ATC131118: Report of the  Select Committee on Finance on the Review of the Limpopo Intervention in terms of section 100 (2) (C) of the Constitution of the Republic of South Africa 1996, dated 13 November 2013

Report of the  Select Committee on Finance on the Review of the Limpopo Intervention  in terms of section 100 (2) (C) of the  Constitution of the  Republic of  South Africa 1996, dated 13 November 2013.

1. Background

1.1. Reasons for the intervention

On 5 December 2011 the South African cabinet announced its intervention in the Limpopo provincial government in accordance with section 100(1)(b) of the Constitution. This effectively placed five Limpopo provincial departments, namely the Provincial Treasury, Education, Transport & Roads, Health, and Public Works under national executive administration.

The following were identified as the province’s major challenges: underspending , overspending and supply chain management.

1.2. Intervention Procedure

Section 100(1) (b) provides for the national executive to assume responsibility for the relevant obligation in a province to the extent necessary to:

i.    maintain essential national standards or meet established minimum standards for the rendering of a service;

ii.    maintain economic unity;

iii.    maintain national security; or

iv.    prevent that province from taking unreasonable action that is prejudicial to the interests of another province or to the country as a whole.

The national executive intervention team was guided by the above-mentioned constitutional provisions in how it undertook its task.

2.         Progress report by the Administration Team

2.1 Progress report by the National Treasury

2.1.1 Review Provincial Treasury functional structure

The Intervention Team and the Department of Public Service and Administration (DPSA) reviewed the Provincial Treasury organizational structure and aligned it to the National Treasury generic structure for provincial treasuries. The Provincial Treasury and the administrator are currently reducing the 583 planned posts in the Limpopo Treasury, to between 350 and 380 posts. The General Manager: Infrastructure vacated office in October 2013, and the post is still to be advertised.

2.1.2 Filling of critical management positions

The vacant Head of Department post was filled in mid-December 2012. Five vacant Senior General Manager (SGM), and 3 vacant General Manager posts have been advertised. Key infrastructure management positions linked to the Infrastructure Delivery Management System have been filled i.e. one Senior Manager and two Managers.

2.1.3 Improve financial management, skills development and capacity building: Treasury

The need for a skills audit of the offices of the Chief Financial Officers (CFO), across the provinces, was identified, and was conducted across all provincial departments. The outcome of the audit will be used to identify critical weaknesses that required attention. The service provider has assessed all Provincial Treasuries and the final report is in the process of being completed.

2.1.4 Project based learning

The National Treasury is already assisting in enhancing the capacity of the offices of the Chief Risk Officers in the province. Support for the office of the CFO will also be deployed to a number of departments under administration so as to strengthen financial management. Approval has been obtained to appoint a high level CFO support team on a two-year contract.

2.1.5 Improve Supply Chain Management Standard operating Procedures

The Provincial Supply Chain Management ( SCM) Policy has been reviewed. Provincial SCM standard operating procedures (SOPs) and checklists were being developed by Provincial Treasury, and the project should have been completed by the end of October 2013. Training on SOPs and their implementation will be provided to all provincial departments.

2.1.6 Centralised supplier database

The province has applied to the National Treasury to implement a centralized supplier database system whereby all suppliers in the province will be managed.

2.1.7 Accumulated over expenditure in 2012/13 and over the MTEF

The province has reduced its unauthorized expenditure by R931 million. R821 million of that was funded from the Provincial Revenue Fund in 2012/13, and the balance funded through the various departmental budgets. The outstanding unauthorized expenditure amounts to R1.4 billion of which the province intends to finance R640 million in 2013/14 and the balance over the MTEF. The "old" outstanding unauthorized expenditure amounted to R1.7 billion. The Provincial Revenue Fund (PRF) was liable for R1.4 billion, and departments for R0.3 billion.

2.1.8 Impact of 2012/13 audit outcomes

The table below provides a comparison between the performance of five provincial departments placed under administration in the 2011/12 and 2012/13 financial years.

Provincial Department	2011/2012	2012/2013	Additional Notes
Education	Disclaimerlaimerisclaimer	DisDiscalimerclDisclaimeraimerDisclaimersclaimer	·  Irregular expenditure of R162 million reduced to Nil ·  The overstatement of immovable assets of R102 million (2012) was reduced to R36 million ·  Commitments of R299 million (2012) was reduced to R205 million
Health	DDisclaimeriDisclDisclaimeraimerimerisclaimer	D DisclaimerDiDiscalimersclaimerisclaimerisclaimer	·  Irregular expenditure of R73 million reduced to Nil ·  Unallocated receipts of R 50 million (2012) was reduced to R21 million (2013) ·  Scope limitation reduced from R739 million (2012) to R 438 million (2013)
Provincial Treasury	Unqualified	Unqualified	·  Except for the non-submission of the Provincial Revenue Fund and Departmental and Public Entities financial statements, this department would have received a clean audit
Public Works	DiDisclaimersDisclaimerclDisclaimeraimerimerDisclaimer	DiDisclaimerlaiDisclaimermDisclaimererDiDisclaimersclaimer	·  Irregular expenditure of R30 million reduced to Nil ·  Although the department was disclaimed for understatement of receivables (rent from employees staying in state owned property), these were recorded in the financial statements of Health and Social Development
Roads and Transport	Qualification	Unqualified	·  The department moved from receiving a qualification on movable assets in 2012 to an unqualified opinion in 2013

Although no departments other than the Department of Roads and Transport, had received improved audit opinions, the table does illustrate some improvements effected by the administration team.

2.1.9 Challenges

The Chief Administrator highlighted the following five systematic challenges that should be addressed within the next four months:

• Infrastructure management;
• Competitive procurement;
• Asset management;
• Data and records management; and
• Compliance, interpretation and enforcement.

2.2        Progress report by the Anti-Corruption Task Team (ATCC)

2.2.1 National Treasury forensic reports

The National Treasury developed 27 forensic reports, with the assistance of co-sourced firms e.g. Gobodo Forensic and Investigative Accounting and PricewaterhouseCoopers Incorporated. The reports were referred to the South African Police Services (SAPS) for criminal investigations, and where necessary disciplinary processes would be instituted thereafter. Out of these reports of the 39 allegations which led to enquiry cases and criminal case dockets being opened by the SAPS under ACTT, 13 were closed by the prosecution team, but referred for internal disciplinary proceedings owing to non-compliance and irregularities identified; 13 were still under criminal investigation; and 13 were in court.

2.2.2 Prevention of potential losses

As a result of the National Treasury’s forensic investigations certain contracts were terminated. The service providers litigated against the State. The reports of the forensic investigations were used to defend the State against the litigation and thus far all the civil matters have been successfully defended.

2.2.3 Vulnerabilities in the Disciplinary processes management

In some instances officials had resigned before the conclusion of disciplinary processes. At least 10 officials within the Department of Roads and Transport resigned before disciplinary proceedings were instituted. Their matters were still under criminal investigation however.

National Treasury had undertaken through the Personnel Administration System (PERSAL) to follow-up on all the officials that have resigned, to ensure that they had not been appointed by other National or Provincial Departments. Unfortunately this was not possible as Local Government and Consultants could not be detected through the PERSAL system.

2.2.4     Limpopo Basic Accounting System ( BAS) Irregularities

In the review audit of the Limpopo Provincial Treasury, the National Treasury had established that, of the 10 Limpopo PMG accounts, six were used to process both credit transfers and other electronic bank transfers (EBT) directly to the First National Bank (FNB) on-line system, without the necessary authorization or disbursements having been made through the Basic Accounting System (BAS).

In addition to the Office of the Premier, the following departments were affected: Education, Public Works, Roads and Transport, Safety and Sports and Agriculture.

The Office of the Accountant-General is still in the process of establishing whether all identified irregular transactions not processed through BAS have been rectified and recorded.

2.3      Progress report by the Department of Health

2.3.1     Procurement – transversal (Health pilot)

A memorandum of Understanding (MOU) between the Chief Procurement Officer (CPO) and the Director-General (DG) of the National Department of Health has been signed off. Funding amounting to R40 million over a period of 3 years has been allocated from donor funds. The recruitment of appropriate skills was underway.

2.3.2 Organisational structure / key posts

The Head of Department (HOD) has been appointed, and the suspension of the Chief Financial Officer has been lifted. Of the 40 permanent hospital Chief Executive Officer (CEO) posts, 32 have been filled. Seven additional posts were in the process of being approved. At the end of October 2013, 39 CEOs would have been appointed permanently. Three new posts in the CFO’s office will have been filled by the end of November 2013 i.e. General Manager: Budgets; Senior Manager: Risk Management; and Senior Manager: SCM.

The National Department of Health has filled 51 posts formerly occupied by interns, with provincial technical support officials appointed on two-year contracts. The officials were deployed at the Polokwane and Mankeng tertiary hospitals and the provincial office and will address Finance, Information Technology (IT) and Human Resource (HR)-related challenges.

2.3.3    Infrastructure

The new infrastructure, and staff establishment has been developed and approved. The process of recruiting 18 appropriately-qualified staff, at an estimated cost of R13.4 million, was underway and should have been completed by end of November 2013.

The project to address doctors’ accommodation needs has been completed, and handed over to the Provincial Health Department with 300 health professionals having taken up occupation of the accommodation.

More than 80 percent of the documents which had led to the previous years’ audit limitations of scope have been retrieved, and were available for the next audit.

2.3.4    Pharmaceutical depot

Surgical supplies showed an improvement at end of September 2013. Medicines stock has increased from 43 percent in March 2013 to 79.70 percent in September 2013. The department was having a litigation case with a company that has an expired contract.

The Administrator reported that 173 of the 234 approved staff establishment have been filled since April 2012. The contract to support the information technology became effective in October 2013. Direct deliveries were being implemented for the Polokwane and Mankweng tertiary hospitals. The direct delivery system will replace the depot, and will be rolled out to regional and district hospitals. The department is investigating a phase-in approach for the in-house security.

2.3.5    Boilers

R88 million was made available for a project which included the refurbishment and repair of 38 boilers at 19 hospitals. Funding was available to maintain the boilers, and a maintenance contract was being developed.

2.4     Progress report by the Department of Education

2.4.1     Textbooks and Stationery

Since no budget allocation to procure textbooks for the 2012 academic year had been made it was decided to use the R249 million allocated for the procurement of textbooks for the 2013 academic year. The decision was supported by both National and Provincial Treasuries.

Stationery was supplied to all 1.66 million learners. The central model for Learner Teacher Support Material (LTSM) procurement has yielded “good fruit”. The budgeted R382.8 million for the procurement of Grades 4 to 6 and 11 was reduced to R236.1 million. In 2012, R259.4 million was spent on stationery. The cost was reduced to R129.1 million owing to direct procurement.

R620 million has been made available for the 2014 LTSM procurement and delivery processes. More than 6 million Curriculum Assessment Policy Statement (CAPS)-aligned textbooks have been ordered for Grades 7 to 9 and 12, and stationery has been ordered for more than 1.66 million learners. The first batches of textbooks have been delivered to Capricorn schools, and delivery to schools in other districts would have commenced on 21 October 2013 and was expected to have been completed by mid-November 2013.

2.4.2    Human Resource (HR) Intervention

The Department of Education is a labour intensive department, and as such, teachers and learners are key cost drivers. Through the Collective Agreement No. 01 of 2012, 2 489 of the 2 544 temporary educators in substantive posts have been permanently absorbed. This process has resulted in the department, at the end of August 2013 having a surplus of 55 temporary educators.

The HR interventions implemented, enabled the department to realise savings of R327 million (99.4 percent of the total Compensation of Employees savings in the province). It was expected that the 2014 post provisioning baskets declared in September 2013, will contribute to the resolution of some of the HR challenges.

2.4.3        Human Resource (HR) Challenges

Teachers employed in Limpopo, were the highest paid in the country. The reinstatement of the rural allowance to the 7 000 beneficiaries who had benefitted from it before its termination in December 2012, put pressure on the CoE budget.

The Department has an ageing workforce which has resulted in a shortage of teachers for key as well as gateway subjects, as well as for curriculum advisors, particularly at circuit level.

The department was characterised by lack of professional leadership and poor management skills. It did not have an integrated and comprehensive Human Resource and Development strategy. The province should as a matter of urgency develop a structured, comprehensive and strategic Human Resource Development (HRD) plan focusing on demand, supply and utilisation of professionals with scarce skills.

2.4.4    “No Fee” School Policy

The Department introduced a policy on school fee exemption which was applicable to public schools that have been categorised as Quintile 1, 2 and 3. The Limpopo province had the highest number of learners benefiting from this policy.

During the current financial year 1,600,105 of the province’s 1,662,106 learners attended “no fee” schools, costing the fiscus R596.9 million. Education provisioning in Limpopo is almost “free”. Of the 3 947 ordinary public schools in Limpopo, 3 851 were “no fee” schools.

2.4.5     Successes of the Intervention

2.4.5.1  All three education information management systems (Education Management Information System, School Administration and Management System, Learner Unit Recording System) have been integrated and customised. One hundred and thirty four School Administration and Management System-coordinators have been contracted to collect data from schools in the 134 circuits.

2.4.5.2  The Department’s organisational structure has been aligned with Organisational Development (OD) principles. The outcome of the Organisational Functionality Assessment (OFA) was conducted in collaboration with the Department of Public Service and Administration (DPSA), and the department’s service delivery model.

2.4.5.3  The department has, with the DPSA’s assistance, ‘cleaned-up’ the PERSAL transversal system resulting in the abolition of more than 8 000 unfunded posts. The process had also led to the irregular HR practice in Waterberg, which is currently sub judice , being detected.

2.4.5.4  Stats-SA has recently completed a physical headcount of learners and educators to ensure credible and reliable datasets for strategic planning, credible budgeting, and pointed provisioning.

2.4.5.5  Suitably qualified educators are in the process of being appointed in promotional posts i.e. principals, deputy principals and subject heads of departments. Vacant circuit managers’ posts are in the process of being filled.

2.4.5.6  The Provincial Treasury has appointed a team of technical experts from PWC-Rakoma Consortium to assist the Department in addressing financial, supply chain, asset, contract, document, and human resource management challenges. They will also be guiding the audit processes.

2.5        Progress report by the Department of Public Works

2.5.1     Immovable Asset Register

The project which will run over two years, and is expected to have been completed by March 2015, will be divided into two phases. The first, to be completed by 30 November 2013, targeted the Auditor General (AG)’s repeated disclaimer findings. The second finding related to immovable assets and referred to transposition errors when transferring figures from municipal valuation records to the asset register.

The second phase, will involve the development of a complete and compliant asset register. It will entail, amongst others, the physical verification of assets, tagging appropriately using GPS technology, and assessing the state of assets.

Funding for the project still has to be secured. National Treasury is preparing the commitment letter which would allow the department to go out to tender, hopefully before 30 October 2013. The delays in the issuing of the commitment letter, has delayed the project.

2.5.2   Lease Review Project

The department has outsourced the project, and a service provider has been appointed. The project would have been completed by 30 October 2013. The review may lead to some leases being cancelled, new leases being entered into, and possible investigation and recovery of leases that have been overcharged.

2.5.3   Building capacity for infrastructure delivery

The Provincial Executive Council has adopted the Infrastructure Delivery Management System (IDMS). The capacitation plan is in line with the IDMS Human Resource (HR) capacitation initiative which was introduced by the National Treasury. The nine appointed professionals comprise three chief construction project managers qualified and with experience in excess of 20 years; one chief Architect; and five quantity surveyors. A revised capacitation plan for 2013/14 to 2016/17 was in place and would require that 99 built environment professionals be recruited over a period of five years.

2.5.4     Building capacity in CFO’s office

The National Treasury has appointed the PwC-Rakoma consortium to provide temporal relief. The Provincial Treasury, would over the medium term, provide technical resources to the CFO-offices of the departments under administration. The technical support team will remain in the province even after the Intervention Teams have exited.

The PwC-Rakoma consortium was in the process of conducting detailed technical reviews of quarterly financial statements in order to facilitate the compilation of statements at year end. The financials for quarter 1 were supported by a detailed audit file. A drive to improve the quality of information submitted for input into the Interim as well as Annual Financial Statements was underway, as poor quality of information had been identified as an area requiring drastic improvement.

A Budget Committee has been established with the objective of monitoring the budget, ensuring that it was aligned to the procurement plan, and recommending virements and budget adjustments to the Accounting Officer.

In the area of SCM, the Department has, with the assistance of the PwC-Rakoma consortium, reviewed the SCM structure in order to align it to the National Treasury model. They have also developed proper Job Descriptions for the SCM practitioners. New templates, together with checklists for signatories, have been developed for all procurement processes. The PwC–Rakoma consortium was providing on the job training for staff members, and was assisting the bid committees in an advisory capacity.

The SCM unit was developing a new supplier database which was expected to be operational by 1 November 2013. The SCM policies and procedures were being reviewed by the Provincial Treasury, and would be rolled out to the departments in the province.

As of May 2013 eleven officials have been enrolled in the 18-month long Project Based Learning (PBL) programme (NQF level 9). This is a highly intensive executive leadership course targeted at Masters level. Three officials have since withdrawn for medical reasons. An additional 10 officials have been enrolled in the Association of Accounting Technicians (AAT) Public Sector (Advanced) Accounting Certificate (PS (A) AC) targeted at National Qualifications Framework (NQF) level 4 and 3. The duration of this course is also 18 months.

2.5.5   Development of an organisational structure focused on the core mandate

Stakeholders have been consulted. A complete business case with all stakeholder comments and how they have been responded to, will be submitted to the Executive Authority for signature on 30 October 2013. The structure will be ready for implementation by 1 April 2014.

A process of assessing the suitability of senior management for existing positions, and identifying learning gaps, is underway. Once challenges have been identified, plans to address them will be developed for implementation within a specific period. Where individuals were unable to close the gaps in their learning, the office of the Premier has been known to intervene with alternative remedies.

2.5.6   The Role of the Head of Department (HOD)

The Minister has instructed the Administrator to, as part of the sustainability project, to gradually handover control of the Department to the HOD. As of 4 October 2013 all General Managers, except the CFO, reported to the HOD.

The Accounting Officer responsibilities will reside with the Administrator until further notice. The Office of the Administrator has retained the management of the CFO’s office in order to provide further technical support. The HOD and his management team are expected to continue on the projects instituted by the administration.

2.6    Progress report by the Department of Roads and Transport

The Administrator reported that the 2012/13 budget has been aligned to the Strategic Plan, Annual Performance Plan (APP), and that it has been broken down to project level. A departmental official has been seconded to act as interim Chief Executive Officer (CEO) for the duration of the intervention.

The administration team reviewed 11 financial management policies at Road Agency Limpopo (RAL), and reviewed and amended a further 14 policies at Gateway Airports Authority Limited GAAL. The GAAL’s CEO has been re-instated.

The administration team has improved contract management, and implemented 80 percent of the Public Protector’s recommendations. Outstanding issues were related to either legal or criminal processes underway.

The team reported that they had obtained an unqualified audit opinion for the 2012/13 financial year. The payments backlog at RAL has been cleared. At GAAL the use of handwritten cheques has ceased, and work towards total reliance on electronic transactions for all payments was underway. The forensic and related investigations were progressing satisfactorily.

3.         Committee observations

3.1   On 12 August 2013 Cabinet announced that the administration teams should start a six months period of hand-over to the Premier and his new Executive.

3.2   The Committee notes the challenges that still existed at RAL with regard to cooperation. This was mainly due to instability related to the high vacancy rate in key positions.

3.3   The Committee notes the slow progress made by the Department of Public Service and Administration (DPSA) in executing its work in terms of dealing with the disciplinary cases.

3.4   The Committee notes that the Department of Education paid its teachers much higher salaries than other provinces did.

3.5 The Committee notes the slow progress made by the Anti-Corruption Task Team (ATCC) in executing its work in terms of dealing with the fraud and corruption.

3.6 The Committee notes that the five departments still do not fully comply with the Public Financial Management Act, No. 1 of 1999 (PFMA).

3.7 The Committee notes that some departments from the five under intervention have not finalised their staff organograms.

3.8 The Committee noted that the sustainability of the intervention is a concern, as the five affected departments do not have sufficient capacity.

3.9 The Committee is concerned about progress on the head count process in other departments.

4.         Recommendations

After having considered the submissions by the National Intervention Team together with the Limpopo Leadership, the Committee recommends that:

4.1        The Department of Roads and Transport should prioritise the filling of key positions at RAL within four months after the adoption of this report by the House.

4.2        The Department of Public Service and Administration (DPSA) and the Limpopo Provincial Department of Education should review the salary scales paid to educators in relation to other provinces.

4.3        The Department of Public Service and Administration should ensure that disciplinary processes were fast-tracked so as to ensure that all those implicated would have been removed from the PERSAL system by the time the administration team exited.

4.4        The Department of Public Service and Administration should monitor PERSAL against those officials that had transgressed the PFMA and were now getting employment from other departments and spheres of government.

4.5       The next four months should be treated as a transition phase to implement the exit strategy.

4.6        The five systematic challenges reported should be prioritized, and remedies implemented within four months after the adoption of this report by the House.

4.7        The Anti-Corruption Task Team should fast-track the processing of fraud and corruption cases.

4.8        The Limpopo Provincial Administration should ensure compliance of the Public Financial Management Act, No. 1 of 1999.

4.9        The National Council of Provinces should approve the lifting of the section 100(1) (b) intervention in Limpopo with the condition that a transition phase be entered into, and that the administration team should hand over the provincial management by the 31 March 2014.

Report to be considered.