By the Acting Director – General Mr Mandla Mabuza

DEPARTMENT OF PUBLIC WORKS

Presentation of the remedial action on 2010-11 Annual Report to the Portfolio

Committee on Public Works

01 November 2011

By the Acting Director – General

Mr Mandla Mabuza1

Contents

1. Introduction2. Progress on:

2.1 Accounting Action Plan2.2 SCM Action Plan2.3 PMTE Action Plan2.4 Immovable Assets2.5 Performance Information2.6 Internal Audit

2

Introduction • The department received a disclaimer opinion on the audit report for

the financial year ending 2010/11.• To date a concerted effort has been undertaken by the department

to analyze the root causes of the disclaimer as well as to reflect on the trends in order to enable sustainable corrective measures.

• While we acknowledge capacity issues, inadequate policies and business processes as well as the inevitable political transformation which have happened in the department, we are also agreeing that a robust culture change has to happen urgently.

• The culture change will include amongst other things:– holding managers accountable for non-performance and non-

compliance.

– Improving the basics eg filing & reporting

– Developing a comprehensive sustainable turnaround strategy

• The progress report presented today will be further enhanced by the comprehensive strategy that will be developed this year.

3

Interventions for under expenditure

• Infrastructure budget

- portfolio strategies implemented to enhance planning

- construction of DPW regional offices

- rehabilitating unutilised buildings

- reduce lease portfolio

• Acceleration of project management support

• EPWP

- Review of wage incentive model

- Intensifying technical support to municipalities to enable to implement projects labour intensively

- Providing additional data capturers

4

Action Plan – Accounting Improvement

Audit Finding Root Cause Solutions Target Date

Progress to Date

Conduct Monthly reconciliations of ledger accounts

Poor monthly reconciliations

Improve the compliance certificate to include supporting documents

Workshop the

compliance certificates with the Regions

Director Financial

Accounting to review the reconciliation

Aug 2011 The framework has been implemented.Some of the Regions are still experiencing challenges in submitting the reconciliations on time.

5

Action Plan – Accounting Improvement cont.

Audit Finding Solutions Target Date Progress to Date

Conduct Monthly reconciliations of ledger accounts

Review and monitor all suspense accounts on a monthly basis

Dec 2011 At Head Office the following accounts have been reconciled on a monthly basis:ReceivablesPersonnel DebtClaims recoverablePrepaymentsClearing AccountsAdvances ReceivedOther Payable The Regions are submitting compliance certificates which assume that the reconciliations have been done. We are in the process of conducting a physical review of the schedules submitted for finalization of the Financial Statements.

6


Audit Finding

Root Cause Solutions Target Date

Progress to Date

Capacity constraints

Review the current structures in the Regions to ensure that critical posts are filled.

Create contract posts

as an interim measure.

Co-source audit firms

Dec 2011

The Regions have submitted inputs in terms of their capacity needs. We are also in the process of acquiring services of accounting firms to complement capacity in the Regions.

7


Audit Finding Root Cause

Solutions Target Date Progress to Date

Preparation of accurate financial statements

Poor preparation of the audit working files

Poor review

Provide training on the preparation of working paper files

Nov 2011 Informal Training was done on the 26 October for Head Office for the following Officials: D: FA Mandla SitholeAct D: Head Of Finance PTA Region – Mr Leseja ToonaCD:SCM – Trevor TabaneD: Procurement – Mr Thabo TladiD: Procurement - Ms Salome MalebyeD: Movable Assets - Ms Thembi Gumede

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Audit Finding Root Cause Solutions Target Date Progress to Date

Preparation of accurate financial statements

Poor preparation of the audit working files

Poor review

Conduct a dry run of the files using the interim financial statements

Filing and Preparing of an audit

file: get a focus team that will do the filing – obtain a print out of the WCS and trace back all the source documents that support the figures to ensure that there is an accurate, complete file.

Maintain schedules – linked to

source/supporting documents

Dec 2011 Scheduled to start in November.

Enlist the support of Internal Audit for the review of the AFS

May 2012 Not yet due

9


Audit Finding Root Cause

Solutions Target Date

Progress to Date

Conduct a quarterly reporting of contingent liabilities to enable timeous assessments of litigation cases

Inadequate interdepartmental support

Develop a reporting plan with legal services

Sept 2011 .Done

Inadequate interpretation of accounting standards

Develop a policy/circular with legal services on the assessment of litigation cases

Nov 2011 The circular has been drafted and currently going through internal consultations

Lack of policies

Review the assessments quarterly

Dec 2011 Started with the Interim Financial Statements for September 2011.

10


Audit Finding

Root Cause Solutions Target Date

Progress to Date

Validate accruals and commitments at year end

Inadequate understanding and interpretation of accounting standards

Inadequate capacity

Lack of systems

Develop simple user friendly guidelines

Nov 2011 A post audit workshop was held on the 22nd and 23rd August to discuss and review the issues raised in the audit reports. The interpretation of accruals and commitments was explained in detail, and regions were alerted of simple mistakes which were done at year end. The guidelines will be finalized in November.

Enforce compliance by holding finance managers accountable

Not yet achieved

11

Progress - SCM Action Plan cont.Audit Issues Root

CausesProposed Solution

Time Frame

Progress

\Lack of Supply Chain Management Training in the Department

Lack of a comprehensive training plan on the SCM

Develop and implement a training plan for SCM Training for all relevant officials including SMS members.

Nov 2011

A five day training programme has been developed with PALAMA. Training conducted during the 1st & 2nd Quartero 29 officials at Head Office, o 1 – Polokwaneo 3 - Mmabathoo 3 – Nelspruito 6 – Johannesburgo 3 – Pretoriao 3 – Kimberly

Dates for further training are follows:o 21 November 2011 – PE and Umtata -

30 o 28 November 2011: Cape Town,

Targeted Officials 40o 30 November 2011 – Bloemfontein: 20

officialso 25 November 2011 for Head Office

which includes 12 bid committee members and 8 SCM officials

o October 2011: Durban – 20 officials, Polokwane – 25, PE

On the job training is done for interns: 3 in bids, 1 in quotations and 1 in supplier register and 4 in provisioning and logistics. and 16 learners in payments and registry

12

Progress - SCM Action Plan cont.

Audit Finding

Root Causes

Proposed Solution

Target Date

Progress

Develop a hand book on frequently asked questions and do’s and don’ts’

Jan 2012

Requests for inputs were sent to HO Units and Regional Offices. The process is underway to consolidate the information

Develop an in-house SCM orientation course

Mar 2012

Information sessions with directorates and regions has been held by the logistics, provisioning (11 regions covered and three regions also attended additional training at Head Office) quotations and tender administration units to address specific SCM issues

13


Audit Finding

Root Causes

Proposed Solution

Target Date

Progress

Competitive bidding process not followed Excessive use of urgent and emergency procurement

Poor planning which leads to urgent procurement

Unavoidable & unique situations which are inherent in our business

SCM currently reviewing strategy document prior submission to NBAC for process flow

Sept 2011

Procurement plans have been developed for works, goods and services above R500 000, approved by the Accounting Officer and submitted to National Treasury in September 2011.

National Treasury to be engaged on unique situations.

Business units are engaged to clarify issues and also to provided hands on support to ensure compliance.

We have engaged NT to discuss peculiar cases around procurement of leased accommodation. The discussions are still ongoing.

All procurement strategies above the R500k threshold are considered and approved against the approved procurement plan.

All documents as from the 1st September are checked against the procurement plans before processing further or approval by relevant committee.

Screening of procurement strategy document relating to procurement of goods and service prior to submission to NBAC. 14

Progress - SCM Action Plan cont.Audit Finding

Root Causes Proposed Solution

Target Date

Progress

Declaration of Interest /SBD 4 not attached

Inadequate enforcement of policies

Enforce compliance with the SCM prescripts

Oct 2011 The new SCM Practice Note was implemented throughout the department

SCM guidelines and templates on the implementation of the provision on bids above 10 million were also developed, implemented as well as incorporated in the PA forms of the Department.

Three quotations not obtained

Out dated database e.g. contact information; expired tax clearance, closed business

Pure Negligence by responsible officials.

Update the Supplier database

Implement disciplinary measures

Improve the checklists to proactively detect non-compliant transaction

Nov 2011

The Proquote data base is currently being cleansed to update information.

Checklist for orders and payments have been reviewed and updated in conjunction with Financial Administration

The irregular cases have been analysed assessed for root causes with the intention to take corrective measures.

15

Progress - SCM Action Plan cont.Audit Finding Root

CausesProposed Solution

Target Date

Progress

Original Tax Clearance not attached

Variation

orders not approved by the delegated authority

Winning

bidders not advertised

Reporting of deviations from procurement processes not always done.

Inadequate enforcement of policies

Problems with access to CIDB system

Review the SCM policies and business processes and align to NT guidelines. Implement corrective measures

Jan2011

The SCM policy is currently being reviewed to align with the new practice note.

The National Treasury practice note on variation orders has been operationalized. The irregular cases have been analysed assessed for root causes with the intention to take corrective measures.

CIDB Account reinstated and officials are receiving training

Sept 2011

Corrective measures were put in place before end of 2nd quarter.

CIDB database Training has been conducted as follows: Head Office – 14 officials PE and Umtata – 16 Officials

Enhance the reporting tool to enable reporting to NT within the prescribed timeframe of 10 days.

A project to obtain and submit reports retrospectively from April 2011 for the Regions has started.

Regions will be capacitated to have dedicated officials for reporting

16

Progress - SCM Action Plan cont.Proposed Solution Target

DateProgress

Enforce the approval of deviations by delegated officials – orders or payments must not be generated until the relevant approval is received.

Aug 2011 All deviations are scrutinised to ensure that approval is given on legitimate cases.

All deviations within the quotations environment are now approved by the Director: Demand and Acquisition Management as per delegations.

Establish and update deviations report Written warning was issued to the official who did not

sign the Order Forms as per the audit queries raised

Tax clearance for quotations to be kept at one central point – supplier register database

Sept 2011 Dedicated officials have been appointed do conduct cross referencing of Tax Certificate.

All original TCC are now filed in a central database at Head Office and Region Level.

IT has also been engaged to create a function within SCM Toolkit for all DPW users to view the TCC which also allows nominated officials to update.

In instances where tax clearance certificates have expired we will communicate with the vendors as part of data cleansings.

Jan 2011 A report of all expired TCCs has been generated which will be used to issue out letters to the relevant service providers to update their TCC as part of the supplier data cleansing.

Failure of the service provider to respond within the

timeframe set will lead to the company be de-activated on the system 17


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Audit Finding

Root Causes Proposed Solution Target Date

Progress

Non-compliance with the 30 day payments

Lack of effective tracking tools.

Inadequate monitoring

Use of

service providers who are not on the Departmental database

Invoices not certified by Chief Users

No banking

details for the service provider

Enhance the use of registers for tracking invoices.

Obtain additional capacity

Only service

providers on the database to be used

Deviations to be

approved by the CD:SCM.

Confirm banking details before an order is issued

Dec 2011

The electronic invoice tracking tool will be rolled out to the Regions during the third quarter of the financial year

Manual registers are still being used as a compensating control.

The rollout to Head Office was delayed by the move to the new office accommodation at CGO.

16 Learners have been made available to assist in the payment process

The Quotations Unit confirms that the service providers are on the database

Chief Users are forced to motivate

the reason for the delay of payments

No orders are issued until the

service providers banking details are registered on the system

20


Audit Finding

Root Causes Proposed Solution

Target Date

Progress

Misalignment of SCM and Property & Projects Management delegations

Silo operations

Limited

appreciation of the PFMA

Outdated policies

Set up a task team with all relevant people to review and align the operational business processes and delegations within the SCM

Dec 2011

A focus group has been set up that will look at the SCM policy, directives and sop’s and alignment to the delegations.

Review the financial delegations and align with the operations and SCM

Dec 2011

A focus group has been set up that will review the SCM policy, directives and sop’s and alignment to the delegations

21


Audit Finding


Progress

Improve Records management and filing

Lack of effective systems for records management

Review and assess all of all filing systems in the department and storage facilities

Feb 2012 Head office has already reviewed the filing and registry systems for the SCM unit.

The unit is in the process of acquiring the bulk filing cabinets for safeguarding of documents.

Regional visits will take place from November 2011.

Poor archiving systems

Develop an Instruction Note on filing and circulate to all staff members

Fast track the scanning of documents

Dec 2011.

The task team is currently finalizing the draft circular.

Culture change

• Hold managers accountable for missing records.

On going

Scheduled to start in November.

22


Audit Finding


Progress

Inventory counts are not conducted and the LOGIS system is not updated

Inadequate reconciliations

Lack of

capacity within the Regions

LOGIS to be updated daily as stock is issued Monthly reconciliations to be done Quarterly spot checks of the inventory items to be done and annual independent stock counts to be conducted All vacancies within SCM to be filled

Monthly 11 Regional Offices visited and training conducted.

3 Regional Offices attended training at Head Office on Inventory Management Quarterly reconciliations submitted to and verified by Head Office. The department is in the process of filling the vacancies.

23

Progress – Risk Management

Audit Finding Root Causes

Proposed Solution Target Date

Progress

Risk Strategy

Not Developed

Procure Risk

Management Tool

Mar 2012 A process is underway to

acquire a Risk Management tool

Operationalize Executive

Risk Management

Committee

Oct 2011 Risk Management Committee

Comprising all DDG’s

has been formalized.

The DG is a Chairperson of the

committee and responsible for

convening committee meetings.

Roll out Fraud Prevention

Plan through awareness

campaign

Mar 2012 Awareness workshops

conducted at 5 Regions.

24

Progress – Internal Audit

Audit Finding Root Causes

Proposed Solution Target Date

Progress

Internal audit

DoRA

transfers

reviews not

conducted.

Inadequate Resources

Included in the revised audit plan for 2011/12

31 Mar 20112

Audit is scheduled for the 4th quarter of the financial year.

Fill the current approved positions.

Develop a new structure for Internal Audit to be responsive to the departments operations

Jan 2012 Funds have been reprioritized. Advertising will take place during November

Co-sourcing Service provider for investigation and EPWP audit in Public Bodies have been appointed.

They have all started with the work.

25

Progress – Monitoring & Evaluation

Audit Finding Root Causes Proposed Solution Target Date

Progress

Predetermined

Objectives:

Usefulness of

the information

on the

predetermined

Objectives in

terms of

Consistency and

measurability

Reliability of

the information in

terms of validity,

accuracy and

completeness

Inadequate

planning

Poor quality

Control of inputs

Lack of

Accountability

Review the current static information (targets, outputs and objectives) are aligned to the strategic plan.

Improve the validation and

verification process for all data

reported to ensure accuracy,

validity and completeness.

Train all units in the Department

on the development and

updating of the Portfolio of

Evidence (POE)

Capacitate the Monitoring and

Evaluation (M&E) officials

(a) Fill all existing M&E vacancies with skilled and specialist in M&E

(b) Train M&E officials

Nov 2011

Dec 2011

Jan 2012

Mar 2012

26

Progress Report - Immovable Assets Nature of Audit Finding

Action Target date Responsible persons

Progress

Immovable Assets: Non – compliance with the NT sector specific guide for completeness and accuracy of the IAR.

Address Management Assertions (Validity, Accuracy and Completeness) of the DPW IAR.Completeness of assets - being able to reliably demonstrate that all the assets under the control of DPW are recorded.

31 March 2014

Sasa Subban – DDG – Asset Investment Management Florence Rabada – CD- Asset Register Management

Immovable Asset Register Enhancement project commenced 01 Oct 2011 and scheduled to end +/- 31 March 2014Programme Manager appointed.

Short term and long term focus defined.

Reconciling the following: IAR/State Custodians -DPW’s IAR-DRDLR’s IAR,-DWA’s IAR-Provincial IARs -Deeds Web- Publand database

Reconciliation of data sources in progress to have complete list of all deemed DPW Immovable Assets. All IARs except DWA & Limpopo province have been obtainedDate for completion -05 November 2011 27

Progress Report - Immovable Assets

Action Targetdate

Progress

National and Provincial Vesting statistics Dpw – 35% (12 873 land parcels vested)

Vesting Statistics obtained from DRDLR – verification exercise in progress

Dpw and Provinces – reconciliation of vesting statistics via template in progress Completion 05 November 2011

Address completeness in respect of IAR fields as per NT requirements.

Assessment has been completed

Conduct Gap Analysis On compliance with GIAMA, PFMA, GRAP/Modified cash basis, National Treasury Sector Specific guide, and related legislation.

Gap analysis in progress & aligned to reconciliation of IAR and assessment of information fields

28


Action Target date Progress

Document the processes followed in compiling and categorizing Immovable Assets.

In progress as reconciliations are being performed and in line for the 2011/12 year end. Processes are being documented as the work progresses

Accuracy and reliability &Rights -Ownership of assets - being able to reliably demonstrate that all the assets included in the disclosures are accounted for by DPW.Evidence of Ownership as per the Aktex / Title Deed.

A desktop team is being set up to deal with the desktop processing i.e. updating the Aktex/ Title Deeds information to address the Accuracy of the IAR.

29


Nature of Audit Finding


Analysis of any encumbrances (servitudes; right of way etc) Assess the number of Permission to Occupy (PTOs) and Permission to Occupy and Build (PTOBs) properties and account for them correctly.

List of PTOB & PTO download from PMIS forwarded to Regions for verification.

30 November 2011

Valuation & Allocation - Reference will be made to Cost supporting documents where possible; a valuation model and other sources will be used for reasonability e.g - Municipal Valuation rolls; and use of professional Valuators where necessary. Address capitalization or expensing of property related costs

AG meeting scheduled on 02 November 2011 to ensure uniform valuation and capitalization of expenses. Also to deal with other technical accounting issues.

30



Action TargetEnd date

Progress

Presentation and Disclosure: Creating proper audit trail.Perform reconciliation of number of properties and rand values i.e. (Opening Balance + Additions – Disposal +/- Adjustments = Closing Balance) Narrative Disclosure note for the Un-surveyed and Surveyed land.

Reports have been down loaded from the systems, BAS & PMIS and WCS for reconciliation process. Engagement and reconciliation with surveyor General has commenced.

The process is scheduled to end 31 March 2012

Existence: Validity of assets - physical verification of all properties and collect Photo’s and Images; GPS Co-ordinates; Diagrammatic layout of buildings; SG Diagrams

Secondary Service Provider will be appointed to perform the Physical verification commencing January 2012

31




Other objectives Link Land parcels to respective Improvements. Amnesty Initiative (Operation Bring Back) - to ensure that all properties are accounted for.

Conducted during the physical verification process.

Part of the process of reconciliation of all IAR, and physical verification will enhance the project.

32

I Thank You

33

Documents

By the Acting Director – General Mr Mandla Mabuza