presentation to portfolio committee 13 october 2011 government printing works annual report 2010/11

PRESENTATION TO PORTFOLIO COMMITTEE

13 October 2011

Government Printing Works

ANNUAL REPORT 2010/11

The objective of our presentation is as follows...

Firstly, we would like to thank the Portfolio Committee for the opportunity and hope that we can give the Committee an insight into the progress and developments at GPW for the 2010/11 financial year and beyond,

Provide an overview of the key outcomes and achievements for 2010/11

Provide insight into the key audit issues

Provide insight into the key priorities going forward

2

Annual Report 2010/11 – Key Outcomes (1/8)

Annual Report

• First for GPW

• Always reported with DHA

CEO Resignation

• May 2010

• Non-appointment of other Senior Officials

Establishment as a Government Component

• On 9th of October 2009, a proclamation was published in the Government Gazette, giving effect to the establishment of GPW as Government Component.

• Significant impact on how the organisation relates to itself and strategic partners.

• Not fully realising the benefits of new business model.

• Need to develop legislative framework

3

Annual Report 2010/11 – Key Outcomes (2/8) Technological Upgrading & Modernisation

• Passport production facility expanded by developing a card production centre.

• Utilised for the development of a new South African crew member certificate – Launched during October 2010.

• Will act as a pilot to the major smart card project once Home Affairs is ready.

• Pillar for all card based security printing projects in the country and the region & enhance the GPW profile

• Development of new high security printing division (Pavilion 2) – Construction completed October 2011.

• Process of commissioning new printing presses and supporting equipment.

• Asset Replacement Programme – R56m spent during 2010/11 and planning to spend R430m over the MTEF period. During the year under review -

Procurement of three new folding machines.Procurement of a sophisticated multi-colour lithographic offset sheet-fed printing press.Commissioning of an automated computer-to-plate system.Commissioning of a web-fed laser imaging system.Development and implementation of ISO9001 standards

The above equipment is in line with the strategy to modernise and ensure a secure print environment

4


To ensure growth and a financially viable organisation, GPW embarked on the implementation of an ERP system to replace it’s fragmented IT systems.

Hiflex – Production SolutionMicrosoft Dynamics AX – Business SolutionMicrosoft SharepointIntranet & Internet

• First Phase of the project completed – fact finding analysis.

• Design phase of new system also finalised.

• Implementation commenced February 2011.

• Scheduled for going ‘live’ April 2012.

Development of ABC costing system.

• Paper and Excel model developed during the year.

• To be refined during the next financial year.

• Will be integrated with the ERP solution – Also going live April 2012.

5


Human Resources

• Organisational structure has been approved with effect from 1 April 2010.

• Structure provides for four branches- Operations and Production Strategic Management Financial Services Human Resources

• Other components provided include Internal Audit.

• Each branch managed by a General Manager.

• Majority of senior management positions have been job evaluated.

• Ensuring proper job descriptions and job evaluations for newly created positions are in the process of completion.

• The CEO post is vacant since 15 May 2010 and two General Manager positions are not filled.

• Major impact on the recruitment of senior and specialist staff as long as these posts are vacant.

• Technology upgrading and improvement of production processes have an impact on the number of posts required.

6


Human Resources ( Cont.)

• Recruitment drives until date more focussed on lower level positions.

• Several recruitment drives undertaken to recruit artisans with a very poor success rate.

• Staff turnover was less than 5% during 2010/11, excluding contract workers.

• The number of artisans needs to be increased with 40% and more in order to ensure optimum utilization of equipment, reducing of overtime, replacement of obsolete skills, etc.

• New functions have been created, which did not exist previously such as research and development, strategic management, public relations, legal services, facility management, etc.

• Senior Management level the vacancy rate is 81%.

• Middle Management and specialist positions the vacancy rate is 53%.

• The vacancy rate of critical artisan positions are between 40 and 50%.

• Uncompetitive remuneration structure is lagging on average by between 30% to 50% (Especially on specialist positions) compared with the local printing industry. This mainly applies to the technical grades, where significant shortage of skills exists.

7


Levels Current 2011/12 2012/13 2013/14 2014/15

Levels 13 -16 6 33 40 40 40

Levels 9 - 11 22 47 55 57 57

Artisans (all levels)

90 127 127 115 115

Levels 7 - 8 34 45 52 53 53

Levels 3 - 6 350 399 372 357 348

Levels 1 - 2 14 0 0 0 0

Learners 10 15 20 20

Total 516 661 661 642 633

Human Resources ( Cont.) – Current Salary Levels

8


Human Resources ( Cont.)

• A special dispensation is needed for the GPW to succeed as a Government Component to attract and retain skills in the core business, finance and other critical occupations. An amount of R20 million is provided for this in the current financial year.

• Provision is also made for voluntary service packages as the GPW has an “aged” work force with several employees older than 55 years. It is anticipated that a number of them will not be interested to be re-trained on new equipment and processes.

• Staff Development has from 2011/2012 been identified as one of the crucial success factors during the next three to four years and an amount between 15 and 20% of the salary remuneration has been set aside for this purpose.

• Extensive training programmes will be implemented for all levels of staff. These will include training on the ERP system, managerial training, training on new acquired printing equipment, succession planning, implementation of learnerships and later internships as more appointments are made and functions properly established.

• Establishment of a training academy.

• The GPW still functions according HR policies adopted from DHA. GPW aligned policies could not be approved due to lack of a Departmental Bargaining Council.

• Bargaining Council established in August 2011.

9


ICT

• Implementation of infrastructure – Project started in February 2011.Completion date October 2011.To accommodate the requirements of the new GPW as well as the ERP project.Redundant Blade Server Technology (Instant fail-over)Virtualised environment.Storage Area Network (SAN)Backup disk to disk and disk to tape (D2D2T)Upgrade Local Area Network all offices. Unified Communication to all offices (Voice, Data and Video Integration)Intranet for Employees also known as ICE on SharePoint for all office to be rolled out.Revise entire Information System Security (ISS) to be inline with Mission of Security

Printer.Centralise Management of all computer components.

10

Annual Financial Statements - Audit Reports Summary

History of Audit Reports

• 2002/03 – Adverse

• 2003/04 – Disclaimer

• 2004/05 – Disclaimer

• 2005/06 – Adverse

• 2006/07 – Adverse

• 2007/08 – Adverse

• 2008/09 – Qualified Opinion

• 2009/10 - Fair Presentation

• 2010/11 – Fair Presentation

Although GPW received a unqualified audit report there are still areas of concern that remain:

• Further reduction in audit findings

• Sustainability of current environment

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Annual Financial Statements - Audit Reports Comparison (1/2)

Qualification Description

2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11

Receivables Disclaimer Adverse Adverse Other Matters Other Matters Other Matters Other Matters

Payables Disclaimer Adverse Adverse Adverse Qualification

Inventory Disclaimer Adverse Adverse Adverse Qualification

Purchases Other Matters Other Matters Other Matters

Revenue Disclaimer

Cost of Sales Adverse

Service Bonus Provisions

Disclaimer

Property, Plant & Equipment

Disclaimer Adverse Other Matters Adverse

Land & Buildings Disclaimer

Internal AuditEmphasis of

MatterEmphasis of

MatterOther Matters Other Matters Other Matters

Vacant Positions Other Matters

BCEA Other Matters Other Matters Other Matters Other Matters

Public Service Act – Non adherence

Other Matters Other Matters

Budgetary ProcessEmphasis of

MatterEmphasis of

MatterOther Matters

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Annual Financial Statements - Audit Reports Comparison (2/2)

Qualification Description

2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11

Funds Distributable to National Revenue Fund

Adverse

Special Investigation Adverse

Fruitless & Wasteful Expenditure

Other Matters Other MattersEmphasis of

MatterOther Matters

Compliance MattersEmphasis of

MatterEmphasis of

MatterOther Matters Other Matters Other Matters Other Matters

Report of Performance against Predetermined

Objectives

Emphasis of Matter

Other Matters Other Matters

Risk Assessment Other Matters

Computer Audit of General Controls Surrounding IT Environment

Emphasis of Matter

Other Matters

Late Finalisation of Audit /Re-submission

of AFS/Material Corrections made to

AFS

Emphasis of Matter

Emphasis of Matter

Other Matters Other Matters Other Matters

Restatement of corresponding figures

Emphasis of Matter

Basis of AccountingEmphasis of

Matter

Approved Policies & Procedures – Various Business Processes

Emphasis of Matter

Emphasis of Matter

Other Matters

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Management Letters Categorised (1/5)AUDIT FINDINGS BASED IN THE FINAL MANAGEMENT LETTER: REGULARITY AUDIT PERFORMED FOR THE 2010-11 FINANCIAL YEAR CATEGORISED UNDER THE FOLLOWING ISSUES:

No. FindingGAAP /

Technical SkillsPolicies and Procedures

Regulations &Controls

Systems Capacity Housekeeping

Final Communication Letter

Annexure A: Matters Affecting the Auditor’s Report

A1 Employee Costs

1.Non-compliance with Basic Conditions of Employment Act √

2.Overtime exceeding 30% of employee salary √

A2 Internal Audit

1. Internal Audit not fully functional √

A3 Debtors

1. Long outstanding debtors √ √

A4 Audit of predetermined objectives

1.No consistency between the strategic plan and annual performance report √ √

A5 Risk assessment

1. Risk assessment not performed √

Annexure B: Other Important Matters

B1 Employee costs

1.High vacancy rate in senior management positions √ √

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Management Letters Categorised (2/5)

No. FindingGAAP /




B1 Employee Costs (continue)

2. No prior written authorization for overtime √ √

3. Unpaid leave not deducted from employee salary √ √

4. Payroll not certified √ √

5. Leave not captured on system √ √

6. Leave not pre - approved √ √

7.Error on prior year employee costs disclosure √

B2 Inventory

1.Inventory reconciliations not checked and authorized √ √

2. No supporting documentation for orders √ √3. Inventory count discrepancies √ √4. Stock cards not closed off at year end √ √5. Damage inventory √ √

6.Inventory not recorded & slow moving items. √ √

B3 Supply chain management

1. Incorrect preference point system used √ √

2.Shortcomings with administration of the list of prospective suppliers √ √ √

3.The fraud prevention plan did not included procurement measures √

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No. FindingGAAP /




B3Supply chain management (continue)

4.No processes in place for reporting breaches √

5.No SCM policies was implemented for procurement of goods and services √

6.The audit committee did not re view laws and regulations applicable to GPW √

7.National Treasury’s code of conduct for SCM Officials √

8.Payment in excess of approved contract or quoted amount √ √

9. Suppliers did not declare their interest √ √10. No Valid tax clearance certificate available √

B4 Expenditure

1. Journals not properly authorized √ √

2. Incorrect expense account √ √

3. ERP meetings √4. Expenditure not accrued for √ √B5 Debtors

1. Account 250 not reconciled √ √

16


No. FindingGAAP /




B6 Property, plant & equipment

1.Assets not bar-coded and assets with more than one barcode √

2. Incomplete accounting policy √

3. Assets that could not be verified √

B7. Liabilities

1. Debtors with credit balances √ √

2. In adequate disclosure of IFRS 7 √ √

3. In adequate ageing of payables √ √

4.State housing guarantees held for employees whose services has been terminated with GPW

√

5. Unrecorded liabilities √ √6. Clearing of unallocated deposits √B8 Revenue

1. Incorrect revenue recognition √ √

2.Incorrect charging of VAT and lack of updating of the price list √ √

3. No credit control policy √

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No. FindingGAAP /




B9 Information technology

1. Information technology governance √ √

2. Security management √ √

3. User access controls √ √

4. Program change management √ √

5. Data centre management √ √

6. Facilities and environmental control √ √

7. Information technology service continuity √ √

B10 Audit of predetermined objectives

1. No policy and procedures √ √

2. Roles and responsibilities not documented √ √

3. No program objectives √

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Annual Financial Statements – Financial Reporting (1/9)

Financial Performance

(R million)

Audited Outcome 2007/08




Medium-Term

Estimate 2011/12

Medium-Term

Estimate 2012/13

Medium-Term

Estimate 2013/14

Medium-Term

Estimate 2014/15

Revenue 416.8 487.0 639.0 753,4 793,4 830,7 893,0 946,6

Cost of Sales

290.8 403.7 497.0 473.8 546.9 583.2 622.8 646.6

Gross Profit 126,0 83,3 142,0 279,6 246,5 247,5 270,2 300,0

Other Income

6.0 34.5 60.2 63.4 69.8 101.2 135.7 169.3

Operating Expenditure

109,3 102,6 109,2 128,2 182,4 237,6 271,6 298,4

Net Profit 22,9 15,2 93,0 214,8 133,9 111,1 134,3 170,9

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Expenditure Details

(R million)





Medium-Term

Estimate 2011/12

Medium-Term

Estimate 2012/13

Medium-Term

Estimate 2013/14

Medium-Term

Estimate 2014/15

Employee Benefits 80.2 86.8 94.0 99.7 178.6 227.4 242.7 258

Salaries 52.9 57.9 62.2 68.2 103.8 159.8 172.3 184.2

Overtime 10.3 10.2 12.3 9.8 10.0 10.0 14.0 14.7

Bonusses 4.4 5.1 5.3 5.6 8.1 11.3 11.6 12.2

Pension Fund 5.6 5.7 6.6 6.9 9.2 12.6 13.3 14.0

Housing 2.3 2.4 2.2 3.2 9.0 7.6 8.5 8.9

Medical Aid 4.3 4.9 5.2 5.5 15.5 17.7 18.8 19.7

Other 0.4 0.6 0.2 0.4 3.1 8.4 4.3 4.3

20


Expenditure Details

(R million)3.5





Medium-Term

Estimate 2011/12

Medium-Term

Estimate 2012/13

Medium-Term

Estimate 2013/14

Medium-Term

Estimate 2014/15

Administrative Expenditure 24.9 25.0 32.4 26.0 51.5 58.4 59.7 61.1

Copier Cost 1.0 1.3 1.3 1.0 1.0 1.1 1.1 1.2

Transport 12.3 8.5 13.4 13.2 13.9 14.6 15.3 16.1

Telephone 2.1 2.4 2.1 2.1 2.2 2.3 2.4 2.5

Entertainment 0.2 0.4 0.3 0.2 0.2 0.2 0.2 0.2

Postage 4.4 4.2 4.3 3.5 3.7 3.8 4.0 4.2

Staff Development 0.4 4.0 6.0 0.7 24.5 30.0 30.0 30.0

Travel 1.9 2.2 1.2 0.6 1.1 1.2 1.2 1.3

CG Vehicle Rentals 0.0 0.0 1.2 1.7 1.8 1.9 1.9 1.9

Other 2.5 2.1 2.5 3.0 3.1 3.3 3.5 3.6

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Annual Financial Statements – Financial Reporting (4/9

Expenditure Details

(R million)3.5





Medium-Term

Estimate 2011/12

Medium-Term

Estimate 2012/13

Medium-Term

Estimate 2013/14

Medium-Term

Estimate 2014/15

Production & Stores 383.9 500.7 393.2 223.7 291.9 381.5 378.1 377.0

Material Purchases 294.4 379.5 301.5 132.2 195.8 280.6 272.1 280.7

Contract Printing 89.5 121.2 91.8 91.5 96.1 100.9 106.0 96.3

Equipment 1.1 1.4 1.3 1.7 1.8 1.8 1.9 2.0

Hire of Equipment 1.1 1.4 1.3 1.7 1.8 1.8 1.9 2.0

22


Expenditure Details

(R million)3.5





Medium-Term

Estimate 2011/12

Medium-Term

Estimate 2012/13

Medium-Term

Estimate 2013/14

Medium-Term

Estimate 2014/15

Professional Services 24.5 26.8 24.0 49.1 79.2 78.1 82.0 84.1

Audit Fees 3.3 3.1 3.5 3.9 4.1 4.3 4.5 4.7

License Fees (Systems)

0.1 0.2 1.6 0.5 5.1 5.3 5.6 5.9

Consultants 0.5 0.8 1.1 3.0 6.2 6.5 6.8 5.1

Maintenance 4.9 14.1 0.6 13.5 14.1 14.9 15.6 16.4

Development Computer Systems

0.0 0.2 4.4 13.2 13.9 9.6 10.1 4.6

Maintenance Computer Systems

0.0 0.0 0.0 0.0 20.0 21.0 22.1 29.2

Other Prof. Services 4.4 2.9 7.9 5.9 6.1 6.5 6.8 7.1

Contracted Security 1.6 2.5 4.3 4.8 5.4 5.7 6.0 6.3

Other 9.7 3.1 1.3 4.4 4.3 4.5 4.7 4.9

23


Expenditure Details

(R million)





Medium-Term

Estimate 2011/12

Medium-Term

Estimate 2012/13

Medium-Term

Estimate 2013/14

Medium-Term

Estimate 2014/15

Depreciation & Provisions 37.7 57.2 66.8 78.3 92.4 192.6 166.1 199.7

Provision for Doubtful Debts

28.7 30.7 0.0 2.4 2.4 2.4 2.4 2.4

Depreciation 6.8 26.2 62.1 68.5 82.6 119.9 156.4 189.9

Other 2.2 0.2 4.6 7.4 7.4 7.4 7.4 7.4

Sundry Expenditure

2.3 6.5 5.8 3.6 3.8 4.0 4.2 4.4

Computer Bureau Expenses

1.3 -0.5 3.9 1.0 1.1 1.1 1.2 1.2

Foreign Exchange Losses

0.0 6.6 1.6 2.0 2.1 2.3 2.4 2.5

Other 1.0 0.4 0.3 0.5 0.6 0.6 0.6 0.6

24


Selected Balance Sheet Items are Projected as Follows:

Statement of Financial

Performance (R million)





Medium-Term

Estimate 2011/12

Medium-Term

Estimate 2012/13

Medium-Term

Estimate 2013/14

Medium-Term

Estimate 2014/15

Bank & Cash

276,8 103,3 390,9 645,5 607,7 473,8 397,2 185,1

Trade Receivables

129,8 139,5 152,6 212,0 187,8 193,3 207,8 224,8

Property, Plant &

Equipment53,0 348,7 359,4 351,1 445,9 474,7 503,9 498,8

Lease Improve-

ments44,0 134,5 328,8 464,0 639,0

25


26

Unqualified audit opinion maintained.

Debtors days outstanding reduced from: • 2007/08 - 148 days

• 2008/09 - 87 days

• 2009/10 - 63 days

• 2010/11 - 61 days

Total cash and cash equivalents:• 2008/09 - R287m

• 2009/10 - R390m

• 2010/11 - R645m

Turnover:• 2008/09 - R487m

• 2009/10 - R639m

• 2010/11 - R753m

Net Profit:• 2008/09 - R15m

• 2009/10 - R93m

• 2010/11 – 215m

Annual Financial Statements 2010/11 – Financial Reporting (9/9)Key Outcomes

27

Going forward, the GPW has set certain key priorities (1/4)

Production Process Optimisation• Allocated Visagie Street premises

• Develop appropriate facilities for efficient and cost competitive production

• Best Practice for high security printing environment

• Site survey and needs analysis

Asset Replacement Programme• Replacement of outdated technology and machinery - Technological advances in the printing industry

• Lack of capacity to produce high security printed matter.

• Security printing in line with International standards.

• Spending R430m over MTEF period.

Financial Management

• Accurate planning and forecasting

• Maintain optimal cash flows and working capital

• Manage financial risks

• Implementation of new ERP system

• Reduce AG findings 28

Going forward, GPW has set certain key priorities (2/4)

Cost Management

• Change/review the cost/product pricing system/strategy

• Reduction in wastage and spoilage

• Achieve product/service excellence

HR, Strategy and Transformation

• GPW aligned HR policies

• Staff development

• Develop staff transitional plan

• Senior management posts advertised and filled

• Special Dispensation

Supply Chain Management

• Reduce Stock Levels - Phase out slow moving items and redundant stocks

• Strategic supplier management

• Update and develop electronic suppliers database and order information

• Contract and SLA management29


Technological Migration

ICT Governanceo ICT Legal compliance (MISS, ECT ACT 25 2005, Relationship between PPI, PAIA and RICA inclusive of NCA and CPA,

King III Companies ACT Cobit, ITIL and International Standards such as ISO 27001/2)

Acquire Hardware and Software to accommodate new IT systems and Serviceso Business Continuity solution that supports redundancy and functionality with recovery. o Acquire and implement new hardware and Softwareo Optimum activities to ensure systems and infrastructure operate at prescribe service levels.o Business recovery with failover and minimise downtime at remote location

Automate Official Gazette Content distributiono Electronic Gazette on the Web

Resource Managemento Proper IT Sourcing Strategy and related vendor management processes. o People Management:

Attract and train and technical people to have depth in their respective areas and breadth across other areas in IT.

Link individual and team objectives to a shared GPW IT vision & strategy and reward according to performanceo Effective IT asset management

30


Security

• Security risk assessment

• New and updated physical, personnel, production and documentation security systems in place

• Introduce vetting system for key personnel

Internal Audit

• Development of internal audit and risk management plans

• Monitor compliance with PFMA and related regulations

Marketing

• Develop GPW Brand

• Local Customer Retention

• Local Business Development

• Develop an aggressive regional marketing strategy on face value documents

31

Asset Replacement Programme and other Capital Expenditure:

DETAILS 2011/12R 000’s

2012/13R 000’s

2013/14R 000’s

2014/15R 000’s

Asset Replacement - Machinery 105 936 93 086 111 056 120 000

IT, Furniture & Equipment 67 000 40 000 50 000 30 000

Facilities 140 107 210 000 160 000 210 000

32

WE THANK YOU KINDLY!

33

presentation to portfolio committee 13 october 2011 government printing works annual report 2010/11

Documents

key outcomes

key priorities

design phase of new

erp system

plate system

financial year

benefits of new business

new folding machines