver on this project. He asked for further clarity on this, as well as the IT system, for this was set out so broadly that he had found it meaningless.

Ms M Maunye (ANC) asked about the skills development programme, and said that this affected all government departments and there seemed to be no resolution of this problem.

Mr Moyane stated he was grateful for the audit reports, for these had revealed that there was a need to emphasise skills training, retention and capacity building. He again stated that the question to be asked was the sustainability of the GPW. He reiterated that the loss of one or two key persons would result in a total breakdown. He explained that the new IT systems also required skills to drive them, otherwise these systems would not be bale to deliver.

In regard to debt collection, Mr Moyane noted that GPW was moving towards a more businesslike approach, and a system had been introduced where, if payment was not forthcoming, or if no acceptable arrangement for payment had been made, no services were performed.

Mr A Mosama, Factory Manager, GPW, pointed out that with the move to digital printing the GPW was more than ever reliant on scarce parts and accessories, and the skills to cannibalise other machines and manufacture parts in the event of a break down. He added that the skills required by the GPW were unique and were not needed in other areas of government. However, GPW artisans could find other jobs in the private sector at remuneration levels considerably higher than the GPW could pay.

Mr Moyane then pointed out that a Grade 8 artisan at GPW could earn R140 000 per annum, although the same level of artisan, if employed by UNISA, would earn R250 000 per annum, whilst the Reserve Bank was paying its banknote printers R270 000 per annum, and some private companies were paying over R300 000 per annum. GPW clearly could not compete with the private sector in terms of salaries and this was a major problem.

The Chairperson expressed surprise at the remuneration to be obtained from the bank note printing section of the Reserve Bank.

Mr Moyane further stated that the expected turnover of the GPW was half a billion rand. If all the work that currently had to be outsourced was recovered and done by GPW, its turnover would be R1.5 billion. A lot depended on GPW’s ability to pay properly, in order to retain staff. He gave the example that if DPW could overcome its problems that were delaying the relocation of GPW, then the “smart card ID” could be implemented. This would achieve considerable benefits for the GPW in terms of production, earnings and prestige.

Mr Barnard explained that if the Government copyright was enforced, this too would lead to a considerable increase in income for the GPW, as well as the printing of examination question papers for other countries. He added that GPW was currently in a “Catch 22” situation. If it could obtain further funding from National Treasury, it could do more work and earn more income.

Mr Z Madasa asked for an explanation about the core functions or range of publications of the GPW.

Ms P Petersen-Maduna (ANC) said she was not happy about the initial delay in the production of the new passport, and thought this an indication that the GPW was heading for disaster.

Mr McGluwa asked for a public platform to address DPW on the dilatoriness.

Ms S Rwexana (ANC) was worried that GPW was heading into the same difficulties as had Eskom, which only received attention once it was badly deteriorated. She also expressed concern about gender and disability representation in the GPW, as the delegation before the Portfolio Committee was all male.

Mr Moyane stated that wherever possible the GPW was co-operating with other entities. However, when making demands on other departments, it tended to be soft rather than harsh in its approach and sought cooperation. For instance, GPW was the source of most A4 paper used by the government departments, although possibly this could be purchased cheaper from Makro. GPW had to be careful to retain its customers. With regard to the specialised skills required and trained by the GPW a symbiotic relationship developed between the people and the machines.

Mr Mosama explained that while the artisans were trained, the newly developed machines advanced the requirements from the handlers, who had to be very IT-adept, and so it was more than a simple transfer of skills. He added that some time ago Malawi had experienced a problem with leaked examination question papers and the GPW had been able to step into the breach and provide the replacement papers within four days.

The Chairperson then pointed out that a Chinese proverb said that it mattered not whether a cat was black or white, merely that it could catch mice. He asked that Members bear this in mind when assessing the role of the DHA, DPW and GPW. He asked that GPW concentrate on its core function. He added that the Portfolio Committee would always be supportive of the GPW in its efforts to achieve performance.

The Committee proceeded to adopt its report on the Annual Report of the GPW.

The meeting was adjourned.