ATC160218: Report of the Portfolio Committee on Police on the Private Security Industry Regulatory Authority 2014/15 Annual Report and Budget dated 26 January 2016
Report of the Portfolio Committee on Police on the Private Security Industry Regulatory Authority 2014/15 Annual Report and Budget dated 26 January 2016.
The Portfolio Committee, having considered the Annual Report (AR) and financial performance of the Private Security Industry Regulatory Authority (PSIRA) for 2014/15 on 16 October 2015, reports as follows:
The Private Security Industry Regulatory Authority (PSIRA) functions as an independent regulatory body established to monitor the private security industry and promote compliance with minimum standards. The Portfolio Committee on Police met with the PSIRA and considered its Annual Report and budget for the Medium Term Expenditure Framework (MTEF) on 16 October 2015. According to the PSIRA Act (Act No. 56 of 2001), the PSIRA is administered by a Council which is accountable to the Minister of Police for performance of functions and must provide the Minister with any requested information.
1.1 Description of core functions of PSIRA
The PSIRA was established in 2002 in terms of Section 2 of the Private Security Industry Regulation Act (56 of 2001). The primary objectives of PSIRA are to regulate the private security industry and to exercise effective control of security service providers in the public and national interest and the interest of the security industry itself. The governance structure of the Authority in 2012/13 was a Council consisting of a Chairperson and two additional Councillors, independent of the private security industry. The Council forms the accounting authority of PSIRA and is accountable to the Minister of Police in the performance of its function. In 2009, PSIRA was classified as a schedule 3(a) entity.
1.2. Process to develop the Report
The Committee held a hearing with the PSIRA on 16 October 2015 and considered its AR and budget. During this period, the PSIRA reported on performance in terms of its key programmes, as well as financial performance. In addition, the Committee was briefed by the Auditor-General of South Africa (AGSA) on the financial audit and key findings on the PSIRA.
In developing this report, the Committee considered previous reports from PSIRA, Committee reports, previous PSIRA Annual Reports and recommendations from the Auditor General.
1.3 Structure of the Report
This Report consists of eight sections:
Section 1: Introduction – sets out the mandate of the Committee, the purpose of this report
and the process to develop this report;
Section 2: Provides an overview of the strategic priorities;
Section 3: Provides an overview and summary of the financial performance for 2014/15;
Section 4: Report of the Auditor-General (AG) for 2014/15;
Section 5: Provides an overview of Performance per programme for 2014/15;
Section 6: Committee Observations;
Section 7: Committee findings and recommendations; and
Section 8: Conclusion.
2. Overview of Strategic Priorities
PSIRA identified five strategic priorities in its 2015/16 - 2016/20 strategic plan which is listed
- Strategic Priority 1: Excellent service delivery (Effective Regulation);
- Strategic Priority 2: Effective Financial Management;
- Strategic Priority 3: Industry stewardship, stakeholder and customer relationship management;
- Strategic Priority 4: Enabling environment with competent and skilled workforce; and
- Strategic Priority 5: Efficient and effective processes and systems.
The Authority also indicated in its Strategic Plan that, over the medium term, it will focus on the following strategic objectives:
- Ensure good governance and a sound financial control environment;
- Ensure that PSIRA has in place effective and reliable IT Systems;
- To ensure that PSIRA has a competent, ethical and skilled workforce;
- To ensure effective regulation in the security industry;
- Enforce minimum standards of occupational conduct in respect of security service providers;
- Promote awareness amongst the public and the private security industry on the functions and role of PSIRA in the industry;
- Promote the protection and enforcement of the rights of Security Officers and other employees in the Private Security Industry;
- Promote the interest of the consumers of private security services;
- To ensure that the registration process is transparent and timeous;
- Promote high standards in the training of security service providers and prospective security service providers (SSP); and
- Ensure that PSIRA is a centre of excellence in private security research.
3. Financial Performance for 2014/15
3.1 2014/15 Revenue generation and expenditure
The Authority does not receive a budget allocation from the National Treasury- it generates its revenue through different sources including, but not limited to, registration and annual fees, course reports and donations. As shown in above, the Authority’s gross revenue for the 2014/15 FY was R132.0 million compared to R130.6 million for the 2013/14 FY (originally reported R170.3 million). The Director of the Authority reported in the Annual Report that the revenue position of the Authority during the reporting period was stable at R127.1 million when compared to the R126.7 million recorded in the previous financial year. In particular, revenue from course reports increased by 24.9% and registration by 9.1% respectively when compared to the previous financial year. During 2014/15 FY the Authority’s gross revenue stood at R132.0 million, far below the projected revenue.
3.2 Operating Expenses
According to the Authority’s Annual report, gross operating expenses for the 2014/15 FY was R148.7 million compared to R137.1 million for the year ended 31 March 2014 (originally reported R148.7 million).
Employee costs increased by 28.3% over the financial years. However, if the actuarial gains and the performance bonus provision movements are excluded the increase is only 6.4% year on year.
3.3 Bad debts
According to the Authority, debt arises from the annual fees, fines, penalties and interest that are billed to registered security service providers.
The Authority reported in its 2014/15 financial year that there was a noticeable improvement in Bad debts recovered during the year under review. An amount of R1.9 million was recovered when compared to R0.4 million in the financial year ended 31 March 2014. There were no Bad debts written off in the financial year ended 31 March 2015 compared to R24.6 million written off during the financial year ended 31 March 2014.
3.4 Impairment of debtors
The Authority reported that the impairment of debtors for the 2014/15 FY was R5.0 million compared to R16.0 million for the previous reporting period (originally reported R27.8 million).
The restated impairment of debtors figure for the previous reporting period was as a result of identifying debtors, which had been written off in that year amounting to R5.2 million. These were active debtors, accounts and by the identification of a material error in the calculation of the bad debts impairment provision of R6.4 million.
The Authority posted a deficit of R16.7 million for the year ended 31 March 2015, compared to a deficit of R6.5 million for the year ended 31 March 2014. The deficit for the current financial year and the restated deficit for the prior year are as a result of passing credit notes for the period 1 January 2012 to 30 November 2014 to correct the overbilling of the annual fees, which were amended in the fees promulgated in the revised 2011 Annual Fees Regulations which were set aside by the Supreme Court of Appeal.
3.6 Credit Notes
Credit notes totalling R115.6 million were passed, R31.5 million applicable to the financial year ended 31 March 2015, R39.6 million applicable to the financial year ended 31 March 2014 and R44.5 million applicable to the financial year ended 31 March 2013 and prior.
3.7 Rental of Equipment and Premises
According to the Annual Report, lease payments for the current reporting period were R13.7 million compared to R13.8 million recorded during the previous financial year.
3.8 Consulting and Professional fees
Consulting and professional fees for the 2014/15 FY was R3.5 million compared to R3.0 million for the 2013/14 FY. Included in these amounts is Information Technology Consulting, which was R1.3 million for both the 2015 and 2014 financial years. Other amounts included in consulting and professional fees are forensic investigation fees, debt collection fees, recruitment agency placement fees and strategic planning facilitation fees. An amount of R0.5 million was paid for forensic investigation fees accounting for the current year’s increase.
4. Report of the Auditor General (AG) for 2014/15
The Auditor-General Report on the Authority’s performance for the 2014/15 FY highlighted a number of issues as indicated below. The Report also raised a number of issues that need the Committee’s critical attention:
- Unqualified Audit Opinion: the Authority received an unqualified audit opinion. This reflects the Auditor General’s satisfaction that the financial statements present fairly, in all material respects, the financial position of the Authority as at 31 March 2015.
- Emphasis of Matter: the AG Report drew attention to the fact, as reflected in the financial statements of the Authority, some corresponding figures for 31 March 2014 have been restated as a result of errors discovered during financial year ending 31 March 2015.
- Going Concern: the financial statements indicates that the Authority incurred a net loss of R16 727 505 during the reporting period, and as of that date, the Authority’s current liabilities exceeded its total assets by R85 020 779. These conditions, along with other matters indicate the existence of a material uncertainty that may cast significant doubt on the public entity’s ability to operate as a going concern.
- Irregular Expenditure: there was irregular expenditure to the tune of R16 114 589 awaiting condonation. In particular, irregular expenditure of about R3.8 million was recorded in the 2014/15 FY due to deviation from supply chain management procedures and prescripts. Another R513 450 irregular expenditure was also recorded in the reporting period owing to non-compliance to prescripts or legislations.
- Fruitless and wasteful expenditure: there was fruitless and wasteful expenditure to the tune of R109 869 thousand was incurred a result of late payments made to creditor, VAT paid to non-registered vendor, SARS penalties and interest and overpayment of leave pay on termination.
- Material impairments: the financial statements indicate that provision for impairment to the amount of R8.9 million was raised on trade debtors, as a result of uncertainty regarding the recovery of the amounts due.
- Predetermined Performance Targets: a total of 31% of the targets under Programme 3 were not well defined and verifiable. This was due to management not ensuring that proper systems, processes and sufficient technical indicator descriptions are in place. As a result, 31% of the performance targets were not specific in clearly identifying the nature and required level of performance and measurable as required by the National Treasury’s Framework for Managing Programme Performance Information (FMPPI).
- Reliability of Reported Performance Information: some important targets under Programme were not reliable when compared to the source information or evidence provided. This was due to:
- Firstly, the reported achievement for the indicator percentage of new registration certificates rolled out to security officers was not valid, accurate and complete- mainly due to insufficient systems and processes to provide adequate and reliable appropriate audit evidence.
- Secondly, the reported achievement for the indicator percentage of new registration certificates rolled out on active business was not valid, accurate and complete.
- Thirdly, the reported achievement for the indicator average turnaround time taken to resolve complaints received from customers through the call centre could not be verified. This was also due to insufficient systems and processes to provide adequate and reliable appropriate audit evidence.
- Non-compliance with legislation: effective, efficient and transparent systems of risk management and internal controls with respect to performance information and management was not maintained at all times as required by section 51(1)(a)(i) of the PFMA. More so, the financial statements submitted for auditing were in some instances not prepared in accordance with the prescribed financial reporting framework as required by section 55(1)(b) of the PFMA. Material misstatements of non-current assets, current assets, liabilities, disclosure items, expenditure and revenue identified by the auditors in the submitted financial statements were subsequently corrected, resulting in the financial statements receiving an unqualified audit opinion.
- Revenue Management: effective and appropriate steps were not taken to collect all money due, as required by section 51(1)(b)(i) of the PFMA and Treasury Regulations 31.1.2(a) and 31.1.2(e).
- Expenditure Management: the accounting authority did not take effective steps to prevent irregular expenditure and fruitless and wasteful expenditure as required by section 51(1)(b)(ii) of the PFMA
- Consequence Management: effective and appropriate disciplinary steps were not taken against officials who incurred and, or permitted irregular expenditure, as required by section 51(1)(e)(iii)
- Procurement Management: in some instances, quotations were awarded to bidders based on preference points that were not calculated in accordance with the requirements of the Preferential Procurement Policy Framework Act and its regulations.
- Leadership: Management did not sufficiently monitor compliance with internal controls to ensure that performance information reported is accurate and reliable
- Governance: the audit committee did not approve the internal audit plan timeously. As a result, internal audit work pertaining to the current financial year commenced late.
5. Performance information per programme in 2014/15
5.1 Programme 1: Administration
The purpose of the Administration Programme is to provide leadership, strategic management and administrative support to the Authority. The programme aims to ensure effective leadership, management and administrative support to the Entity through continuous refinement of organisational strategy and structure in line with appropriate legislation and best practice. The Programme has three sub-programmes, namely: Finance and Administration, Business Information Technology and Human Capital.
During the reporting period the Programme had the following strategic outcomes:
- Effective revenue management
- Sustainable funding model
- Compliance to Corporate Governance and IT Standards
- Efficient and secure IT systems
- Competent and performing workforce
The Administration Programme managed to achieve 9 out of 10 planned targets. In other words, the Programme achieved 90% success rate on its performance targets and spent 92.1% of its budget at the end of the 2014/15 FY. However, it should be noted that the targets were reduced from eleven in 2013/14 FY to ten in 2014/15 FY.
5.2 Programme 2: Law Enforcement
The purpose of the Law Enforcement Programme is to ensure that there are effective regulations in the security industry and enforcement of law and compliance to the regulations. The programme aims to ensure that Security Service Providers comply with the regulations by doing regular inspections for both security officers and security businesses. It also aims to ensure that those who are not complying with the regulations are charged and prosecuted.
The Programme has three sub-programmes, namely: Enforcement, Compliance and Legal Services and Prosecution.
During the reporting period, the Programme had the following strategic outcomes:
- Increased monitoring and investigation of security service providers to ensure compliance with existing legislation
- Increased compliance to minimum standards of occupational conduct of SSP’s
- Ensure that all firearms licenced to SSP are accounted for
Most of the performance indicators and targets set for the Law Enforcement Programme remained unchanged during the reporting period. However, some performance indicators were reworded and one performance indicator in the unqualified audit opinion was omitted.
In terms of performance, the Law Enforcement Programme managed to achieve 7 out of 9 planned targets. In other words, the Programme achieved 77.7% success rate on its performance targets and spent 84.6% of its budget at the end of the 2014/15 FY. The targets were reduced from fourteen in 2013/14 FY to nine in 2014/15 FY.
In terms of its achievements, the Authority reported the following:
- 4 114 inspections were conducted at security businesses against 3 870 target
- 23 555 inspections were conducted on security officers against 22 270 target
- 79% of investigations were finalised in respect of non-compliant SSP’s against 60% target
- 86% of criminal cases were opened against non-compliant SSP’s against 75% target
- Law enforcement strategy was reviewed
- 1 035 security businesses were licensed to possess firearms and inspected against a target of 900; and
- 85% of cases of compliant SSP’s were prosecuted per year against a target of 80% compliance.
5.3 Programme 3: Communications, Registration (CRM) and Training
The purpose of the Communication, Registrations and Training Programme to provide effective stakeholder engagement and ensure that training standards are adhered to and the registration process is delivered in accordance with the PSIRA Act. The programme also aimed at; ensuring effective and meaningful stakeholder communication; ensuring that all training institutions are aligned to the required standard of training; ensuring that the registration process is effective and authentic and providing continuous research to support core business initiatives and policy development. The Programme has four sub-programmes, namely: Communications and Stakeholder Management, Industry Registration, Industry Training and Industry Research and Development).
During the reporting period the Programme had the following strategic outcomes:
- Increased compliance to minimum professional standards in the training of SSP‘s;
- Effective and Efficient Registration Process;
- Improve the integrity of PSIRA registration certificates;
- Increased protection and enforcement of Private Security Industry Personnel Rights;
- Increased awareness on the functions and role of PSIRA and the industry;
- Increased efficiency of resolving consumer complaints; and
- Research to strengthen core business and support external initiatives.
Most of the performance indicators and targets set for Programme 3 remained unchanged during the reporting period.
In terms of performance, the Programme 3 managed to achieve 13 out of 16 planned targets. In other words, the Programme achieved 81.25% success rate on its performance targets and spent 83.88% of its budget at the end of the 2014/15 FY. However, it should be noted that the programme’s targets were reduced considerably during 2014/15 FY compared to the previous reporting period. The Committee also noted that the Auditor-General raised concerns about the indicators in this Programme.
In terms of its achievements, the Authority reported the following:
- 66 Public Awareness Programmes were conducted;
- 28 public awareness programmes were conducted in PSIRA’s role and functions for security businesses;
- 13 public awareness programmes were conducted on PSIRA’s role and functions for security officers;
- 17 awareness programmes on sectoral determination were conducted;
- 1 MOU to formalise partnerships with employee-based stakeholders was completed;
- 7% accredited training SPP’s complying with the minimum professional standards as stipulated in training policy;
- 1 Training Compliance Forum was established;
- 6 capacity building activities for SSP training institution were held;
- 4 surveys were completed; and
- 2 research projects were completed.
However, the following targets were not met:
- Date of implementation of security training percentage of new registration certificates rolled out (on active security officers)
- Percentage of new registration certificates rolled out (on active security businesses)
6. Committee Observations
- The Committee raised concerns over the high vacancy rate and resignations.
- The Committee expressed satisfaction with the training programmes that employees are receiving from the Authority.
- The Committee was not convinced that the authority has a sufficient action plan to attract necessary skills to fulfil its mandate.
- The Committee noted with concern the challenges with regard to compliance.
- The Committee noted the challenge of PSIRA not adhering to the Auditor General reporting prescripts.
7. Committee Key Findings and Recommendations
- The Committee recommends that PSIRA must submit monthly plans that are aimed at addressing the Auditor General’s recommendation about the PSIRA operating as a going concern.
- The Committee recommends that an update of vetting of senior management is undertaken. The Committee recommends that the Authority implements the recommendations of the Auditor- General with immediate effect.
- The Committee recommends that the PSIRA should consider putting in place a sound staff retention strategy in order to attract and keep its critical employees.
- The Committee recommends that the PSIRA implement programmes to improve stakeholder relations.
- The Committee recommends that the PSIRA consider conducting an analysis of resignations in order to determine the causes and improving staff retention with the hope of finding a solution.
The Committee noted progress made in certain key areas that were a cause of concern. The Committee also proposed to conduct more oversight visits in order to ensure that the remaining areas of concern are addressed.
Report to be considered
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