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
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
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
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
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 departments 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
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 Healths
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 Premiers 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 Provinces 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 CFOs 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 CEOs
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 CFOs 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 CFOs 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 CFOs 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
Generals 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
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
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 Generals 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 Administrators
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 Generals 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 Departments 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
Documents
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