ATC130416: Report of the Portfolio Committee on Police on the Annual Report on the Private Security Industry Regulatory Agency (PSIRA), dated 12 February 2013


Report of the Portfolio Committee on Police on the Annual Report on the Private Security Industry Regulatory Agency (PSIRA), DATED 12 FEBRUARY 2013

Report of the Portfolio Committee on Police on the Annual Report on the Private Security Industry Regulatory Agency (PSIRA), DATED 12 FEBRUARY 2013

The Portfolio Committee on Police reports as follows:

1. Introduction

The Private Security Industry Regulatory Authority (PSIRA) was established in terms of Section 2 of the Private Security Industry Regulation Act, No. 56 of 2001. It is mandated to regulate the private security industry in South Africa and to exercise effective control of security service providers in the public and national interest and the interest of the security industry itself. A Council is appointed by the Minister of Police in consultation with Cabinet and currently constitutes a full-time Chairperson and three additional Councillors, who are independent of the private security industry. The Council is tasked with the governance of the Authority, forms the accounting authority of PSIRA and is accountable to the Minister of Police in the performance of its functions. The Authority is listed as a public entity in Schedule 3A of the Public Finance Management Act (PFMA). As such, the Authority must adhere to the statutory duties and responsibilities as imposed by the PFMA. The Authority is funded through levies and fees recoverable from the security industry, in accordance with section 16 of the Act and currently receives no funds from the State.

As part of its oversight function, the Committee considers the Annual Report of the Authority on an annual basis and believes that its engagements with the Authority have been robust throughout the 2011/12 financial year. Hearings were held with the Authority over a three-day period during which the Authority presented on its performance for 2011/12, both in terms of service delivery targets, as well as in terms of its financial statements.

Structure of Report: This Report comprises nine sections:

· Section 1: Introduction.

· Section 2: Financial performance of the Authority for 2011/12.

· Section 3: Summarises the 2011/12 report of the Auditor-General for the Authority.

· Section 4: Provides a broad overview of the changing strategic and operational environment of the Authority for 2011/12.

· Section 5: Performance information for each Strategic Priority in 2011/12

· Section 6: Highlights key observations of the Committee with respect to financial and performance information for 2011/12.

· Section 7: Summarises additional information requested from the Authority in deliberations and other reporting requirements.

· Section 8: Summarises recommendations of the Committee with a focus on the 2012/13 Annual Report.

· Section 9: Conclusion

2. Financial performance

2.1 Issues identified as significant concern

Tariff increase: In January 2012, the PSIRA effected tariff increases of 75% for standard business fees and 900% for fees paid by the companies for each security officer hired. This was done regardless of the fact that National Treasury recommended an inflation-related adjustment of 9.1% across all categories. The PSIRA went ahead with the increases and ignored the suggestions proposed by the National Treasury. Moreover, the PSIRA did not seek the concurrence of the Minister of Finance for the increase of tariffs in terms of Section 2 (3 )( a) of the Private Security Industry Levies Act No 23 of 2002, which states that

“The Minister [of Police] must—with the concurrence of the Minister of Finance, within a period of 60 days after receiving a notice referred to in subsection (2)(c), give the Council notice approving or rejecting the proposed imposition, variation or determination”.

The management of PSIRA indicated that whilst the Private Security Industry Levies Act No 23 of 2002 was promulgated, it was never enforced. Therefore, the PSIRA did not need to seek the concurrence of the Minister of Finance. Following the introduction of the tariff increases in January 2012, legal action was instituted by the Security Industry Alliance (SIA) against the PSIRA, Minister of Police and the chairperson of the Council, to set aside the 2011 Annual Fee Regulations. The SIA indicated that the proposed annual fee increases were too high and threatened the financial viability of their organisations. (The fees are set out in section 5.3 of this paper). The management of PSIRA has admitted that there is a high probability that the court will set aside the 2011 Annual Fee Regulations.

Expenditure: Various issues pertaining to expenditure are highlighted. These are: (1) Significant increase in consulting and professional fees between 2008/09 and 2009/10, which recorded a doubling of the expenditure. However, the Authority managed to reduce this expenditure from R10.641 million to R5.379 million in 2011/12; (2) A doubling of office and other rent between 2008/09 and 2009/10. This further escalated significantly in 2011/12 recording a total of R10.904 million compared to the R3.257 million spent in 2010/11; and (3) Employee related costs increasing by 47% from R39.2 million (in 2009/10) to R57.5 million (in 2010/11) and further increased by 10.8% in 2011/12 to R63.7 million.

Debt management: Debt is a source of pressure in the PSIRA budget. Debt arises from the annual fees, fines, penalties and interest that are billed to registered security service providers, but due to the lack of capacity in the revenue management department of PSIRA they use an agency to collect long-outstanding debt. For the year ended 31 March 2012, PSIRA wrote off uncollected debt to the amount of R82.5 million (2010/11: R75.5 million). The number of accounts written off as uncollectable is 6 005. PSIRA reported that bad debt write-offs results in the withdrawal of registration of the service providers who fail to pay in terms of the PSIRA Act.

Lease agreement: The PSIRA entered into a lease agreement for a period of 5 years to the value of R61.243 million (Annual Report, 2010/11:85) for 5 070 m 2 office space and 160 parking bays The lease is structured such that the costs for the first 2 years are the same (R5.7 million per annum) with a steep increase (R15.058 million) in the third year, after which the premium increases by 10% in the fourth and fifth years. The lease should have been formulated such that there would be a constant escalation of 10% from the second year. This would have translated into a lease that commenced at R10.031 million in the first year, increasing to R14.687 million in the fifth year. Other concerns raised by the Public-Private partnership (PPP) unit within National Treasury which examined the lease include the following:

- The payment arrangement results in a huge increase of more than 268% in the first 18 months from R241 066.67 to R888 290.31 per month, which is not justifiable.

- The lease payments exclude operational costs which amount to R91 260.00, and it is not clear what this includes.

- Air-conditioning is part of the building and there is no justification as to why it should be paid separately, attracting a fee of R10 140.00.

- The 10% escalation is too high and significantly above the CPI. Lease expenditure of over R100 million could be incurred if the current lease is renewed for a further 5 years. The PSIRA could build its own facility for that kind of money.

In terms of Treasury Regulation 16A6 the procurement of the lease should have been done through a competitive bidding process. However in terms of Practice Note 8 of 2007/08, should it be impractical to invite competitive bids for specific procurement, e.g. in urgent or emergency cases or in case of a sole supplier, the accounting officer / authority may procure the required goods or services by other means, such as price quotations or negotiations in accordance with Treasury Regulation 16A6.4. The reasons for deviating from inviting competitive bids should be recorded and approved by the accounting officer.

The PSIRA asserts that there was an urgency to relocate to new premises, as the building that it was occupying was not safe. This followed an Engineering Evaluation of the building in November 2010. However, it should be noted that while the engineer’s report was finalised in November 2010 the decision to deviate from the normal procurement process was approved by the Council in February 2011. The lease agreement was only signed in April 2011. Therefore there was sufficient time for the PSIRA to procure a lease through a competitive process. This could have resulted in the PSIRA obtaining a more cost-effective lease.

The Office of the AG conducted an audit into the lease agreement and found that it did not constitute irregular expenditure. The Portfolio Committee on Police requested the Office of the AG to conduct a performance audit on the lease agreement to establish whether value for money was achieved through the process.

Office relocation costs: The Authority incurred significant expense during the relocation of offices from Arcadia to Centurion. The office relocation cost R4,726 million of which R4,009 was spent on fixed assets and R717 thousand was spent on the move and upgrading the new building in Centurion.

Regional office lease agreement ( KwaZulu-Natal ): The Authority entered into a 5 year lease agreement for its KwaZulu-Natal Regional offices with a total value of the undiscounted lease payments amounting to R4 ,830 million over the period.

Salary package: Chairperson of the Council: The Chairperson of the Council has been appointed on a full-time basis on an annual remuneration of R1.39 million (Annual Report, 2010/11:83), which increased to R1 442 438 million in 2011/12 (3.5%). The remuneration of the Chairperson is much higher than what is offered by other entities in the same category (A1: R979 ,596 thousand) in terms of the Treasury Regulations. This is an additional amount of almost a half a million Rand per year (R462 842). Given the precarious financial position that the Authority currently finds itself in, it would be advisable for the Chairperson to be appointed on a part-time basis and be remunerated only for attending meetings.

2.2 Statement on Financial Performance

The table below illustrate the overall financial performance of the PSIRA in 2011/12. It is clear that the overall deficit for the year improved significantly in 2011/12 compared to 2010/11. The deficit improved from R23 ,045 million (2010/11) to R9,280 million (2011/12) representing an improvement of almost 60%.

Various issues to note on the overall financial performance:

· Revenue increased by 17.1%

· Other income increased by 146.3%. Note 11 to the Financial Statements indicates a significant increase in Sundry income (2010/11:R3 ,25 million and 2011/12:R21,73 million). This represents an increase of 568.0% in 2011/12 compared to the previous year.

· Debt impairment increased by 24.4%

2.3 Revenue

The Authority, as an industry regulatory authority, receives no government funding and relies on various streams of revenue, which are as follows:

· Annual fees from Security Providers. These companies pay R4, 250.00 per annum and R7.00 per month for each Security Officer employed.

· Annual fees from active Security Officers payable monthly. These officers pay R84.00 per annum through salary deductions.

· Revenue from services rendered, i.e.:

- Registration fees

- Disbursement fees – issuance of ID cards, Certificates

- Processing of training (course) reports

- Fines issued at code of conduct enquiries

The table above show that the revenue of PSIRA increased by 17.1% in 2011/12 compared to 2010/11. Issues to note:

· Significant increase of 90% in fines.

· Significant decrease of 39.8% in registration fees.

2.4 Employee related costs/Salary expenses

The analysis of personnel cost per division of the Authority revealed various issues of concern regarding organisational aspects of the PSIRA. These include:

· The 100% decrease in salary cost within the ‘Internal Audit and Risk Management’ division indicates that the position(s) are vacant (The AG made a significant finding on the lack of a Risk Management Strategy in terms of National Treasury prescripts);

· Appointment of a staff member in ‘ Asset Management’ to the cost of R1.328 million per annum (2011/12);

· All positions in the ‘Prosecution’ division are currently vacant;

· The number of personnel employed in the ‘Information Technology’ division increased from one to six in 2011/12 compared to the previous financial year;

· Three staff members were appointed in ‘Events Management’ at an annual cost of R766,626 thousand;

· The Authority recorded an expenditure of R2 ,973 million on ‘Fixed term contracts’ in 2011/12 compared to 2010/11 in which there was no expenditure recorded for fixed term contracts.

Basic salaries paid by the Authority in 2010/11 were R37.021 million and increased by 18.6 per cent to R43.918 million in 2011/12.

Council and Senior Management Emoluments

In the 2009/10 Annual Report of PSIRA, the Authority provided a detailed report and full cost-breakdown of Council and Senior Management emoluments for the 2009/10 financial year. This included expenditure incurred in terms of council fees, salary, travel costs, bonuses and car allowances. This detailed cost-breakdown was omitted in both the 2010/11 and 2011/12 Annual Reports of PSIRA.

2.5 Debt impairment

The table below indicates that the Authority recorded an increase of 24.4% in ‘debt impairment’ in 2011/12 compared to 2010/11.

2.6 Irregular expenditure

Irregular expenditure of R1, 178 million was incurred in 2011/12 (in comparison to the R865 thousand in the previous financial year). A total of R3, 612 million was condoned in 2010/11 which included condonation on the opening balance of R5, 129 million. None of the irregular expenditure incurred in 2011/12 was condoned. The final balance on irregular expenditure still to be condoned was R3, 561 million. Two incidents where irregular expenditure was identified were reported as follows:

· Cash collection service to the value of R400,531.00

· Domestic flights to the value of R778,373.00

2.7 Fruitless and wasteful expenditure

Fruitless and wasteful expenditure to the amount of R17 220 (thousand) was incurred in 2011/12. Of this amount, R1, 440.00 was identified by PSIRA and R15, 780.00 by the AG. This is a 39.3% increase compared to the R12, 356 (thousand incurred in 2010/11). The amount was made up of the following:

· Salaries paid after contract end date (R15,780.00)

· Creditors (R1,440.00)

2.8 Contingent liabilities

Contingencies are identified in Note 18 of the financial statements. However, this note does not reflect the value of contingencies addressed during the financial year and accumulated contingencies. It has been requested previously that these values should be provided and it is reiterated.

2.9 Consultants

In a response from PSIRA in August 2012, the Authority stated that an amount of R9 ,496,705 million was paid to consultants in the 2010/11 financial year. Among the cost-breakdown for services provided, an amount of R4 ,198,267 million was paid towards an Information Technology contract/service. The Authority further stated that the contract was terminated in August 2011.

3. Audit findings

PSIRA received an unqualified audit opinion for 2011/12 with emphasis of matters. The 2011/12 Report of the Auditor-General pertaining to PSIRA reflects the following:

3.1 Report on Financial Statements

Significant Uncertainties

The AG made mention of significant uncertainties in terms of lawsuits in which the Authority is the defendant. These are stipulated in note 18 of the Financial Statements of the 2012 Annual Report:

1) De Beer v PSIRA (Defamation of character – claim of R1 million);

2) Mavana v PSIRA (Wrongful termination – CCMA found in favour of PSIRA, but applicant referred the matter to the Labour Court );

3) Mogapi v PSIRA (Wrongful dismissal); and

4) Security Industry Alliance v PSIRA (Dispute pertaining to the 2011 Annual Fee Regulations).

The Authority has made no provision for any liability (contingent liability) that may result from these legal actions in their financial statements.

Going Concern

The Statement of Financial Performance for the year ended 31 March 2012 on page 80 of the Annual Report indicates that PSIRA incurred a net loss of R9,280 million (2011: R23, 763 million) during the year. The current liabilities exceed the current assets by R8, 266 million as per the statements of financial performance. The AG reported that these conditions, along with other matters as set forth in the note 21 of the Financial Statements of the Authority, indicates the existence of a material uncertainty that may cast significant doubt on the public entity’ ability to operate as a going concern.

Material Losses

As disclosed in note 13 of the Financial Statements of PSIRA, material losses to the amount of R82 ,487 million were incurred of which R24,065 million was written off in the current year and the balance adjusted through a decrease in the impairment provision.

3.2 Report on other legal and regulatory requirements

Predetermined objectives

The reported performance of the Authority against predetermined objectives was evaluated by the AG against the overall criteria of usefulness and reliability. The material findings made by the AG are as follows:

Usefulness of information

· Performance targets are not specific

· Performance targets are not measurable

· Indicators not verifiable

· Performance indicators not well defined

· Performance targets are not time bound

3.3 Key concerns and recommendations:

· Leadership: The AG found that the accounting authority did not have a risk management strategy in place as per National Treasury prescripts.

· Predetermined objectives: The AG found that the Authority’s focus was not on predetermined objectives and ensuring full compliance with laws and regulations, in terms of irregular expenditure. It is recommended that the accounting authority ensure predetermined targets meet SMART criteria. Senior management should take responsibility to ensure performance information reported on is reliable and should be held accountable for reporting unreliable information.

· Bad debt: A large amount was written off as bad debt as was the case in the previous year – management is anticipating that this trend will decrease as most of these bad debts are historic of nature.

· Supply Chain Management: PSIRA should continuously monitor compliance with due procurement processes.

· Financial Management: Senior management should monitor and review day to day financial activities to ensure monthly financial information are accurate and reliable.

· Information Technology: Approve and implement an IT governance framework and monitor the effectiveness of IT systems.

4. Overview of the Strategic and Operational environment of the Authority

In 2010/11 the Authority embarked on an organisational turnaround to improve service delivery and establish a standing as an effective regulator of private security in South Africa . The revised Strategic Plan has been guided by national policy priorities as set out by the Justice, Crime Prevention and Security (JCPS) Cluster, which is specifically aimed at improving effectiveness and integration of the Criminal Justice System (CJS) revamp in order to reduce the overall levels of crime in the country.

The Strategic Plan introduced seven strategic priorities for PSIRA based on a situational analysis of the industry environment. The following strategic priorities resulted from this process:

· Strategic Priority 1: Industry Stewardship (Knowledge and Advocacy);

· Strategic Priority 2: Stakeholder and Customer Relationship Management;

· Strategic Priority 3: Financial management and funding;

· Strategic Priority 4: Excellent Service Delivery (Effective Regulation);

· Strategic Priority 5: Efficient and Effective Processes;

· Strategic Priority 6: Effective Organisational Structures with Skilled, Competent and Motivated Workforce; and

· Strategic Priority 7: Enabling Environment (Organisational Culture).

5. Performance Information for each Strategic Priority in 2011/12

The Private Security Industry Regulatory Agency (PSIRA) determined a total of 46 measurable targets for the 2011/12 financial year. Of the total planned targets, 14 out of 46 were achieved during the period under review, which represents a success rate of 30.4 per cent. The remaining 32 targets were not achieved, which represents 69.5 per cent of total planned targets. Strategic Priorities 1 and 7 achieved none of their targets.

There are discrepancies in the calculation of achieved targets for 2011/12, in that the Authority reported a different performance rating/grading structure. Instead of reporting targets ‘achieved’ or ‘not achieved’, the Authority graded the achievement in the following manner: The number 1 was given to targets ‘not achieved’; 2 was given to targets ‘partially achieved’ and 3 was given to targets ‘achieved’. Targets are either achieved or not achieved and must be clearly reported in the Annual Report. Additionally, the Auditor-General counted those targets ‘partially achieved’ as ‘achieved’ and thus came to a success rate of 68 per cent (23 targets achieved).

Strategic Priority 1: Industry Stewardship (Knowledge and Advocacy)

The objective of the first Strategic Priority: Industry Stewardship (Knowledge and Advocacy) is to ensure a full understanding of the industry and to begin to respond to industry needs and challenges, so as to be recognised as “the industry experts”. A total of 7 targets were set for 2011/12, of which the Authority realised none. The Authority reported that the poor performance on this strategic priority was due to budgetary constraints experienced in the financial year under review. As mentioned above, Strategic Priority 1: Industry Stewardship (Knowledge and Advocacy) achieved none of the predetermined targets in 2011/12.

Strategic Priority 2: Stakeholder and Customer Relationship Management (CRM)

The objective of Strategic priority 2: Stakeholder and Customer Relationship Management, is to ensure meaningful and successful engagement with all stakeholders. A total of 8 targets were set for 2011/12, of which 3 were achieved representing a success rate of 37.5%.

Strategic Priority 3: Financial management and funding

The objective of Strategic priority 3: Financial management and funding is for PSIRA to be a financially stable and sustainable organisation (to increase revenue, decrease costs and achieve at least breakeven). A total of 7 targets were set for 2011/12 and 3 of these were achieved, representing a success rate of 42.8%.

Strategic Priority 4: Excellent Service Delivery (Effective Regulation)

The objective of Strategic priority 4: Excellent Service Delivery (Effective Regulation) is to enable effective compliance and enforcement of PSIRA legislation in order to achieve behavioural changes in the industry. A total of 6 targets were set for 2011/12 of which the Authority achieved 4, which represents a success rate of 80%.

Strategic Priority 5: Efficient and Effective Processes and Systems

The objective of Strategic priority 5: Efficient and Effective Processes and Systems are to ensure that adequate processes and systems are in place to effectively carry out the mandate of PSIRA. A total of 6 targets were set of which 2 were achieved, representing a success rate of 33.3%.

Strategic Priority 6: Effective Organisational Structures with Skilled, Competent and Motivated Workforce

The objective of the Strategic priority 6: Effective Organisational Structures with Skilled, Competent and Motivated Workforce is to ensure that PSIRA has competent and skilled employees that are able to execute their tasks effectively. A total of 9 targets were set for 2011/12 of which only 2 were achieve, which represents a success rate of 22.2%.

Strategic Priority 7: Enabling Environment (Organisational Culture)

The objective of Strategic priority 7: Enabling Environment (Organisational Culture) is to ensure that the Authority has a culture of learning embracing excellence that supports its vision and strategy. A total of 4 targets were set for 2011/12 of which none were achieved, representing a success rate of 0%.

Operational overview:

Registration Department (Customer Relationship Management)

A total number of 80,315 individual applications were received during the 2011/12 financial year:

· 71,397 were registered as security guards;

· 1,552 were rejected because of criminal records and non-compliance to the PSIR Act; and

· 7,366 are currently pending and will be carried over to the next financial year.

Compliance and Enforcement Department

Compliance Inspections: During the period 1 April 2011 to 31 March 2012 a total of 7,669 compliance inspections were conducted on security service providers, or inspections which formed part of investigations by the Enforcement Unit, compared to 6,611 inspections conducted during the previous financial year. The most inspections were performed at Small Businesses (employing less than 20 security officers), a total of 2,997 inspections were conducted at these classification of businesses.

Enforcement Inspections: During the 2011/12 financial year, a total of 514 enforcement inspections were conducted by PSIRA.

Improper conduct investigations: During the 2011/12 financial year, a total of 1,530 dockets were compiled against security businesses relating to improper conduct compared to the 1,446 dockets for the previous financial year (2010/11).

Improper conduct investigations pertaining to Minimum Wages: A total of 524 dockets relating to improper conduct pending against security providers for allegations of failing to pay the statutory minimum wage to employees.

Criminal Investigations: As at 31 March 2012, a total of 771 outstanding criminal cases were pending with the SAPS, compared to 648 cases in 2010/11. During the period 1 April 2011 to 31 March 2012, a total of 240 criminal cases were opened by inspectors of the Authority. During this period, 117 criminal cases were finalised by the SAPS and/or National Prosecuting Authority. The Authority reported that this is partly due to an audit conducted on pending cases on the Authority’s records in the Western Cape and Eastern Cape regional offices.

6. Observations of the Committee

The following are key observations of the Committee with regard to the performance and financial issues of the Authority for 2011/12:

Leadership and capacity of Council: The Committee raised concerns around the apparent lack of leadership and the inadequate capacity of the Council of the Authority, as the Council is mandated with the governance of the Authority. The Council stated that the composition of the Council is currently problematic as there are various vacancies in the Council, which makes having quorum at Council meetings difficult It was further stated that there is currently a blur of functions between the Chairperson of the Council and the Director of the Authority, with no clear lines of responsibility. It is hoped that the Amendment Bill currently before Parliament will address this situation. The term of the current serving Council will come to an end in December 2012 and it was stated that the new executive will have a difficult time in addressing the issues identified in the Authority. The Committee stated that the Council must hand the Minister of Police a hand-over report, which clearly states the practical difficulties experienced by the Council as well as the various issues of concern pertaining to the governance of the Authority in an effort to empower the Minister to effectively address the situation from escalating.

Measurement of performance targets: The Committee stated that the measurement of performance targets is problematic; as targets are either ‘achieved’ or ‘not achieved’ and stated that the Authority cannot report on targets as ‘partially achieved’. The Committee stated that the Authority must refrain from reporting in this manner in future Annual Reports.

Determination of Salaries for the Senior Management Structure (SMS): The Committee raised a variety of serious concerns on issues pertaining to the appointment of the SMS as well as the accompanying salary packages of the SMS members. Members of the Committee wanted to know whether the Council were aware of the decision to outsource the job grading and whether Council approved the salary scales on which the SMS of the Authority was appointed. The Council indicated that the appointment process was broken in two and that Council members were only part of the interview process, but not of the salary package approval process. Council acknowledged that the Council is not currently functioning optimally and that due to this; the Council was unaware of many decisions taken by the Authority. The Committee expressed concern to the evident nature of the dysfunction of the Council as there were no minutes available for the Council meetings in which salary packages were decided and stated that this was clearly a unilateral decision by the Chairperson and Director of PSIRA. The Committee further stated that the decision taken by the Minister of Police to request the Accountant-General of South Africa to launch an investigation into the salary packages of all Senior Managers in PSIRA are welcomed and supported.

The second issue of concern raised by the Committee was related to the fact that the function of job grading was outsourced to a private company, namely PricewaterhouseCoopers (PWC), and indicated that the Committee finds this extremely problematic. The job grading was done on a different grading system than that used by the Department of Public Service and Administration (DPSA) for government employees. PWC used the Patterson Grading System to determine job grading opposed to the Equate Grading System, which is used by the DPSA. The use of private companies to grade jobs for public entities is highly irregular as the mechanism for oversight and accountability is largely lost through the process chosen by PSIRA. The Council stated that the currently serving members of the Council was not yet appointed when the decision to use PWC for job grading was taken and further stated that at the time the decision was taken s Ministerial Task-team was appointed to PSIRA and noted that the Authority was completely dysfunctional and could not perform the task of job grading in-house. The Committee questioned why the Authority did not approach the Department of Public Service and Administration for assistance in the process of job grading and why the Authority did not benchmark their salaries against similar public entities. The Authority stated that they were not aware that they could approach DPSA. The Council stated that PSIRA is under the impression that the Authority is not like other public entities, in that they generate most of their own funds and that it is crucial for this mindset to change and accept the assistance available from Government. The Authority stated that they have paid PwC at total of R603 thousand to date for services provided in terms of job grading (R603 146.30).

Allowances to Council: The Committee questioned what allowances are paid to Council members in 2011/12 and why this information is no longer included in the Annual Report as was done in 2009/10. The Authority stated that the information should not have been reported in 2009/10 and hence the reason for not including such in the years since.

ETHICS HOTLINE: Members of the Committee raised concern about the ethics hotline. The Authority outsourced this function to a private company (KPMG) for managing a complaints hotline pertaining to the private security industry. The Committee questioned the amount of complaints received through the hotline and whether the Authority considered the R47 000.00 spent on the hotline as value for money. The Authority stated that they could not provide the total amount of calls received through the hotline, but confirmed that a total of 26 case reports were generated in the 2011/12 financial year. The Committee noted that it is a very expensive hotline, as so few case reports were generated in the space of a year and further questioned why an independent body was necessary to establish a hotline within a body like PSIRA already mandated to be an independent body to regulate the industry. The Authority stated that the Law Enforcement division of PSIRA also have a complaints line. However, the Council stated that they were not aware of the hotline managed by KPMG and that the Council was not part of the decision to establish such hotline. The Council further stated that the hotline was not cost effective and that there exists no motivation why such an outsourced hotline was necessitated by the Authority.

Research: The Committee raised concern regarding the lack of performance in the Strategic Priority 1: Industry Stewardship (Knowledge and Advocacy), in which priority research projects to be completed was prioritised and only topics were identified.

Planning: Members of the Committee expressed concern regarding the apparent lack of cohesion between the budget process and established priorities of the Authority and questioned why there is an apparent disjoint between the funding available and the priorities/ performance targets set by the Authority and that this leads to priorities not being achieved as various targets were not met due to budgetary constraints. The Council indicated that the funding model on which the Authority operates is not ideal, but that the budgeting process will be reviewed and will enjoy increased focus in coming years. PSIRA is a trading entity which generates some of its own income.

New corporate head office in Centurion: The Committee raised several issues of concern regarding the relocation of PSIRA’s corporate head office from Arcadia to Centurion. The Committee expressed their strongest opposition against the process taken in the relocation of offices of the Authority. The Committee further stated that the Auditor-General of South Africa was requested to perform a performance audit on the lease agreement in order to establish whether value for money was ensured by the Authority. The Committee further requested that the Authority give their full cooperation to the AG when requested and that the Authority must be prepared for the outcome of the audit when concluded. The specific issues raised by the Committee were:

· Lease agreement: The Committee raised significant concern regarding the excessive cost incurred in entering into a new lease agreement for the Authority’s corporate head office in Centurion to the cost of R87 million over a five-year period. The Committee further stated that the fact that the Authority specified an AAA-graded building was unacceptable for any entity finding itself in financial difficulty. The Authority stated that they wanted to improve the corporate image of PSIRA and thus decided on an AAA-graded building. The Committee was surprised by this response and stated that the improvements they speak of is cosmetic and that the Authority can only better their image by improving on service delivery.

· Cost of relocation: The Committee expressed further concern regarding the R4 ,7 million spent on procurement of new furniture and relocation costs incurred by the Authority’s in moving offices from Arcadia to Centurion and stated that these expenses were unacceptable and should not have been a priority for the Authority. The Committee questioned why new furniture was procured for the new office and what happened to the old furniture. The Authority stated that the old furniture was not suitable for the new open-plan office space of the new corporate head office. The Committee requested that the Authority must keep the Committee informed regarding the sale of the old furniture and ensure that it is disposed of according to the prescripts of the PFMA, thus ensure that the Minister approves the sale.

· Disposal of building: Various issues of concern were further raised regarding the disposal of the condemned (previous) corporate head office of PSIRA in Arcadia ( Pretoria ). The Committee asked what the status of the sale of the building is currently as the Authority reported earlier this year that the sale is finalised, but that the Authority cannot disclose the name of the buyer as the process was not yet completed. Members of the Committee were surprised to learn that the building has not yet been sold and that the process is ongoing. The Authority indicated that the statement made earlier the year was erroneous as the Minister must first approve the sale of such asset. The Authority further acknowledged that the Round Robin Resolution taken by the Council and Authority was flawed as it is in contravention of the Public Finance Management Act (PFMA), which clearly stated that the responsible Minister must authorise the sale of such asset to the value in excess of R10 million. The Committee further questioned whether legal requirements were met in terms of dealing with a condemned building, such as informing the local municipality. The Authority stated that they have not informed the Tshwane Municipality and will ensure that all legal requirements pertaining to disposing of a condemned building are followed.

Contingent liability: The Committee expressed concern regarding the fact that the Authority is not budgeting for contingent liabilities and further stated that the Authority has continuously ignored the recommendation made by the Committee to budget for contingent liabilities.

Use of Consultants: The Committee expressed concern pertaining to the excessive use of consultants and questioned why these consultants are seemingly doing the work for which PSIRA employees are being paid for. The Committee expressed approval of the fact that the Authority halved the cost of consultants since 2010/11, but stated that the amount spent on consultants remained too high.

Difference between satellite and regional offices: The Committee questioned what the difference between satellite offices and regional offices are. The Authority stated that satellite offices deliver all primary functions of the Authority, much the same as regional offices. The Authority further stated that these offices serve as a meeting-place for security companies and security guards looking for employment. The Committee expressed extreme concern regarding this practice as it verges on labour brokering. The Authority indicated that this is an unintended consequence and not promoted by the Authority, however the Council acknowledge the potential for corruption through this practise and that it has the potential of placing the integrity of PSIRA in jeopardy. The Council further indicated that the Committee’s concern is noted and that the practice will be investigated.

Personnel expenditure: The Committee raised various concerns regarding the information reported on page 50 of the Annual Report regarding personnel expenditure for 2011/12. The Authority indicated that the table included in the Annual Report contains various mistakes and that an erratum was sent to the Minister, subsequent to the Committee demanding that the erratum be done. The following specific issues of concern were raised by the Committee:

· Inconsistencies in expenditure: Members of the Committee raised concern pertaining to the apparent inconsistencies contained in the personnel expenditure table reported on page 50 of the Annual Report. Especially in the case of Asset Management for which expenditure increased from R371 016 to R1.32 million between 2010/11 and 2011/12, while only one person was appointed in this division. The Authority acknowledged that it was a mistake on their part and that the figures for Asset Management and Facilities Management must be swapped. However, the Committee indicated that it did not make much of a difference as the increase remains significant.

· Fixed term contracts: The Authority reported on 27 fixed term contacts in 2011/12, which was never done in the past and the Committee questioned why the Authority had such a large number of fixed term contracts as this is the first time reported as such. The Authority indicated that it was a mistake on their part and that the fixed term contact employees have been included in the various divisions in the past.

· Events management: The Committee expressed concern regarding the establishment of an events management office in PSIRA and questioned what the function and job descriptions of the three personnel appointed in this office are. The Authority responded that the events management office was primarily established to manage the Industry Forums, but seeing that these forums was not yet established, the office currently have no measurable outputs. The Committee questioned why the Authority, while in a financially precarious situation, spent R700 thousand with no measurable outputs. The Committee requested that the events management outputs must be included as a measurable target in the 2013/14 Annual Performance Plan of PSIRA.

Business Applications: The Committee raised concern regarding the incorrect information contained in the Authority’s Annual Report regarding the mistake made regarding the number and status of business applications in 2011/12. The Authority apologised for the mistake and indicated that an erratum will be affected.

Lack of reporting on sick and incapacity leave: The Committee questioned why the Authority does not report on sick and incapacity leave taken by employees as required. The Authority stated that they were not aware that they had to report on it and indicated that it will be included in coming Annual Reports.

7. Summary of the Authority’s additional reporting requirements

Reporting matter

Action required


Detailed breakdown of Consultancy fees. The report must include the following:

· Appointment date of service provider/consultant;

· Purpose of service to be provided;

· All bids or quotes received for each service from other service providers or consultants;

· Total cost of the contract awarded, including length of contract; and

· Expenditure to date.

Written report

05 December 2012

Copy of letter to Tshwane Metropolitan Municipality pertaining to the condemned building in Pretoria .

Written report

05 December 2012

A full breakdown of all allowances paid to the Senior Management Structure (SMS) of PSIRA, besides their cost-to-company salary packages.

Written report

05 December 2012

Detailed breakdown and explanation on the discrepancy in the calculations of personnel expenditure which appeared in the Annual Report and the subsequent erratum by PSIRA.

Written report

05 December 2012

Detailed report on the sale of the condemned PSIRA corporate head office in Arcadia ( Pretoria ).

Written report

Once sale is finalised

8. Recommendations

The following recommendations were made by the Portfolio Committee on Police:

Financial statements: The Portfolio Committee recommends that the financial statements of the Authority must be further interrogated by the Select Committee on Public Accounts (SCOPA).

Consultants: The Committee recommends that the Authority should rely less on consultants and that the expenditure on consultancy fees should be further reduced in the coming years.

Annual Performance Plan 2013/14: The Committee recommends that measurable outputs be identified for the events management office and included in the Annual Performance Plan of the Authority for the 2013/14 financial year as well as all subsequent years.

Annual Report 2012/13: The Committee recommends that the following information must be contained in the 2012/13 Annual Report of the Authority:

· Foreword by Minister;

· Detailed report by the Council of PSIRA;

· Organogram of the Authority’s structure;

· A detailed breakdown of registration fees not collected;

· Employment vacancies broken down into divisions as well as provincial offices;

· Applications for registration approved and those not approved;

· Applications approved or not approved for training institution accreditations;

· Budgetary information for contingent liabilities;

· Sick and incapacity leave taken by employees; and

· The Authority must refrain from reporting on targets as ‘partially achieved’ and only report on targets as ‘achieved’ or ‘not achieved’.

The Committee further recommends that specific attention must be given to the following aspects of future Annual Reports:

· Quality control;

· The correctness of Notes on financial statements; and

· Adhering to Government resolutions in that all Departmental Annual Reports must be produced in a cost effective manner.

9. Conclusion

The Committee expressed their dissatisfaction with the performance of the Private Security Industry Regulatory Agency (PSIRA). The Council of PSIRA must be blunt in its hand-over report to the Minister and clearly state the problems experienced in PSIRA to enable the Minister to address the situation. The Committee stated very clearly that the Council of PSIRA will have to account for the failure or successes of the Authority in coming years, as the Council is mandated to exercise oversight over the Authority in terms of governance issues. The Authority has to take their responsibility in terms of regulating the private security industry seriously and realise that change in PSIRA must come from the inside through improved service delivery and not merely cosmetic changes.


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