ATC130618: Report of the Select Committee on Finance on the follow-up Visit to Limpopo in terms of Section 100 (2) (C) of the Constitution of the Republic of South Africa, 1996, dated 18 June 2013

NCOP Finance



1. Background and introduction

On 5 December 2011, the South African Cabinet announced its intervention in the Limpopo Provincial Government according to section 100 (1) (b) of the Constitution of the Republic of South Africa , 1996. This intervention effectively placed five provincial departments, namely the Provincial Treasury, Education, Roads and Transport, Health and Public Works under national executive administration.

The intervention required that the Heads of Department (HODs) of the departments under administration surrender their Accounting Officer (AO) operational functions in terms of section 36 of the Public Finance Management Act ( PFMA). Section 100 (2) (c) of the Constitution of South Africa, 1996, provides for the National Council of Provinces (NCOP) to, whilst an intervention continues, review the intervention regularly and make recommendations to the National Executive.

Consequently, during March 2012, October 2012 and April 2013, the NCOP visited the Limpopo Province to review the intervention. The objective of follow-up visits was to ensure enforcements and implementation of the PFMA, sections 38 to 40 and 81 to 86. The review also aimed to measure progress made regarding the development and implementation of the action plans; to determine whether Section 100 intervention is effective; and to determine whether the Administrators are transferring skills to avoid regression in terms of spending and performance.

The report focuses mainly on progress achieved in the six months ending March 2013. The report discusses the presentations made by the Office of the Premier, the Department of Public Service and Administration (DPSA), joint presentations made by the Administrators and HODs of the following five departments Provincial Treasury; Health; Education; Roads and Transport and Public Works. These presentations addressed progress made regarding the challenges that led to the intervention, implementation of the recovery and turnaround plans, challenges encountered and the way forward. The report then makes recommendations based on the observations of the Committee.

2. Feedback by the Office of the Premier

The Office of the Premier focused on unauthorised expenditure, lack of communication between the Province and Administration team and ensuring that sustainable capacity was built in the Province.

During the April 2013 visit, the Office of the Premier indicated that the Province is fully committed to the intervention. The Premier reported that constructive progress had been made and acknowledged that there are challenges. The Director General (DG) of the Province reported progress achieved as follows:

· The appointment of the HOD of the Provincial Treasury and reorganisation of the Department to enable it to provide support to provincial departments and municipalities on the implementation of the PFMA and Municipal Finance Management Act (MFMA);

· Additional capacity had been built in the offices of the Chief Financial Officers (CFOs) in the departments of Education, Health and Provincial Treasury;

· Administrators have built sufficient capacity in their various departments, worked together with the HODs and have developed processes and systems, recovery plans and turnaround strategies;

· The Province had reduced unauthorised expenditure by R1.3 billion i.e. from R2.7 billion in 2011. About R822 million had been funded from the Provincial Revenue Fund and the rest through various departmental budgets. The outstanding R1.5 billion expenditure would be financed over the Medium Term Expenditure Framework (MTEF), of which R640 million would be addressed in the 2012/13 financial year;

· A Human Resource Task Team had been established to ensure that the budget is available to fund posts. Compensation of employees was expected to account for 69 per cent of the total provincial expenditure in 2012/13;

· The roll out of the LOGIS system to replace BAS in the Provincial Treasury, Health and Education had started. Roll out in other departments was expected to follow in a phased approach;

· The Minister of Public Service and Administration (PSA) had developed draft legislation on Section 100 (1) (b) of the Constitution and had sent it to the Province for comments; and

· There had been drastic improvement in communication between the intervention team and the Executive Council (EXCO). Bilateral meetings were held between the Office of the Premier, Provincial Treasury and the departments to address specific challenges. The Administrators attended the last EXCO meeting and those that could not attend, sent apologies.

Key challenges

The Office of the Premier identified the major challenge as the management of 101 cases of misconduct in the Department of Health that needed to be resolved as a matter of urgency. There was a need to review the decision of referring the disciplinary cases to the DPSA in order to speed up the process, not only in the Department of Health but in other departments that are under administration. According to the Office of the Premier, the Province had dismissed 112 officials on cases related to fraud and corruption, in instance where there was evidence.

3. Feedback by the Department of Public Service and Administration

The DPSA reported progress on disciplinary matters in the departments under administration. According to the DPSA, 303 cases were referred for investigation by the Special Investigations Unit (SIU). Of these, 41 cases had been completed and handed over to the DPSA. About 30 cases had been set down for hearings and were at an advanced stage, of which 16 and 14 are at the Provincial Treasury and the Department of Health, respectively. The remaining 11 cases in the departments of Education and Public Works had not commenced as the charge sheets for the affected employees had not been signed.

The DPSA was in a process of finalising a Memorandum of Understanding to define roles of Administrators and HODs in respect of these matters. The total number of cases under investigation was reported as 262. The DPSA had set up a centralised disciplinary panel of experts to assist with chairing and initiating cases. In addition to that, the services of labour law specialists had been secured to assist the SIU and the departments with the outstanding investigations.

The challenges experienced by the DPSA included non-completion of investigations by the SIU due to lack of resources; the lacuna relating to disciplinary processes i.e. the responsibility to sign the charge sheets and lack of clear roles between Administrators and HODs regarding the disciplinary matters.

4. Feedback by the National Treasury

The National Treasury had been implementing t he following projects to address the gaps identified during the diagnostic phase. Progress made in this regard is also discussed.

4.1 Cash Position

In order to strengthen the cash flow management controls in the Province, the Provincial Treasury issued cash allocation letters to each department, indicating their cash allocation for each payment run date as well as the processes to be followed by the departments to enable Provincial Treasury to release payment tapes.

Schedule of payment run dates were also sent to departments to enable them to inform service providers of the dates on which payments will be effected. Currently, Provincial Treasury stringently monitors each department’s cash flows and daily bank balances. In addition to that, all payment-runs are now certified and approved by the Accounting Officer and Chief Financial Officer of each department before they are released from the Basic Accounting System (BAS).

Personnel Salary System (PERSAL) payments are now processed four times a month while BAS payments are processed twice a month. The Province ended the year with a cash positive situation. An amount of R821 million had been paid and the Province is now left with R1.5 billion . As at 31 March 2013, the cash position was at R2.2 billion. During 2012/13 financial year, the positive cash balance earned an interest of R67 million.

4.2 Replacement of FINEST system

The Integrated Financial Management System (IFMS) asset module had been piloted in four Limpopo departments, namely Agriculture, Cooperative Governance Human Settlements and Traditional Affairs (CoGHSTA), Roads and Transport and Provincial Treasury.

Due to the slow progress made in developing the IFMS modules, the Province had identified the need to consider implementing an alternative national system, namely, the Logical Information System (LOGIS). LOGIS will assist the Province to record all procurement transactions in a single system which also integrates into the assets and inventory modules and interfaces seamlessly into BAS.

The Province had started the rollout of the LOGIS system in three departments, namely Provincial Treasury, Health and Education. The LOGIS system will be rolled out to all departments in a phased approach. The implementation team attended LOGIS training in the Western Cape and was expected to attend further required training at National Treasury during April 2013. Furthermore, the Province had also applied to National Treasury to implement a centralized supplier database system to manage all suppliers for all departments.

4.3 Thirty Days Payment Compliance

In the current financial year, only two departments have achieved full compliance in some months during the year. On average 71 per cent of all departments’ invoices had been paid within 30 days. Eight departments achieved an average compliance rate of above 90 per cent. However, the departments of Education and Health compliance rates stood at 57 and 56 per cent, respectively.

The Provincial Treasury and the Office of the Premier have met with all non-complying departments to share best practices and to identify the root causes for non-compliance. Continuous monthly monitoring of these departments was expected to improve the payment turnaround times. The implementation of LOGIS would also assist in the management of outstanding orders and the payment timelines.

4.4 Cost Containment Measures

The Provincial Treasury issued an Instruction Note, 1 of 2012, which tightened controls and restricted expenditure on certain non-core expenditure items such as travel and subsistence, accommodation, catering, usage of external conference facilities, mobile phones and 3G cards, printing and overtime work.

A template was developed by Provincial Treasury to enable departments to report on compliance with the abovementioned cost containment measures. Due to the austerity measures, the Province had saved R199.2 million, which was re-allocated during the budget adjustment process to fund critical priority shortfalls in the Department of Education and the personnel costs in the Department of Health.

4.5 Provincial Own Revenue Enhancement Strategy

The Province had collected R680.1 million in March 2013, compared to an initial estimated budget of R509.9 million. The public entities surrendered a surplus amount of R32.9 million to the Provincial Revenue Fund in line with the Provincial Treasury Instruction Note 8 of 2012 and in terms of Section 53 (3) of the PFMA. The Province had budgeted a total of R48.4 billion in 2013/14, of which R629 million constitutes provincial own revenue.

In 2013/14 financial year, Provincial Treasury will continue to implement the Provincial Revenue Enhancement Strategy more intensively by embarking and financing sustainable revenue enhancement projects within departments and public entities.

4.6 Reduction of Compensation of Employees

The departments of Health and Education together accounted for 85 per cent of the total Compensation of Employees (CoE) in the Province. The preliminary provincial expenditure outcomes for 2012/13 showed that CoE will account for the 69 per cent as a proportion of total expenditure. The CoE budget of the Department of Education had stabilised and the Provincial Treasury put all efforts into stabilising the Department of Health’s personnel and goods and services budget.

The Province had also established the Human Resource Task Team to consider the merits for filling posts in departments and ensure that the budget was available to fund such posts. Moreover, the Provincial Treasury had established a CoE Task Team that would analyse and monitor the CoE cost drivers in the Province.

4.7 Infrastructure Delivery Management System

The implementation of the Human Resource Capacitating Programme started in the departments of Roads and Transport, Education, Health, Treasury and Public Works. Provincial Treasury had provided R5 million to assist with this programme in Public Works to enable the Department to play an effective role in the delivery of infrastructure. The appointments thereof are underway.

The Provincial Treasury intended to provide additional support to the municipalities on the implementation of the Municipal Infrastructure Grant (MIG) and also continue to provide support to both the departments and the municipalities on Public Private Partnerships .

4.8 Organisational realignment and strengthening of the Provincial Treasury

The Provincial Treasury had been working with the DPSA to review and align its structure with the National Treasury generic structure for provincial treasuries. It was anticipated that the final structure and proposed posts will be submitted to the Minister of the DPSA for final approval by the end of May 2013.

The vacant Provincial Treasury HOD post had been filled with effect from mid December 2012. Five Senior General Manager posts had been advertised and were expected to be filled by 1 June 2013. The CFO position had been benchmarked with other treasuries through the Premier’s Office. Candidates for the General Manager for the MFMA position had been shortlisted and the interviews were scheduled for 24 April 2013.

4.9 Financial Management Skills and capacity

A tender to conduct the capacity and skills audit assessment had been awarded in April 2013 and was expected to start first with the Provincial Treasury, Education and Health. As it was the case in October 2012, the Department had been embarking on a capacity building programme where service providers would provide project-based learning and work-based training for officials in all five departments placed under Administration. National Treasury assisted in enhancing capacity of the offices of the Chief Risk Officers in the Province.

4.10 Procurement Management

The Province worked on the restoration of sound and legal procurement practices and establishing a centre to manage transversal contracts. As at April 2013, transversal contracts were being put in place primarily to leverage economies of scale and to limit space for possible corruption. This was happening in security and banking services. It was expected that the banking and the transversal security contracts would be in place by 01 May 2013. Other areas being earmarked for this initiative were travel and accommodation.

4.11 Audit Assistance

The Provincial audit outcome showed a regression in the provincial departments, public entities and municipalities . The professional services of the PricewaterhouseCoopers had been procured to provide technical support to the intervention department and two other departments to improve the audit outcomes and thereby contribute towards the 2014 clean audit drive.

During the financial year 2011/12, the Province’s 14 municipalities had disclaimers, 12 had qualified audit reports and one with adverse audit opinions. The Provincial Treasury had noted this trend and had restructured the MFMA support team to improve support provided to the municipalities. Dedicated MFMA support teams have now been established to support a particular district and its local municipalities. There had been improved cooperation between CoGHSTA, the Provincial Treasury and the MFMA teams.

4.12 Expenditure trends

The preliminary year-end report indicated that the Province under spent by R2.1 billion in 2012/13. This includes the following:

· Compensation of employees (R331 million);

· Goods and services (R946.7 million);

· Transfers and subsidies (R291.8 million); and

· Payments for capital assets (R517.2 million).

Key challenges

Some of the major challenges identified were that key management positions were not filled with skilled employees; the long time frame to implement LOGIS system and achieving clean audit in 2014. There were about 112 disciplinary cases of dismissed individuals for fraud and corruption in the Provincial Treasury .

5. Feedback by the National Department of Health

During the diagnostic phase, the Department of Health took over the following functions, Financial Management and Budget Control; Procurement Management; Human Resource Management; Pharmaceutical supply Management; Infrastructure Management and Information Technology Management. Specific intervention projects that the Department was implementing are discussed below.

5.1 Learning and Organisational Re-alignment

The Department had deployed 57 unemployed graduate interns to work in various sections including finance and revenue, Supply Chain Management (SCM) and Human Resource. An acting CFO had been appointed mid-October 2012 following the suspension of the CFO in July 2012. The National Treasury assisted with increasing additional capacity in the CFO’s office with two financial managers effective from the end of May 2013. The Department had prioritised a Finance General Manager and Senior Manager posts to be filled in the first quarter of the financial year.

The Department had identified training needs for capacity building and sustainability of the intervention in areas such as SCM, budget analysis and human resource management. Public Administration Leadership and Management Academy (PALAMA) was also being utilised for transversal training needs. Moreover, t argeted training for pharmacists took place in order to address the current poor management of availability of drugs at health facilities.

5.2 Human Resources

Adequate funding for CoE remains a challenge for the Department. Provincial Treasury had partnered with Statistics South Africa (Stats-SA) to assist the departments with the verification of health professionals. An amount of R18.5 million had been provided for this purpose. The Census project was expected to commence in April 2013 and be finalised in June 2013. The Service Level Agreement between Stats-SA and the National Treasury was due to be signed before by 19 April 2013. The project is about personnel head count for all the existing staff for the Department of Health, from the clinics, hospitals, districts and sub districts as well as the provincial office.

The PERSAL clean -up process was largely complete. The staff establishment on PERSAL had decreased from 69 175 posts to 38 307 (30 868 unfunded posts were abolished). A process was underway to identify critical posts from the unfunded posts, for future planning in the MTEF process.

The process of reviewing the Occupation Specific Dispensation (OSD) had been delayed because of the resignation of key staff in the Remuneration Unit of the DPSA. A meeting had been arranged with the DPSA to discuss the way forward. The DPSA team was still processing the 101 cases handed over to them.

5.3 Pharmaceutical Depot Management

After the takeover from outsourced services in April 2012, the depot was now functional and managed internally. The process of refurbishing of the depot was underway. A decision from the National Health Council had been taken that a new depot would not be constructed as initially planned by the Province. This decision is based on the policy decision to minimize stock levels at the depot and rather focus on building capacity for direct deliveries to hospitals. This model is still being tested, should it work the intention is to roll it out to other provinces.

The Department reported that due to funding challenges stock levels which had improved in 2012 from 51 per cent to 76 per cent, had decreased in the March 2013 to 49.5 per cent and improved slightly in April at 54 per cent. An attempt had been made to ensure adequate funding for medicine and medical supplies in the 2013/14 financial year. A training plan on drug SCM had been developed and was being implemented.

5.4 Infrastructure Management

The National Department of Health had funded and awarded a tender for 52 autoclaves amounting to R50 million and delivery is expected by the end of May 2013. The technical infrastructure team led by the engineers had been monitoring existing construction projects. Recruitment processes were underway to build in-house capacity for the management and monitoring of infrastructure projects, in an effort to move away from the outsourced Project Management Units (PMUs).

The project to repair 38 boilers in 19 hospitals costing R88 million was progressing well and the first phase was expected to be concluded by August 2013, including training of departmental staff for in-house operation of the boilers. To date, 18 boilers out of 38 had been repaired and handed over to the hospitals. The second phase of the project, which needs additional funding, relates to routine maintenance of the boilers. This would be addressed in the 2013/14 financial year from the maintenance budget allocated.

The project for the doctors’ accommodation had been completed and the developer had handed over the property to the Department, with the involvement of Public Works.

5.5 Governance and Financial Management

The Department had been working to address the 2011/12 audit findings. Progress had not been at expected levels over the previous months, particularly, the main finding of the credibility of the Asset Register. The target for the Department was to move from the disclaimer opinion on the asset register to at least a qualified or unqualified opinion in the 2012/13 financial year. Additional capacity from PricewaterhouseCoopers had been put in place effective from March 2013, to assist with addressing the audit findings.

The Department was considering and reviewing the financial management decentralization model, with a view to reduce the number of the cost centers, currently 58. The proposal was to centralize and reinforce capacity at hospitals and districts only and therefore reduce the high risk of limited capacity and skills as well as non-compliance rate

Furthermore, a consultant from National Treasury performed an analysis of the SCM function. A report was available for perusal and implementation of the recommendations based on the findings. Assets had been verified in the districts and the process was underway to produce a credible asset register. The first draft of the asset register was expected to be produced in April 2013 for a preliminary audit by the AG.

The Department paid 57 per cent of invoices within the prescribed period. One of the major obstacles was the slowness and absence of BAS at times. The issue was being addressed with State Information Technology Agency (SITA). The Technical Assistance Unit at National Treasury was assisting with identifying appropriate individuals to address challenges with the Risk Management and Information Technology (IT) services of the Department.

Key challenges

The Department of Health reported the following challenges:

· Provincial management oversight capacity for all 506 health facilities;

· Financial Management capacity at provincial, district and hospital level;

· Procurement management mainly within catering, security and laundry services as well as procurement and management of medical equipment;

· There were 101 cases in the Department of Health, including five cases that involved SMS member although not all of these cases are related to financial misconduct;

· Budgeting processes and costing of activities and programmes including compensation of employees; and

· Delays in the finalisation of disciplinary cases.

Summary of key achievements

· Internal capacity had been built in the CFO branch;

• Competent hospital CEO’s had been appointed to improve the management of hospitals;

• Costing of priority programmes referred to as “ non negotiable ” by the National Health CFO forum had been completed and had improved the budgeting and costing process for services such as medicine, security and laundry, catering, maintenance of infrastructure and equipment and the procurement of medical supplies for vaccines, TB and HIV and AIDS programmes;

• Major contracts such as security and catering services were reviewed; and

• Maintenance of hospital boilers and the procurement of autoclaves as well as facilitating the functionality of X-Ray machines at some hospitals occurred.

6. Feedback by the National Department of Education

The diagnosis analysis indicated that the Department of Education was not able to fund key strategic educational priorities, resulting in failure to meet essential national standards. The existing system of financial, supply chain, contracts, asset, records and cash flow management and controls was not effective and efficient. The compensation of employees’ budget was found to be bloated. The following measures were being implemented under the guidance of the National Executive Intervention task team to address the issues identified above.

6.1 Financial Management

The Department had developed action plans as a corrective measure to address the audit reports and had managed to resolve 141 queries from the total 206. The appointment of PriceWaterhouseCoopers and Rakoma Consortium and the envisaged appointment in the CFO’s branch were expected to ensure credibility and assist the Department with issues raised. Similar to the feedback given in October 2012, the Department indicated that strides are made to comply with the cost containment strategy of the Province and the 30 days prescripts for the payment of authenticated invoices. The process of the verification of invoices existed but was slow and payments were only effected with the recommendation of the CFO.

The Department indicated that some officials are currently being trained on BAS and FINEST through an arrangement by the Provincial Treasury. With respect to cash flow management, the Provincial Treasury reported a bank overdraft of R329 million at the end of 2012/13, which according to the report arises in the main from the 2011/12 accruals.

6.2 Supply Chain Management

The activities that the Administration team was expected to report back on included reviewing and strengthening of the personnel structure, policies and delegations of the supply chain management; contract management and administration and processes and procedures in asset and stores management. In addition to that the Department had to establish and secure document and file management system and introduce, review and maintain a credible supplier database.

The progress reported with regards to the abovementioned activities was that the organisational redesign of the CFO’s branch, which includes supply chain management, will bring the much desired stability and focus in this area. Also, the Department expected that the appointment of the PriceWaterhouseCoopers and Rakoma Consortium and envisaged appointments in the CFO’s branch would solve all issues related to supply chain management processes as is the case with financial management problems.

6.3 Human Resource Planning and Management

The Department was expected to provide progress made with regards to establishing a focused organizational structure, populated with appropriately qualified and experienced personnel; ensure compliance with human resource implementation plans; clean up the PERSAL transversal system; drastically reduce compensation of employees budget; ensure declaration of interest and clearance of SMS members and identified support staff; conclusively and urgently handle disciplinary matters; apply provisioning norms effectively, timeously and correctly and manage normal, sick and incapacity leave.

The Administrator reported that organisational functionality assessment carried out by the DPSA to determine deficiencies in the current structure has been finalised. The organisational realignment with the assistance from DPSA had produced a draft structure that is currently being consulted with social partners.

The PERSAL clean-up had identified more than 8 000 unfunded posts and the Department was busy with consultations between DPSA and the human resources branch to finalise the exercise after which all those posts will be removed. Provincial Treasury had partnered with Stats-SA to assist the Departments with the verification of learners and educators in the Department. An amount of R18.5 million had been provided for this purpose. The Education Census was underway and was expected to be finalised in May 2013. The Service Level Agreement between Stats-SA and the National Treasury was due to be signed before by 19 April 2013.

It was also reported that all SMS had declared interest and that security clearance was progressing very slow. This process was expected to be extended to supply chain management and finance officials.

The Department indicated that 18 of the 52 fraud and corruption cases managed internally; 209 of 214 cases reported through the Presidential hotline and 92 of 111 cases reported through the Premiers hotline had been resolved.

Regarding the post provisioning norms, the Administrator reported that the 2012 post establishments declared for public schools had been retained for the 2013 school calendar year and that the small schools that have been declared as not economically and educationally viable to run were rationalised through mergers and closures.

6.5 Curriculum Implementation, Teacher Development, LTSM, Management and Governance

The Department reported 100 per cent coverage of Curriculum and Assessment Policy Statements (CAPS) aligned textbooks for the foundation phase for grades 1 to 3 and grade 10 for the 2012 school calendar year. In addition, 20 per cent top-up of textbooks for grades 11 and 12 were procured and delivered during the 2012 school calendar grades. In addition to that, 100 per cent of CAPS-aligned textbooks for the intermediate phase, grades 4 to 6 and grade 11 for the calendar year 2013 were covered and 100 per cent coverage of stationery packs to all grades R to 12 for both 2012 and 2013 school calendar years.

National and Provincial Treasuries, through adjustment process made available an additional R510 million for the procurement and delivery of Learner Teacher Support Material ( LTSM) for the 2013 school calendar year. The total cost for the 2013 textbook procurement of CAPS-aligned textbooks for grades 4, 5, 6, and 11 had been reduced from R382.9 million to R236.2 million. For the 2013/14 school calendar year, the Department had budgeted R1.2 billion for the norms funding and this money was supposed to be transferred to 3 947 ordinary public schools with 1 660 529 learner enrolment.

An amount of R142.7 million had been budgeted for scholar transport in the 2013/14 financial year and the Department intended to transport 26 540 learners.

The Department had appointed contractors to implement its water and sanitation programmes. Through this process, 222 schools would be provided with water supply and 144 schools would have sanitation facilities. Also, 510 additional classrooms would be built. Funds had been committed for school furniture, a total of R40 million.

With regards to CAPS, the Department had trained 25 750 educators on the subject content and methodology in General Education and Training (GET) phase. About 82 teachers completed training in Mathematics, Sciences and Accounting at the Continuing Professional Development Centre.

6.6 Compensation of Employees

The CoE budget stood at about 83 per cent of the total budget allocation for the Department of Education in 2012/13, constituting R18.3 billion, leaving R3.7 billion to implement programmes related to core functions of the Department. The CoE budget had been reduced by 1.8 per cent or R327.8 million as recorded in March 2013 and a saving of R80 million was made from the attrition of public service posts. This was achieved by permanently appointing circuit managers, filling all promotional posts, and permanently absorbing temporary educators into profiled vacant substantive posts. For the financial year 2013/14, the CoE had been adequately budgeted for and had been stabilized by the Department of Education.

It was mentioned that a cost estimate for filling of the circuit managers and promotional posts average R377 million. The Department had a high number of temporary and ad hoc educators appointed in substantive vacant posts. These educators cost the Department more than R1.3 billion per annum.

Key Challenges

The Administrator identified the following challenges:

· The possibility of the Department to relapse after the intervention had been withdrawn;

· Reliable and replicable datasets for learners;

· Timeous procurement and delivery of LTMS;

· Timeous transfer of funds to schools in terms of the norms and standards;

· There were 52 cases of fraud in Education, 18 of which had been resolved;

· Timeous rehabilitation and maintenance of school buildings; and

· Credible and transparent financial, supply chain, contract and asset management.

7. Feedback by the National Department of Transport

The diagnostic analysis identified weak internal controls or inadequate SCM policies; no contract management, Auditor General audit opinions for 2010/11; poor financial management at Road Agency Limpopo (RAL) and Gateway Airports Authority Limited (GAAL), no proper verification of payments; irregular tender awards with regards to quality assurance checks, segregation of duties, abuse of hand written cheques at GAAL and weak governance structures as issues that needed to be addressed.

7.1 Contract Management

The Department had completed a manual checklist of all infrastructure contracts and started with the collection of critical but missing information in the contracts files. The Department had been waiting for Provincial Treasury to provide a standardized and reliable contract management system. A team of experts had been referred to deal with the Auditor General issues.

7.2 Financial Management

The Department had identified internal control weaknesses and had been fixing the gaps identified and also developed new delegations. New procurement committees had been appointed to bring back legitimacy and reliance. Furthermore, a system of invoice verification had been introduced. It was also reported that the budget for projects had been reallocated in terms of the Annual Performance Plan (APP). The Department was at 99 per cent 30 day payment compliance rate. The cash situation had stabilized and the Department had not over spent on the current budget. The Department verified and processed over 6 500 invoices for payments.

7.3 Restructuring of Public Entities

The Department had mobilised legal support and roped in turnaround teams for RAL and GAAL. All financial management, particularly the SCM related policies for the two agencies had been reviewed. The SIU conducted a viability study for GAAL and a preliminary report suggested that the public entity should be disestablished and be managed by Airports Company South Africa (ACSA). The DPSA was assisting the Department with the review of RAL as an appropriate model to deliver roads infrastructure.

The deliverables that were needed to turnaround GAAL that related to SCM processes; financial management and controls; strategic alignment; the Auditor General’s report and ongoing departmental support had largely been completed.

7.4 Organisational Realignment and Learning

The review of the department's organogram had been completed and being reviewed by the DPSA. T he structure was at 7 223 on PERSAL, reduced by 2 916 and stood at 4 307, including 120 vacancies over the MTEF period. Service delivery model for roads infrastructure was being undertaken. The Minister had approved the secondment of officials for Chief Executive Officer and CFO positions at RAL. Efforts were being made to recall the suspended CEO of GAAL. Also, options to deal with the future of GAAL have been finalised and were expected to be submitted to the Minister for consideration.

7.5 Forensic and related investigations

The Intervention team had referred 33 suspicious invoices to the forensic investigators. The investigations were progressing satisfactorily and five cases had been registered with the police. More cases were at an investigation stage by the police. The SIU had indicated that 13 service providers and one official of the Department have been arrested in connection with the fixing of potholes or Expanded Public Works Programme (EPWP) contracts. Charges related to misrepresentation or fraud, irregular award of these contracts and charging for services not rendered were made. Two Board members and a former official of the GAAL have been arrested for fraud. There are also 30 cases of conflict of interest, financial non-disclosures, doing remunerative work outside without permission and doing business with own Department that are being investigated.

Key Challenges

The Administrator identified the following challenges:

· The budget for the Department was cut by R1.3 billion over MTEF period to fund the Provincial Overdraft. This led to postponement of certain projects including that of construction of new roads;

· The projects for 2012/13 could not be implemented as planned due to late appointments of Professional Service Providers (PSP). As a result, the Department under-spent by R400 million;

· There were 33 disciplinary cases at Roads and Transport, 5 of which were with the police;

· Funds transferred to the RAL may not be fully utilised by the end of the financial year due to challenges on governance matters in the Agency; and

· Vacancies at Board and Executive level at GAAL.

Exit Strategy

According to the Administrator, all issues sighted as the reasons for the intervention in the Department of Roads and Transport had largely been addressed. The GAAL was being supported financially with R50 million but generating a revenue of R6 million. Therefore, the Provincial EXCO and the Department are of the view that GAAL should be disestablished and be replaced with a management contract with ACSA, for instance.

The Administrator identified a need to closely monitor recipients of the transferred skills to ensure no regression on the gains made. It was further reported that the technical teams from the National Department had been withdrawn. However, there was a need to retain the legal support to finalise among others, overseeing the winding down of GAAL; legal advice on the Commission for Conciliation, Mediation and Arbitration (CCMA) case of the former CEO and other high profile labour relations matters; legal advice on litigation cases; finalization of amendments to the RAL Act to deal with “responsible shareholder” issues; legal implications of the pending roads infrastructure delivery model and continued legal support to the intervention.

8. Feedback by the National Department of Public Works

The Limpopo Department of Public Works (LDPW) had to address poor management of property portfolio; spiralling unauthorised expenditure; inadequate capacity in the Public Financial Management and technical capacity; the fact that client departments have ignored LDPW mandate as they built their own PMUs; the districts were largely ignored as service delivery nodes; the Information Technology (IT) infrastructure of the LDPW had virtually collapsed due to poor maintenance, poor IT infrastructure planning and under budgeting.

8.1 Immovable Asset Registers

The Department had consolidated various asset registers into one master register. It was reported that a process of assigning appropriate title deed numbers commenced. The Department was reconciling the R2 billion that contributed to the disclaimer in the previous financial year. Moreover, a vesting factory had been established in order to speed up the process of vesting properties by 31 March 2014 in line with the National targets. The next phase was expected to concentrate on the population of the remaining columns of the asset register resulting in a Government Immovable Asset Management Act (GIAMA) compliant asset register by 31 March 2014.

8.2 Lease Management

The Administrator reported that the service provider commenced with the desk top review and the process was expected to be completed by 30 August 2013. The Department was working out the cost implications for options to purchase the top six leases in Limpopo so as to reduce the leasing cost over the medium term.

8.3 Building technical capacity of the department

It was reported that, between March and April 2013, 12 professional staff out of a total of 36 had been appointed from the professional services budget to support the Project Management Unit. As of 1 April 2013, the Department had appointed eight professionals. It was expected that at the beginning of June 2013, the professionals including the General Manager Infrastructure Planning, Chief Engineer, Design Management, Infrastructure Planning and two Architects would be appointed.

8.4 Reduction of overdraft caused by accumulated unauthorised expenditure

The Department surrendered R26 million from CoE to the Provincial Treasury and had raised R6 million from the auction of redundant stock and R3 million in savings from travel. A saving of R7 million had been made from a 27 per cent discount negotiated with a sole service provider for materials.

8.5 Building capacity in the office of the Chief Financial Officer

According to the Administrator, from the 1 June 2013, Senior Managers in accounting, budgeting and SCM were expected to be appointed. More officials at senior and junior management level had been identified for Project Based Learning. To alleviate pressure at SCM Unit, nine term contractors had been appointed. There were improvements in the SCM Unit resulting in increased spending on Capital Expenditure (CAPEX) from initial 17 per cent in December 2012 to fully committed CAPEX by 31 March 2013. Expenditure was estimated at 94 per cent including commitments and savings.

8.6 Rebuild Information Technology infrastructure in the Department

It was indicated that all Auditor General related issues had been adequately addressed for the 2013/14 financial year. To provide tools for the newly appointed and existing resources, an amount of R2.5 million had been set aside. A disaster recovery server had been procured for offsite locations, together with the backup tapes enabling them to restore backup from an offsite location. The disaster recovery system was fully safeguarded.

8.7 Human Resource and Organisational Design

The Department had completed a Human Resource and organisational design review and management was engaging organised labour on the correction of improper appointments and the implementation of the recommendations made. The top structure of the Department had been completed by the DPSA. The new organisational structure under review included a Legal Unit headed by a Director. About 3 983 posts from a staff establishment of 7 000 had been abolished.

Key challenges

The Department identified the following top risks:

· Committed financial and other support to the plan;

· Finalization of outstanding criminal cases; and

· There were about 60 cases under investigation and 45 cases of irregular expenditure in the Department of Public Works.

Exit Strategy

The Department had drawn up an exit plan for the intervention in Limpopo . The summary of the plan includes ; appointment of suitably qualified personnel in key positions, a process to be completed by 30 June 2013; approval of the newly revised organisational structure by 30 June 2013 and the implementation of the Infrastructure Capacitation Plan process to be completed on 30 April 2013.

9. Committee observations and findings

9.1 The Director General of the Province still does not see the need for the intervention. Communication and cooperation between the Administration Team and the Province had improved. However, there was a concerning conflict between the Director General of the Province and the Chief Administrator;

9.2 There was general consensus between the Premier, the Director General, the Chief Administrator and the Administrators of the five departments that there had been progress with respect to commitments previously made but there are challenges that still needed to be resolved;

9.3 Management of procurement processes, absence of guidelines, changing of Administrators and the fact that the intervention process was new, created challenges in as far as effective implementation was concerned;

9.4 Under spending on conditional grants occurred according to planned slow down in spending to contain costs. There were investigations in certain cases involving tenders/contracts by National Treasury and underperformance by the departments;

9.5 The Department of Public Service and Administration and the Office of the Premier had some challenges in dealing with the current disciplinary hearings for the 303 prioritised cases. As a result, the DPSA reported very little progress with respect to disciplinary cases;

9.6 The Committee was informed that the process of charging of some individuals was flawed and could lead to some cases being lost. The Department of Cooperative Governance and Traditional Affairs (CoGTA) was developing a draft legislation that would provide regulations on interventions in terms of section 100 (3) of the Constitution;

9.7 The officials of the Provincial Department of Health travelled to Centurion to access the BAS system and this cost the Department;

9.8 According to the Auditor General’s findings, tenders amounting to a total of R27 million were awarded to 26 suppliers who failed to declare their interest in doing business and the Department of Health had spent R731 million in fruitless and wasteful expenditure (R8 million in expired medicine);

9.9 The Department of Health was moving in the right direction, unauthorised expenditure had been reduced but the Department still needed to stabilise compensation of employees;

9.10 Some of the challenges that led to the intervention in the Department of Health resurfaced from time to time. These included unavailability of medicine at the Depot, food crisis due to shortage of funds and payment of service providers on time (More than 15 service providers had not been paid at some point);

9.11 Some of the main responsibilities in the Department of Health had been handed over to the departmental officials already, with the Administrator just providing technical support;

9.12 National Treasury had withdrawn funds that the Provincial Department of Education had already committed to projects amounting to R235.5 million;

9.13 The Administrator of the Department of Education had good working relations with the MEC, the HOD and the provincial education officials, given that administrative support staff does not exist. According to the Administrator, the Province would sustain itself should the NCOP stop the intervention;

9.14 The Administrator of the Department of Education largely failed to substantiate and demonstrate progress achieved since October 2012 when reporting. Difficulty in reporting related to service delivery achieved; responses to recommendations made by the Committee and elaborating on the exit strategy presented;

9.15 The Administrator of the Department of Education also failed to respond to the Auditor General questions and issues raised that related to the findings on tender processes;

9.16 Education Infrastructure procurement was being done without the financial plan, leading to overrun of the budget;

9.17 The Provincial Department of Roads and Transport assisted the GAAL with R50 million funding but the agency generated only R6 million;

9.18 The GAAL CEO had been suspended, with pay, for the duration of the suspension due to irreparable differences. The CEO had since been recalled to resume work as of 29 April 2013;

9.19 The Administrator for the Department of Roads and Transport reported satisfaction on the basis that much of the ground had been covered and the majority of issues had been resolved. Concerns were expressed over infrastructure and winding down GAAL, to which the MEC and HOD concurred; and

9.20 The Provincial Department of Public Works and other provincial departments spent approximately R200 million per year on the buildings leased. These rental costs in Public Works were exorbitant at R2.5 million per month and the situation was not sustainable.

10. Committee recommendations

10.1 The Director General of the Province and the Chief Administrator should resolve the conflict that exists between them as this unnecessarily prolongs the intervention process. Working together and improved communication between them is highly encouraged;

10.2 Despite the financial turnaround in the Province, withdrawal of the intervention from the Province now is premature and therefore discouraged. All the Administrators should continue to assist the Province to sustain progress made and to successfully implement the turnaround strategies;

10.3 The Minister of Finance should support the Provincial Treasury Administrator to provide leadership in coordinating the intervention on behalf of the Inter-Ministerial Task Team. The Provincial Treasury Administrator should facilitate the management of procurement processes and effectively implement the guidelines to address the challenges identified;

10.4 The Administrator’s team should table a plan to the Inter-Ministerial Task Team, three months after the adoption of this report, that would assist the five provincial departments placed under administration to exit the intervention;

10.5 The Office of the Premier and the DPSA should prioritise the 303 disciplinary cases and report to Parliament, three months after the adoption of the Committee report;

10.6 The Department of Cooperative Governance and Traditional Affairs should table to Parliament the draft legislation that would provide regulations on interventions in terms of section 100 (3) of the Constitution;

10.7 The National Treasury should as a matter of urgency, assist the Provincial Department of Health officials to install the BAS in the Province and report progress to the Committee;

10.8 The Administrator for the Department of Health should table a report to the House, three months after the adoption of this report that would ensure the following: effective management of information systems; provide credible reasons for poor performance and over-spending; address the Auditor General’s findings particularly those related to fruitless and wasteful expenditure and tender fraud; eliminate unauthorised expenditure; address compensation of employees in line with the national average; effectively monitor the provincial Department of Health to ensure that there is sufficient budget for the availability of medicine at the Depot, food at the hospitals and timely payment of service providers; outline the Department’s exit strategy, discuss plans to ensure a smooth handover and sustainability of the Department upon withdrawal of Section 100 intervention and highlight short term, medium term and long term timeframes and deliverables for projects underway;

10.9 The Administrator for the Department of Education should table a report to the House, three months after the adoption of this report, on service delivery achievements since the beginning of the intervention; and a plan to ensure that procurement of infrastructure follows due processes and stay within the budget;

10.10 The National Department of Education and the Provincial Treasury should assist the Provincial Department of Education in terms of resolving the issues related to funds that had been withdrawn by the National Treasury;

10.11 The Provincial Department of Roads and Transport should facilitate the winding down of the GAAL so that its future can be speedily established;

10.12 The Office of the Premier should submit a report to the House about the investigations that are being done, regarding the suspension of the GAAL CEO, as a matter of urgency;

10.13 The Administrator for the Department of Roads and Transport should submit a service delivery report to the House, three months after the adoption of this report, detailing the plans to resolve infrastructure issues;

10.14 The Province should table a report to the House detailing plans to minimise the costs of leasing of buildings;

10.15 The Committee noted progress achieved in turning around the financial status of the Province and improvements in communication between the Administration team, the officials of different departments and the Office of the Premier. There is a need for all stakeholders to meet frequently to address cross cutting issues as do HOD forums. It is also necessary to measure the impact made on the people of the Province. The Committee will conduct a follow-up visit to the Province during October 2013.

Report to be considered


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