30-day payment to service providers by DPW & DPME, with Deputy Ministers present ; Service Delivery Challenges: Centre for Public Service Innovation briefing

Public Service and Administration, Performance Monitoring and Evaluation

15 March 2017
Chairperson: Dr M Khoza (ANC)

Meeting Summary

Two presentations were made to the Portfolio Committee on the 30 day payment of service providers. The Chairperson dismissed any reports by Departments whose Executive leadership was not present at the meeting – this included the Departments of Home Affairs, Water and Sanitation and Rural Development and Land Reform. She, and the Committee Members, felt that the Executive leadership were the only ones in the position to address policy issues and therefore had to be present to account for their Department’s performance. The Committee would write to the Executive leadership requesting their presence at Committee meetings. The Chairperson expressed her disappointed in the Department of Defence’s performance regarding payments of invoices and stated that the Department had regressed. Committee Members appreciated the presence of the Deputy Ministers of the Departments of Public Works and Public Service and Administration.

 

The Department of Planning, Monitoring and Evaluation (DPME) began its presentation by providing the background and purpose of the 30-day payment unit in the Department. The unit was established to determine the impact of non-payment of invoices on small businesses as well as the challenges experienced in the payment of suppliers. The findings suggested that while there were departments that paid within the 30-day policy, those that did not had a large impact on the survival and continuity of small businesses. The largest defaulters on timely payments of invoices within 30 days were the Departments of Health, Education and Public Works. Gauteng province had 39 865 of the 65 586 invoices older than 30 days that remained unpaid at provincial government with R3,4 billion of the R4,8 billion owed to suppliers by the same provincial government.

The Department of Public Works (DPW), in the presence of the Deputy Minister, explained that the work of the Department was split between the Property Management Trading Entity, which was the implementation arm of the Department, and the main vote which dealt with issues of policy, monitoring and evaluation. There were 12 000 monthly payments made by DPW, with work that required certification from professionals however, the ratio of a project manager to the number of projects was one project manager to thirty projects. This delayed the process of timely payments through the value chain. It was also highlighted that the culture of non-compliance by officials was a challenge the Department had faced.

Members emphasised that municipalities had to be part of the conversation on local economic development and engagement of Small and Medium Enterprises was essential. Questions were raised around the reasons behind the poor performance of paying service providers on time, how this related to complex business processes causing delays in payments and how this was to be resolved. Similarly, Members asked why problems with invoicing in departments was still a problem with late payment and how outdated IT systems also causing payments delays would be dealt with. Specific questions were directed to DPW on how it addressed the culture of employee’s non-compliance with regulations and policies to pay service providers on time. To the DPME, the Committee asked how it brought the seriousness of non-payment and late payment to the attention of other departments, how DPME planned to assert itself in this regard and if a state-wide audit had been conducted to assess whether the state had the capacity to deliver. Members were particularly concerned of the effect of late payment on small businesses. Further questions were asked on the consequences for officials not adhering to timeous payment, how many officials and departments were disciplined, how many service providers took government to court on the matter of late payments, costs government incurred in this regard and if there were mechanisms in place to prevent the victimisation of service providers.

Turning to the next Committee agenda item, the Centre for Public Service Innovation (CPSI) provided a presentation that looked at an overview of new innovation projects. It discussed the value proposition that CPSI brought to the table through innovation to unlock service delivery blockages. This was done by leveraging gains in science and technology as well as forming strategic partnerships with private, public, NGO and academic sectors to benefit service delivery.

The Committee highlighted there was a need to reconfigure the Public Service and Administration in SA and requested a concept document on this reconfiguration especially considering the current methods of business were wasteful. Members exalted the CPSI for the manner in which it achieved much with a limited budget. 

Meeting report

Chairperson’s Opening Remarks

The Chairperson welcomed and thanked the Deputy Minister of the Department of Public Works (DPW), Mr Jeremy Cronin, for attending the Committee meeting. She wished to discuss the presentation from the Department of Defence from the previous day and deliberate her insights with the Committee. She noted the absence of key Ministers from the meeting as well as that of the Director General of the Department of Water and Sanitation as a serious concern.

 

She stated that the Committee had an enormous task to complete and without an efficient and responsive public administration it would not achieve the desired outcome of a prosperous SA, no matter how good the policies were. When departments were invited to attend Committee meetings based on findings of the Public Service Commission on the failure of the implementation of the 30-day payment policy, findings suggested the reasons cited for failure of implementation were serious policy decisions, especially in the case of the Department of Defence. The Committee’s prerogative was not to hold CFOs accountable but to hold the Executive accountable in compromising the quality of services that were provided to the people. She stressed her concern that the Executive was delegating its responsibility to those lower in the management hierarchy and they were not necessarily able to respond to the Committee’s questions. She proclaimed her horror with the reasons cited for failure by the Department of Defence and stated that they had in fact, regressed and were becoming worse. SA could not have such a critical Department collapsing while the Committee was in place.

She referenced challenges from the South African Broadcasting Corporation (SABC) and stated that part of the challenges experienced with the Corporation was poor and ineffective oversight. She implored Members to respect the responsibilities of the Committee and that of the Constitution of SA. She stressed that the Committee would accept sub-delegation of responsibilities to CFOs on technical matters but the Committee would not accept CFOs making decisions on policy matters. She further stressed that it was small businesses that suffered with late payments as they culminated into cash flow problems reducing these small businesses to survivalist operating levels. She stressed that the Committee would do its job without fear, favour or prejudice.

Department of Planning, Monitoring and Evaluation (DPME): Payment of Legitimate Invoices within 30 Days by Government Departments

Ms Irene Mathenjwa, Outcome Facilitator, DPME, began with an overview of the presentation providing the background and purpose of the 30-day payment unit in the DPME. The unit was established to determine the impact of non-payment of invoices on small businesses as well as the challenges experienced in the payment of suppliers. Part of the background was a discussion on legislation, such as the Public Financial Management Act (PFMA), Treasury Regulation 8.2.3 and the Instruction Note No. 34, that governed its mandate. She emphasised that Small and Medium Enterprises (SMEs) employed 7.3 million people however these small businesses were struggling and were not able to realise their potential due to the non-payment of invoices. This was a contributing factor to the lack of sustainability in the small businesses environment.

 

She then provided an overview on the timely submission of Exception Reports - there was an improvement in the timely delivery of Exception Reports which stood at 78% for the first quarter of 2017 as compared to 76% for the same quarter of 2016.

The presentation then discussed the performance of departments’ payments made after 30 days and those that remained unpaid. For the last quarter of 2016, there were 9 362 payments to the value of R147 million, that were made after 30 days in October, 1 1428 payments to the value of R181 million made after 30 days in November and 10 626 payments to the value of R217 million made after 30 days in December. The figure for January 2017 stood at 12 531 payments made after 30 days. It was further explained that of the 10 626 invoices paid after 30 days, 6 700 invoices belonged to the Department of Defence, 1 700 of the invoices belonged to the Department of Public Works, 490 invoices belonged to Justice and Constitutional Development, 395 to Military Veterans and 243 invoices for the Independent Police Investigative Directorate (IPID).

Ms Mathenjwa further expressed the concern of the DPME on the departments who had few outstanding invoices to be paid but whose values of invoices were large such as the Department of Cooperative Governance and Traditional Affairs which only had 57 invoices that had been paid after 30 days but amounted to the value of R83 million. The Department of Water and Sanitation had 121 invoices to the value of R25 million paid after 30 days, Police had 225 invoices to the value of R13 million, Arts and Culture had three invoices to the value of R9 million and Home Affairs had 54 invoices to the value of the R8 million.

On invoices that were older than 30 days and remained unpaid as of December 2016, for the last quarter of 2016, there were 7 960 unpaid invoices in October, 1 295 for November and 1 1680 for December. She stated that there were 19 departments that were performing well on paying service providers on time. Of the 10 000 unpaid invoices, the departments that had not paid were the Department of Defence where 6 700, 1 700 with Public Works, 490 unpaid invoices by the Department of Justice and Constitutional Development while Military and Veterans amounted to 395 unpaid invoices.

Ms Mathenjwa said that departments from who invoices were few but amounted to large amounts of unpaid money were the Department of Public Works, the Department of Justice and Constitutional Development, Department of Home Affairs and the Department of International Relations and Cooperation. In terms of the value of the unpaid invoices for the last quarter of 2016, for the month of October, invoices to the value of R96 million were unpaid, for November, invoices to the value of R60 million and for December, invoices to the value of R33 million remained unpaid.

Ms Mathenjwa stated that the Rand value of provincial governments’ invoices older than 30 days that remained unpaid during the months of October, November and December 2016 amounted to R5 billion, R4, 5 billion and R4, 8 billion respectively. The Rand value of invoices older than 30 days and unpaid in December 2016 amounted to R4.8 billion.

The largest defaulters on timely payments of invoices within 30 days were the Departments of Health, Education and Public Works. Gauteng province had 39 865 of the 65 586 invoices older than 30 days that remained unpaid at provincial government level with R3,4 billion of the R4,8 billion owed to suppliers by the same provincial government.

Mr Lebohang Masolane, DPME, added that the health sector faced serious challenges as some service providers were owed as much as R600 million placing small businesses in jeopardy of shutting down and hospitals left without equipment. Of the R4.7 billion that the provinces owed, R3.3 billion was outstanding from the provincial Department of Health in Gauteng.

Department of Public Works (DPW): Supplier Payments within 30 Days by

Mr Cox Mokgoro, Chief Financial Officer, DPW, stated that the work of the Department of Public Works was split between the Property Management Trading Entity, which was the implementation arm of the Department, and the main vote which dealt with issues of policy and monitoring and evaluation. There were 12 000 monthly payments with work that required certification from professionals, however, the ratio of a project manager to projects was one project manager to 30 projects which delayed the process of timely payments through the value chain. It was further clarified that there were only 11 regional offices located in the provincial capitals throughout the country except for Gauteng and Eastern Cape which both had two offices. There were no satellite offices closer to service points other than those in the provincial capitals. He noted that on average, one manager would attend to 50 calls at any point in time.

 

The presentation described the Department’s complexities in terms of the supply chain management system that comprised of extensive supporting document requirements such as compliance with occupational health and safety regulations, legislative issues and technical matters. Other complexities included the nature of contracts, technical validations that were required prior to invoice certification and scope changes while on site by either the client or “unilaterally” by service providers (resulting in potential disputes).

From April 2016 until January 2017, 90% of invoices had been paid within 30 days while invoices paid outside of 30 days amounted to 16 529 and unpaid invoices over 30 days amounted to 8 450. It was further explained that invoice payments outside of 30 days and unpaid invoices accrued largely due to the nature of the Department’s work with day to day maintenance.

Mr Mokgoro briefly explained some of the challenges that the Department faced with reporting and payment of service providers. These included a manual excel system that was used to capture invoices received in the Department, which resulted in:

-No validation rules relating to data integrity

-Inability to identify responsible officials causing the delay in payment

-Excel spreadsheet could only be updated by one person at a time

-Tracking of payments limited to information provided to registry invoices and not directly sent to the registry by service providers (project managers holding onto invoices provided to them directly by service providers and only submitted to registry late for payment)

-Delays in the payment of invoices could not be adequately analysed as to the point of origin

 

The culture of non-compliance of officials was then highlighted - the response to this challenge was through ministerial road shows and workshops to address staff on the matter of timely payment of invoices. There was no invoice tracking system and this led to the enhancement of the call centre operation where an automated invoice system was placed and populated once an invoice was received at the registry and was tracked until the payment stage.

Mr Mokgoro then elaborated on the Rea Patala (We are Paying) automated invoice tracking system and explained how the system had improved management reporting.

Discussion

Ms R Lesoma (ANC) stated that the Committee required a plan on the problematic provinces.

 

The Chairperson requested that matters relating to the provinces be parked for discussion at a later stage.

Ms S Dlamini (ANC) requested clarity on the amounts from the national departments as implementation of polices was done at the provincial level through provincial departments while the national departments focused on policy formulation.

Ms Mathenjwa stated that implementation was indeed executed at the provincial level, however, the work conducted around impact by the DPME had standard operating procedures at national level - the DPME also worked with municipalities to encourage them to pay service providers instead of turning service providers away.

The Chairperson iterated that municipalities had to be a part of the conversation of local economic development and engagement of SMEs was essential. She questioned the reasons behind the poor performance of the Department of Defence on the timely payment of service providers. Reasons could not be placed solely upon the shoulders of the CFO. The DG and Minister of Defence ought to be present at the Committee meeting as these were the key individuals that could answer questions at the policy level – she therefore did not see the value of the Department’s presentation in the absence of these key individuals. She requested the permission from Members to write to the Ministers and DGs of these poor performing departments requesting their presence at Committee meetings.

Mr M Dirks (ANC) agreed and emphasised that the Minister and the DG of the Department of Defence should be present at these meetings.

Ms D Van Der Walt (DA) stated that the CFOs were the accounting officers concerning finances of the Department, however, the DGs were also accountable.

Mr S Motau (DA) expressed his support to the Chairperson in requesting the presence of Executive leadership at Committee meetings as this would further convey the gravity of the matter on timely payments.

The Chairperson expressed her gratitude to Mr S Sokhela (Department of Defence), for elaborating on the challenges with the Department of Defence at the previous day’s meeting and explained to the Committee that the challenges that the Department faced were not financial in nature but were mainly policy issues. She apologised for the Committee not hearing his presentation as the Executives of the Department of Defence were not present at the Committee and entreated that he request the Minister of Defence and DG of the Department to be present at Committee meetings in the future.

Mr Sukhela stated that he would strongly convey the message that the presence of the Minister and DG were required at the meetings of the Committee.

Deputy Minister Cronin stated that while DPW had made headway, some of the challenges his Department faced included small suppliers struggling to comply with billing procedures. The Minister of the Department of Public Works had undertaken road shows into the Department’s 11 regions to assist senior staff. Another challenge the Department faced was staff capacity - there was a shortage of staff that delayed signing off of certain documents that were required for procedural compliance and this therefore delayed the payment of invoices on time. DPW had introduced a standalone entity called the Property Management Trading Entity to manage the property portfolio of the Department and to professionalise the 30-day payments. Furthermore, there were cases where payments were held by departmental employees to shakedown suppliers and threatened suppliers such that if the departmental employees did not receive a cut then they would not pay the service providers thereby exacerbating corruption and victimising the service provider.

The Chairperson stated that since the Executive leadership of the Departments of Home Affairs, Water and Sanitation and Rural Development and Land Reform were absent, their presentations would not be heard at the Committee meeting.

Ms Van Der Walt agreed with the stance of the Chairperson - there were numerous issues that were raised in Committee and therefore the Executive had to be present to address these matters.

Ms Lesoma felt there needed to be a uniform application of the rule of no presentations heard in the absence of Executive leadership and emphasised that meetings with Ministers at the end of the year would be too late. A special day to meet the Executive should be set aside.

Mr Motau questioned how DPW addressed the culture of employees’ non-compliance with regulations to pay service providers on time and whether the situation had enhanced given improvements made.

Ms Lesoma questioned how DPME had brought the seriousness of non-payment and late payments to the attention of other departments. She sought clarity on what DMPE’s role was after it had collected and collated the information that was presented and how DPME planned to assert itself. She stressed that there was nothing complex about making timely payments and ensuring that proper IT and management structures were in place to monitor the systems. She further queried whose responsibility it was to ensure up to date IT systems. What was meant with noncurrent and the associated figures in the DPME’s presentation? She requested an explanation from DPW on the new entity that was created expressing her concern of duplication of the work and the impact it had on the human capital budget.

Ms Van Der Walt questioned DPME on why problems with invoices and invoicing systems were arising within the departments. She further queried why municipalities, who were also service providers, were not paid within 30 days. DPW had been a large culprit in not paying municipalities on time thereby hindering their effectiveness.

Mr M Ntombela (ANC) queried how services could be rendered without order numbers. He further requested clarity on what the complex business processes were that caused delays in payments and how they were to be resolved. How long it would take for the rebuttal system to be placed in all the provinces and why had it been in place in some provinces and not others? He questioned the DPME on consequences for officials not adhering to payment within 30 days and expressed his desire to know how many officials and departments had been disciplined, how many service providers had taken government to court and what costs government incurred as a result of this.

Mr Y Cassim (DA) questioned DPME on how government would be shielded from individual contractors who took government to court and how government and departments could ensure that these individual out sourced contractors were actually paid. The individual contractors who executed and completed the job that had been sub contracted to them by tender winners were not paid and resulted in those small businesses going out of business.

The Chairperson was dearly bothered that the challenges presented by DPW and DPME did not address the root causes of failure to adhere to policy. She questioned whether DPME had conducted a state-wide audit to assess whether the state had the capacity to deliver. She emphasised the point of establishing a standardised format for services rendered to the state. She questioned DPW on why government buildings were leased and not owned by the state and expressed her view that Public Works contributed to inner city decay through corruption in the leasing chain. She emphasised that the matters were larger than just invoices - as long as DPME did not provide a detailed municipal report on the amounts owing by Public Works, the Committee could not address the root causes of the problem. She further sought clarity on what consequences were in place for untimely payments of invoices. What mechanisms were in place to ensure that victimisation of service providers did not occur? She asked Deputy Minister Ayanda Dlodlo, Department of Public Service and Administration, how to strengthen this unit of DPME and how best to deal with matters of outdated technology causing late payments.

Deputy Minister Conin responded that DPW provided extensive responses regarding the Department’s Annual Performance Plans on Public Works and the Property Management Trading Entity as well reporting on strategic plans on municipal engagement regarding precinct development.

Deputy Minister Dlodlo suggested the presentation from the Centre for Public Service Innovation be heard first as it dealt with the matters raised by the Chairperson and Members. On issues of effectiveness and efficiency, the performance of departments were scary - there were systems that did not speak to one another. An audit of ICT services would need to be conducted to phase out legacy systems that were not working and a new Chief Information Officer would need to be appointed in the Department. She questioned how secure the central repository of information was and who would manage such a repository.

Centre for Public Service Innovation (CPSI): New Innovation Projects

Ms Thuli Radebe, CPSI Executive Director, provided an overview of the new innovation projects. The selection of projects was guided by the National Development Plan’s (NDP) vision of building a capable and developmental state. The presentation then discussed the value proposition that CPSI brought to the table through innovation to unlock service delivery blockages. This was done by leveraging gains in science and technology as well as forming strategic partnerships with private, public, NGO and academic sectors to benefit service delivery. CPSI provided an enabling environment for public service innovation to thrive within departments and unearth implemented innovations for replication and scaling.

 

Ms Radebe explained new projects that CPSI had participated included those with the Department of Home Affairs on a project initiated to optimise its Front Office Improvement Plan. This culminated in a management and reporting tool that identified, reported and managed challenges such as long queues or system problems. Another project was for the Department of Trade and Industry on performance reporting of public entities where the Department initiated a project that optimised, tracked and standardised performance reporting of entities reporting to the Department through a web-based in-house application. This enabled the Department and Minister to have a “dashboard” view of performance against the entities’ mandates.

New innovation projects had a strategic focus prioritising health. Such projects were the - High-volume Cataract Theatre and the Hospital blood-use optimisation projects. Other multiyear projects included Safety and Security in Schools, The Helen Joseph Energy Efficiency project and eLearning in Mthatha.

Challenges the CPSI faced included capacity constraints, leadership support and funding.

Discussion

Ms Lesoma felt that DPME should have remained behind to hear the CPSI presentation.

The Chairperson stated that there was a need for reconfiguration of Public Service and Administration. She exalted the manner in which the CPSI had achieved so much with a limited budget - since SA was a developmental state, innovation, research and development was key. She praised the CPSI and stated that a meeting was necessary between the DPSA and Treasury to establish linkages.

Mr Pierre Schoonraad, Chief Director: Research and Development, CPSI, stated that more information regarding projects could be shared at a later stage. Challenges that the Department of Trade and industry faced were PFMA issues as well as payments outside of 30 days so a CFO helpdesk was established that responded to queries.

Ms Lydia Phalwane, Chief Director: Enabling Environment, CPSI, explained that once the order number had been issued to a service provider, the banking details were verified. The CPSI did not wait to verify banking details after the arrival invoices and that contributed to its speedy payment of invoices.

Deputy Minister Dlodlo explained that a state-wide audit was conducted in 2009 which culminated in the NDP. The audit took public and challenges were identified. She acknowledged certain matters had to be taken back to Cabinet and a repository of best practices for learning purposes needed to be developed. Numerous requests had been presented to the DG to provide a slot for the CPSI to present its work. She further stressed that departments should make attempts to save money by making their own travel arrangements rather than booking through travel agencies that charged government exorbitant amounts.

The Chairperson stated that current methods of business were wasteful and requested a concept document on the reconfiguration of the state be presented by the DPSA.

Consideration and Adoption of Committee Minutes

Draft Committee Minutes dated 19 August 2015, 23 September 2015 and 10 May 2016 were adopted without amendments.

 

The meeting was adjourned.