Briefing

to Public Works Portfolio Committee

Remedial Action Auditor-General NDPW Findings

Presented by

Finance Stabilization Team – Cox Mokgoro

28 November 20121

Audit Findings - Historical Perspective Context resulting in negative audit outcomes Departmental response to context of negative audit

outcomes Key stabilisation Projects Key audit findings of disclaimed audit opinion &

high-level remedial action

2

AUDIT FINDINGSHISTORICAL PERSPECTIVE

3

1

Financial Year DPW PMTE

2007/2008 Unqualified Unqualified

2008/2009 Qualified Adverse

2009/2010 Qualified Qualified

2010/2011 Disclaimed Disclaimed

2011/2012 Disclaimed Disclaimed

DownwardSpiral

Situation calls for decisive action – hence TURNAROUND!!!!

4

Overall Contextof

NEGATIVE AUDIT OUTCOMES

5

Instability of leadership in DepartmentHR matters

Inadequate or lack of properly competent staff at all levels High level of vacancies

Lack of due diligence to controls & compliance Led to widespread mal-administration & fraudulent activities

No enforcement of accountability & disciplinePoor Monitoring & evaluationInadequacy of IT systems (controls, not integrated)PMTE business case not finalisedLack of proper planning (strategic & operational)

6

Department’s Responseto

Context of Negative Audit Outcome

7

Leadership Minister has met with all staff at Head Office (HO) & all 11 Regional

offices to instil new ethos, ethics, practices and cultures. Minister also met with all Unions in Bargaining Council to solicit buy-in

for change. Implementation of all MinTop & EXCO decisions closely monitored &

Senior Management to be held accountable.Vacancies & capacitation of department

DG position advertised and will hopefully be filled prior to end of current financial year.

Head-hunting for CFO underway as previous interview did not yield desired outcome.

Process to fill critical professional vacancies underway with assistance of CBE (40% of the 220 identified vacancies to be filled in current year)

In-sourcing in the interim. Establishment of joint teams with client Departments.

8

Other initiatives Joint Auditor-General & NDPW two-day workshop held with all Chief

Directors & Directors to unpack audit report and agree on corrective measures.

Corrective action plans for audit findings developed with clear timelines of execution, bi-weekly meetings held to monitor progress.

Dedicated focussed teams under leadership of subject-specialists driving the action plans established.

Acting DG issued instructions to subject-specialists for timeous execution of above plans (2 months period allowed for achievement of positive outcomes).

Plan for Increased capacity of internal audit unit underway & will be finalised by end January 2013, intended to speed up investigations of alleged mal-administration cases for further corrective action.

9

Key Stabilisation Projects

10

Acknowledging internal capacity challenges within Department, time constraints to effect basic fundamental changes in light of scale of what needs to be achieved, external intervention has been sought for the following key projects in order to stabilise the Department:

Compilation of Immovable Asset Register

Lease review and audit

Finance, SCM & review of construction and infrastructure projects

Intention is a BIG BANG approach for quick stabilisation of Department

11

Tender issued Tender Awarded Service provider on Board Project on Target

Compilation of Immovable Assets Register Lease Review & Audit Finance, SCM & Review of Construction Projects

Programme fully underway expected to be substantially completed 31 March 2014.

Extensive reconciliation of National & Provincial current IARs completed against Deeds Registry.

Outstanding land parcels meant for vesting in Provinces have been identified.

Framework for vesting of all land parcels is being developed.Majority of land parcels to be vested expected to be completed by

31 March 2014.National Treasury has been requested to enhance the Sector

Specific Guide to allow for interim disclosure arrangements which can be applied uniformly across government. These arrangements deal with unvested properties as a fair value model to be applied.

Physical verification of immovable assets is due to start in January 2013.

13

SIU investigations intensified and reports issued to Department

Auditor-General performed special audit on leases & provided useful recommendations.

Service provider appointed (start duty 3rd Dec 2012) to audit all leases (lease files & physical verification of buildings occupied or so deemed) with a follow-up on Lease environment Business Process Re-engineering (BPR). Service provider to recommend improvements on BPR.

Audit and review of all leases to be completed by 28 February 2013.

14

Service provider award expected to be made prior to December 2012 recess. Successful bidder to start 2nd week of January 2013. Terms of Reference include proposals for the following:

Enhancement of finance & Supply Chain Management (SCM) functions with specific objective to clear all negative audit findings;

Conduct a comprehensive analysis of a sizeable sample of infrastructure projects to identify potential risk areas for monitoring and for further corrective action by Department;

Conceptualise and implement a change management strategy for Department; Implement a formalised skills transfer programme for existing NDPW & PMTE

staff; and Engage interns from unemployed graduates for the project with clear and

formalised Skills Development Plan. Deliverables

Non-negotiable deliverables aligned to financial year-ends (2012/13 & 2013/14) as minimum requirements to achieve improved audit outcomes.

15

RECAPING 2011/2012

Key audit findings of disclaimed audit opinion &

High-level remedial action

16

FINDING NDPW PMTE  Actions AssessmentOperating leasesLease commitmentsLease revenueMunicipal rates & taxes

Technical accounting treatment of transactions

Technical accounting treatment of transactions – cut off, etc

Implementation of contract management system Business Process Re-engineering of leasing function

Enhance lease IT platform

Review tenant installation policy Validate data integrity on PMIS Introduce policy on advance lease payments

FINDING NDPW PMTE  ACTIONS AssessmentRelated Party transactions

No support for assumptions used to determine indirect costs incurred on behalf of PMTE

No support for assumptions used to determine indirect costs paid for PMTE by NDPWLack of proper accounting system for receivables & receivables unreconciled

Review model for apportionment of costs

Interim decision to specify PMTE related line functions to define interim working structure

Enhance accounting guide for use by Regions Identify all state properties not transacted at arm’s length

FINDING NDPW PMTE  ACTIONS AssessmentTrade & other Receivables

Could not verify debtors balance at Y/ETechnical accounting treatment of balance – provide for an impairment provision

Assessment of individual debtors through reconstruction and reconciliation

Reconstruct the disputed debtors

Implement billing and accounting IT system Approval for system obtained from National Treasury

Budget Management

Budget management not formalised

Budget management not formalised

Comprehensive monthly reporting to EXCO Budget management process to be enhanced Close out all in-active open orders

FINDING NDPW PMTE  ACTIONS AssessmentFinance Policies Policies outdated

& overtaken by numerous circulars

Policies outdated & overtaken by numerous circulars

Policies relating to prescribed accounting standards to be developed and implemented

Contingent assets N/a Assessment of

probability of inflows due to claims by PMTE not done appropriately

Engage legal & State Attorneys in legal case assessment

22