1 Financial Performance and Progress Report on clearing of audit queries of the Department Presented to the Portfolio Committee 08 March 2011 Presented by Cathy Motsisi Chief Financial Officer

2 Purpose To present the financial performance of the department as at the 31 January To provide a progress report on the clearing of audit queries.

3 Total Department: Financial Performance per Economic Classification Economic classification Adjusted Budget Allocation 2010/11 Exp as 31 Jan 2011 % Spent3 1 Jan 2011 NT Bench mark % Spent 31 Jan 2010 R'000 Compensation of employees %82%80% Goods and services %86%64% Property Management %86%97% Transfers and subsidies %92%84% Infrastructure %76%55% Machinery and equipment %60%63% Total %86%75%

4 Breakdown of the Expenditure Capital Budget- Infrastructure ItemAllocation R’000 Actual Expenditure R’000 % Spent Jan 2011 % Spent Feb 2011 Departmental %37% Accessibility for disabled people %55% Dolomite Risk Management %27% Land Ports of Entry %80% Prestige %66% RKTP %63% TOTAL1, %63%

5 Summary of Projects per status StatusDescriptionTotal number of Projects 4PI issued ( Expenditure is for consultants only 101 4bTender Stage39 5Tender recommendation stage 45 5APre site handover12 5BConstruction Stage112 6AFirst delivery stage29 7Final delivery stage80 8Construction completed86 TOTAL505

6 Financial Performance per Programme – (Benchmark 83%) Programme Adjusted budget allocation 2010/11 Exp as 31 Jan 2011 Exp % as at 31 Jan 2011 Exp % as at 31 Jan 2010 R'000 Prog 1. Administration %83% Prog 2. Immovable Asset Management %77% Prog 3. Expanded Public Works Programme %59% Prog. 4 Property and Construction Industry Policy Regulation %59% Prog 5. Auxiliary and Associated Services %75% Total %

7 Expenditure Analysis- Earmarked Funds January 2011 Function Budget ‘000 Expenditure 31 Jan 2011 ‘000 % Spent 31 Jan 2011 Office Accommodation % DPW Infrastructure % CIDB % CBE % Agrement Board % Boundary Fencing % Aug of PMTE % Property Rates – Conditional Grants % EPWP Incentives to Provinces % EPWP Incentives to Municipalities % IDT Intermediaries %

8 Expenditure Analysis- Earmarked Funds Cont. Function Budget ‘000 Expenditure 31 Jan 2011 ‘000 % Spent 31 Jan 2011 EPWP – Non State Sector % EPWP – Non State Sector (Province) % CETA (HR) % Parliamentary Villages % Energy Efficiency (PPM) % Audit fee % Compensation for Losses % State Function % Common Wealth War Graves % Distress relief100% Loskop Settlement100% Total %

9 Devolution of Property Rates Grant ProvinceBudget AllocatedAmount Transferred to Provinces R’000 Actual payments to Municipalities R’000 BalanceExpenditu re % Eastern Cape % Free State % Gauteng % KwaZulu Natal % Limpopo % Mpumalanga % Northern Cape % North West % Western Cape % Total %

10 Progress report on the clearing of audit queries

11 Audit Qualification Audit FindingProgress to Date Qualification Immovable tangible Capital assets and minor assets The department did not have a complete asset register of all immovable properties belonging to the national government under the custodianship of the Department of Public Works, as disclosed at R1 in note Information from Asset Register was extracted and prioritized according to blank and incomplete fields. The register has already been updated to reflect properties per town and per region. This will enable a structured approach to the register enhancement initiatives. Process of analyzing authenticity of information is ongoing. Progress monitored monthly to ensure population of identified blank and incomplete fields on the Asset Register Vesting Master Plan is already being implemented. To date 101 land parcels have been vested against a set target of for the year 2010/11. Cumulatively land parcels have been vested representing 58% of the target for 2014.

12 Audit Qualification – Progress report cont. The Amnesty call is due for implementation from 1st March. Systems are currently being set up at head office and regions to ensure a seamless implementation of the initiative dubbed “ Operations Buyisa ”. We are in the process of appointing service providers to assist with the comprehensive enhancement of the asset register. The bid has already been advertised. According to the project plan a service provider will be appointed by end of March. Target date for completion of the project is March The audit qualification is targeted for clearing by March Contract workers have already been appointed to assist with the vesting process.. A technical task team including National Treasury was established in August 2010 to oversee the fast tracking of the vesting and clearing of audit queries. The main focus of the task team is to ensure uniformity and compliance across spheres of government on the immovable asset management issues. The department has already taken a resolution to switch off PMIS on the 31st March 2011 to enable full migration to iEWorks. We are in the process of appointing an independent firm of auditors to provide assurance on the internal controls within the system.

13 Audit Qualification Audit FindingProgress to Date. Irregular expenditure The department did not follow the proper procurement process for all procurement which resulted in irregular expenditure. The department did not have adequate systems and procedures to identify and record irregular expenditure. The structure for the compliance unit has been approved and we are currently in the process of filling the post of the head of the unit. Interviews will take place before end of February. Various check lists within the SCM and Finance sections were developed and implemented since October 2010 to enable proactive identification of irregular expenditure. We have also improved the templates used for recording of irregular expenditure. On a monthly basis regions are reminded to submit any irregular expenditure identified..A consolidated report is forwarded to NT monthly Measures have already been put in place to review compliance matters on all transactions prior to commencement of the year end audit.

14 Emphasis of Matter Audit FindingProgress to Date. Fruitless and wasteful As disclosed in note 25 to the financial statements, fruitless and wasteful expenditure to the amount of R389,000 was incurred Some of the problems emanated from cases where clients vacate building before the end of the contract or where there are court judgements in favour of contractors. We have already started a project to verify occupancy on leased property to enable proactive identification and resolving of possible fruitless expenditure emanating from unused buildings. The irregular, and fruitless expenditure policy developed will contribute significantly to creating awareness on root causes of non compliance issues.

15 Report on other Legal and Regulatory Requirements Audit FindingProgress to Date Lack of effective, efficient and transparent systems and internal controls regarding performance management (applicable at an overall performance management level) Inadequate content of strategic plan The draft M&E policy has been finalized and submitted for approval. It is envisaged that the policy will be rolled out by mid March. A Circular No. 1 of 2010 articulating the programme schedule for the 2010/11 cycle was circulated and implemented during the year under review. The M&E has started to engage with respective branches/business units on a quarterly basis to confirm alignment of quarterly performance reports to the reporting requirements and ensure quality control. M&E has been escalated to EXCO where reports are discussed and corrective measures are taken. The strategic plan of the department did not include the indicators (measures) and targets for all of the department’s programmes as required by Treasury Regulation 5.2.3(d). Workshops were held with all the business units to ensure that the plans submitted applies the “SMART” principle. The reports have been designed to reflect on the reasons for deviations.

16 Report on other Legal and Regulatory Requirements Audit FindingProgress to Date Planned and reported performance targets not specific, measurable and time bound Planned and reported indicators or measures not well defined Planned and reported indicators or measures not verifiable Series of workshops held with individual branches/business units where the review and re-alignment of targets and indicators were articulated. The 2010/11 strategic plan shows significant improvement compared to the previous financial year.

17 Compliance with Laws and Regulations Audit FindingProgress to Date Public Finance Management Act No. 1 of 1999 and Treasury Regulations of 2005 Non-adherence to requirements Contrary to the requirements of Treasury Regulation and section 38(1)(f) of the PFMA, the accounting officer did not in all instances pay creditors within 30 days from receipt of an invoice. We have set up interim systems where all invoices are received at registry, recorded and stamped before forwarding to respective units for work certification. All invoices older than 30 days are investigated for reasons of late payments and noted in the register which is forwarded to the CFO monthly for review and addressing of late payments. We are in the process of enhancing the initiatives put in place through “Operation Re Ya Patala” by setting making the unit visible at reception and re-advertising the toll free number in all identified media. We have also engaged IT to leverage on the existing EDMS system for the development of an electronic tracking tool. The system has already been developed and it is currently piloted at head office.

18 Report on other Legal and Regulatory Requirements Audit FindingProgress to Date Contrary to the requirements of Treasury Regulation 16A.7.4, the department did not obtain approval from the relevant treasury for letting immovable state property at tariffs lower than market-related rates. This problem relates to old contracts that were implemented before the market related benchmarks were enforced. Contracts are renewed to market rates as and when they expire Public Service Regulations, 2001 (PSR) Contrary to the requirements of PSR 1/III/B2(d), an approved human resource plan for the medium-term expenditure framework was not in place. The human resource plan gets reviewed after three years. The new revised plan has been finalized and submitted through the relevant stakeholders for approval..

19 Other Reporting – Internal Controls Audit FindingProgress to Date. Leadership The accounting officer does not exercise oversight responsibility over reporting and compliance with laws and regulations and internal control and furthermore, the internal policies and procedures pertaining to the monitoring and reporting of compliance with laws and regulations were not always aligned to the applicable laws and regulations, resulting in numerous instances of non- compliance with laws and regulations. The executive management team of the department has taken a clear resolution of taking the lead in all operations. Since July last year all DDG’s have been allocated different regions for oversight management and providing support. The Accounting officer has engaged in a number of workshops and meeting with the regional managers to attend to the challenges of service delivery and also inculcating the culture of good governance. The structure has also been reviewed to enable proper governance of the operations of the department. To this end Property management and Capital projects functions have been restructured to enable better decision making. The Accounting officer have also improved the awarding of big contracts by creating a Special Bid Adjudication Committee which reviews all procurement above R20 million. This committee consist mainly of Chief Directors and DDG’s.

20 Other Reporting – Internal Controls Audit FindingProgress to Date. Financial and performance management The department did not have documented and approved internal policies and procedures to address planning, implementation, monitoring and reporting processes and events pertaining to performance management and reporting. To date the following policies have been drafted / reviewed: Revenue Management - draft SCM Policy - completed Irregular, Fruitless and wasteful expenditure – completed Debtors Management - completed Movable Assets Management Policy - completed Entertainment Policy- completed Petty Cash Policy- completed We have developed check lists throughout the finance operations to improve compliance with policies. A policy portal will be developed by end April 2010 to enable all policies to be accessible as and when required. Significant work has been done with regards to the drafting of other policies such as planning and budgeting. These policies will be finalised and ready for implementation by 1 st April.

21 Other Reporting – Investigations Audit FindingProgress to Date Investigations in progress Several investigations are currently being carried out within the department relating to matters of fronting, the misuse of state vehicles, conducting business while employed by the public service, the unauthorized sale of government houses, allegations of overpayments, delay of payments and irregular awarding of tenders. The investigations were still ongoing at the reporting date. Two cases of fronting are still under investigation. The department has put in place measures to reduce fronting. These measures includes training staff on proactively identifying fronting and risk issues relating to the Supply Chain Management. The case that was reported on misuse of vehicles was investigated and it was found that there was no evidence to substantiate the allegation. The matter was therefore regarded as closed. Other cases are still under investigation

22 Property Management Trading Entity

23 Audit Qualification Audit FindingProgress to Date Revenue and receivables I could not verify completeness, valuation, rights and obligations of the trade receivables due to the following: The trade receivables balance of R2,38 billion (2009: R2,1 billion) and as disclosed in note 4 to the annual financial statements, does not agree to the total per the individual debtors accounts. The entity did not complete the process of reconciling the difference between the trade receivables at year-end with the underlying accounting records. The entity embarked on an extensive process of reconciling all debtor accounts going back three years to the inception date of entity. State leases = 100% reconciled Private leases = 3 years reconciliations 100 % done. There is a concerted effort to finalise the remaining 3 yrs by end of July Municipal services = Out of the 42 client department, accounts of 30 clients have been fully reconciled. The remaining 12 accounts will be finalised by end March. We are also in the process of increasing capacity to ensure sustainability of the work done by consultants as well as to improve technical skills relevant for the PMTE.

24 Audit Qualification Audit FindingProgress to Date Related parties Due to lack of a proper accounting system in place for trade receivables and un-reconciled individual trade receivables balances at year- end, I was unable to verify completeness, valuation, rights and obligations of related- party balances as disclosed in note 17.2 of the annual financial statements. Expenditure and payables South African Statements of Generally Accepted Accounting Practice, IAS:39 (AC 133), Financial Instruments: Recognition and Measurement The time value of money was not taken into account when disclosing the fair value of payables as disclosed at R930 million (2009: R722 million) in note 6 at year-end and the prior year. The following are the related parties of PMTE: National Department of Public, Other National Departments and Public Entities reporting to the National Departments because they are subject to common control. Specifications for the acquisition of a new financial system have already been submitted to National Treasury for approval. IT is currently looking at possible systems that can be compatible to the current operations systems called iEWorks. We have already started to review the financial information to conduct a dry run of the compliance with GAAP.

25 Emphasis of Matter Audit FindingProgress to Date Restatement of corresponding figures As disclosed in note 10 to the financial statements, the corresponding figures for 31 March 2009 have been restated as a result of the Property Management Trading Entity reporting in terms of South African Statements of Generally Accepted Accounting Practice (SA Statements of GAAP) for the first time for the year ended 31 March This matter was unavoidable as we were reporting in term of GAAP for the first time. The conversion necessitated the restating of previous year’s balances.

26 Compliance with laws and regulations Audit FindingProgress to Date Public Finance Management Act No 1 of 1999 and Treasury Regulations of 2005 Non-adherence to requirements Contrary to the requirements of TR , a number of payments in excess of R2 000 were effected electronically without approval having been obtained from the relevant treasury. Measures have been put in place to ensure that appropriate approval is received before exceeding the petty cash limits. Contrary to the requirements of TR16A9.1(c), the accounting officer did not check the National Treasury’s database prior to awarding any contract to ensure that no recommended bidder nor any of its directors, are listed as companies or persons prohibited from doing business with the public sector. The control measure for checking with NT was implemented since July last year.

27 Compliance with laws and regulations Audit FindingProgress to Date Contrary to the requirements of TR16A6.4, the accounting officer did not report within 10 working days to the relevant treasury and the Auditor-General, all cases where goods and services above the value of R1 million (VAT included) were procured. Although it has been impractical to report within 10 days, we have started reporting since the previous financial year. We are currently conducting a compliance check with the Regions to check any possible un-reported cases.

28 Compliance with laws and regulations Audit FindingProgress to Date Construction Industry Development Board Regulations, 2004 Non-adherence to requirements Contrary to the requirements of the CIDB regulation 18(1A)(1) and section 22(3) of the CIDB Act, the contracts awarded above R , was not registered in the register of construction contracts with the CIDB within 21 working days The control has been fully implemented. All contracts are now registered with the CIDB.

29 I thank you