FEBRUARY 2013 PRESENTATION OF THE AUDITOR-GENERAL TO THE PORTFOLIO COMMITTEE ON A PERFORMANCE AUDIT OF THE USE OF CONSULTANTS AT THE DEPARTMENT OF TRANSPORT FEBRUARY 2013

Reputation promise/mission The Auditor-General of South Africa has a constitutional mandate and, as the Supreme Audit Institution (SAI) of South Africa, it exists to strengthen our country’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence.

Performance auditing An independent auditing process to evaluate the measures put in place by management to ensure that resources have been procured economically and used efficiently and effectively.

Performance audit at a glance Why a performance audit on the use of consultants by government Significant expenditure - R102 billion over 3 years SA’s skills crisis – we have a need A relationship of national importance Public sector can benefit - if consultants used correctly Previous performance audits – follow up on progress How do performance audits differ from other audits? Focus on performance – the three Es Economy Efficiency Effectiveness Done when problems are identified Focus on finances Financial statements Financial management Accounts true and fair Done annually Performance auditing Regularity vs

Scope of the audit The departments we audited and why others were not audited Focus of this report – national departments R33,5 billion National total over 3 years - R33,5 billion Provincial total over 3 years - R68,5 billion Similar provincial audits conducted – to be tabled in due course R68,5 billion

Scope of the audit The departments we audited and why others were not audited Eight national departments were audited - total expenditure on consultants R24,6 billion over 3 years Selection also guided by outcomes of financial audits and other assessments 20% of national departments represent 74% of the total national expenditure on consultants over the 3 years

Key focus areas of the audit Audit focus areas Planning and appointment processes Internal capacity at departments Training and transfer of skills from consultants to employees Performance management and monitoring of consultants Extension of contracts Closing and finalising projects Focus areas crucial in ensuring the Economical, Efficient and Effective use of consultants by departments

Key challenges across departments Planning and appointment process Comprehensive needs assessments not done Competitive procurement processes not followed Expectations on milestones, timelines and cost not clearly specified Internal capacity Consultants appointed where permanent capacity should have been created Consultants appointed due to lack of internal staff capacity Training and transfer of skills Skills transfer was ineffective Performance management and monitoring Effective oversight and internal controls not executed prior to payments Lack of proper project management and monitoring Cost overruns not motivated and approved Extension of contracts Contracts extended due to lack of project management and monitoring Closing and finalising projects Failure to retrospectively analyse projects

Department of Transport Total expenditure on consultants (2008‑09 to 2010-11) R1,86 billion Number of projects audited 16 Value of projects audited R1,884 billion* Average vacancy rate (2009-10 to 2010‑11) 22,25% * Includes three high-value long-term contracts of R640m (7 years), R594m (5 years) and R235m (5 years)

Audit findings DEPARTMENT OF TRANSPORT Classification Areas where deficiencies were identified during the audit E affected   Consultants per contract audited Best available value of contracts Period of the contract/ service Consultants Contractors Agency/outsourced services Planning and appointment Internal capacity Training and transfer of skills Performance management and monitoring Extension of contracts Closing and finalising of projects Economy Efficiency Effectiveness Development of eNaTIS 594 000 000 1. Tasima consortium Jun 2002 - May 2007* ü Taxi recapitalisation project (TRP) 639 928 000 2. Siyazi consortium May 2006 - Sep 2013 Maritime pollution prevention response and services 333 262 748 3. Smit Marine South Africa Sep 2003 - Aug 2008** Events management project 50 054 448 4. Groove Consultants Sep 2007 - Oct 2007 Management of October transport month 14 332 871 5. Puisano Business Development Group (Pty) Ltd Sep 2008 - Oct 2008 Formulation of National Airports Development Plan (NADP) 10 165 118 6. Kaiser International (Pty) Ltd Oct 2007 - Feb 2009 Formulation of National Transport Master Plan (NATMAP) 64 355 474 7. Various consultants Aug 2006 - Apr 2010 Operational model for the acquisition and operation of buses for the 2010 FIFA World Cup™ Ω 599 184 8. Arcus Gibb consortium Oct 2007- Feb 2008 Technical Support Transport Demand Model Ω 1 705 000 9. Axio Consulting Nov 2007 - Jun 2008 * Contract continued on a month-to-month basis from June 2007 after expiry of the contract ** Contract was extended from 1 Sep 2008 onwards. Consultant was later re-appointed after conclusion of a new tender process Ω Finding was not included in the public report due to the non-material nature of the findings and/or after further evaluation took place

Audit findings (continued) DEPARTMENT OF TRANSPORT Classification Areas where deficiencies were identified during the audit E affected   Consultants per contract audited Best available value of contracts Period of the contract/ service Consultants Contractors Agency/outsourced services Planning and appointment Internal capacity Training and transfer of skills Performance management and monitoring Extension of contracts Closing and finalising of projects Economy Efficiency Effectiveness Conference organisers for the AFRI RAN project Ω 18 584 888 10. Mbali G and Associates Oct 2008 - Nov 2008 ü Drafting a policy discussion document on anti-train surfing, train suicides and related issues Ω 595 126 11. Nosanda Management Solutions Jan 2008 - Feb 2009 Project management services for the Public Transport Infrastructure and Systems grant Ω 119 144 354 12. Panel of experts - various consultants Jul 2007 - Mar 2010 Program management preparations for the 2010 FIFA World Cup™ Ω 25 790 556 13. Safiri (Pty) Ltd Dec 2008 - Jan 2010 Non-motorised infrastructure project Ω 2 590 512 14. Sektor Consulting Engineers Nov 2006 - Feb 2010 Technical assistance during the implementation of the TRP Ω 8 944 546 15. Transpay consortium Jun 2003 - Nov 2007*** Women and gender audit 16. HSRC Limitation of scope Total 1 884 052 825 9 6 7 8 3 *** Consultant was re-appointed on 22 Nov 2007 at a ceiling amount of R1 211 615. Ω Finding was not included in the public report due to the non-material nature of the findings and/or after further evaluation took place.

Variations per contract Project / consultant Original amount of contract Variation amount Compliance with procurement policy Comments Development of eNaTIS Tasima consortium R594 000 000 Escalation cost of R936 192 804 increased the contract value of R594 000 000 to R1 530 192 804 No According to a legal opinion obtained by the department, the extension of contract in May 2010 should have been subjected to a competitive procurement process. Maritime pollution prevention response and services Smit Marine South Africa R235 014 687 R98 248 061 Yes The DG approved the three extensions. Events management project Groove Consultants R45 731 821 R4 322 627 No competitive bidding process was followed before awarding additional services to the consultant. Formulation of National Airports Development Plan (NADP) Kaiser International (Pty) Ltd R10 165 118 Additional stakeholder consultation fees of R1 830 000 increased the contract value of R10 165 118 to R11 995 118 Variation submitted to the bidding committee for approval to fund additional stakeholder consultation. Conference organisers for the AFRI RAN project Mbali G and Associates R15 000 000 R3 584 888 The bidding committee approved the request for the extension of scope. Program management preparations for the 2010 FIFA World Cup™ Safiri (Pty) Ltd R5 790 556 R20 000 000 The DG approved the extension. Non-motorised infrastructure project Sektor Consulting Engineers R2 085 253 R505 259 The extension was approved by the bidding committee. Technical assistance during the implementation of the TRP Transpay consortium R7 732 931 R1 211 615 The contract was extended via a closed bidding process.

Contract specific challenges Development of eNaTIS Tasima consortium R594m Jun 2002 – May 2007 No transfer management plan to the department on the eNaTIS and related services after five years Paid R936,2m for additional services which did not form part of the original contract The extension of contract was not subjected to a competitive procurement process Taxi recapitalisation project Siyazi consortium R639,9m May 2006 – Sep 2013 Project was not properly planned by the department and resulted in an increased budget of R2,1b Scrap metal proceeds could not be accounted for Consultant’s progress reports were lacking Maritime pollution prevention response and services Smit Marine South Africa R333,2m Sep 2003 – Aug 2008 Poor planning resulted in three extensions over 21 months costing R98m Intense scrutiny of strategic plans and accountability reports Activities should be monitored quarterly Follow up on corrective action against action plans

Contract specific challenges Events management project Groove Consultants R50,05m Sep 2007 - Oct 2007 Departmental staff changed project scope without approval resulting in additional cost of R4,3m Management of October transport month Puisano Business Development Group (Pty) Ltd R14,3m Sep 2008 – Oct 2008 Appointment was made only five days before the start of the project Consultant had access to information prior to bid invitation Only 11 days granted for tenderers to submit proposals Consultant notified of appointment three days before evaluation process was finalised Formulation of National Airports Development Plan (NADP) Kaiser International (Pty) Ltd R10,1m Oct 2007 – Feb 2009 Appointment made because department lacked adequate staff and available personnel did not have the skill and time to develop the deliverable The plan has not yet been approved by Cabinet for implementation Formulation of National Transport Master Plan Various consultants R64,3m Aug 2006 – Apr 2010 Insufficient positions on the staff establishment for the implementation, monitoring and editing of the NATMAP which resulted in reliance on consultants Intense scrutiny of strategic plans and accountability reports Activities should be monitored quarterly Follow up on corrective action against action plans

Key recommendations: how government can remedy the current situation Compliance with legal frameworks, laws, regulations and policies Indicate maximum contract value and number of hours Develop a strategy governing the use of consultants Manage and monitor performance Formal needs assessments should be conducted Training and transfer of skills Create sufficient internal capacity Investigate possible fruitless and wasteful expenditure Value for money from the use of consultants Extend contracts for valid reasons only Learn from the past, apply in the future

Combined assurance: extensive assurance needed at all levels Management assurance First level of assurance Senior management Accounting officers/ authority Executive Required assurance levels Extensive Management’s assurance role Senior management – take immediate action to address specific recommendations and adhere to financial management and control systems Accounting officers/ authority – hold officials accountable for the use of resources and report annually on the use of consultants Executive authority – monitor the use of consultants and enforce accountability and consequences Oversight assurance Second level of assurance Coordinating / Monitoring institutions Internal audit Audit committee Extensive Required assurance levels Oversight’s assurance role National Treasury/ DPSA – monitor compliance with laws and regulations and enforce appropriate action Internal audit – follow up on management’s actions to address specific recommendations and conduct own performance audits on the use of consultants Audit committee – monitor the implementation of commitments on corrective action made by management as well as significant spend on consultants Independent assurance Third level of assurance Oversight (portfolio committees / councils) Public accounts committee External audit Extensive Required assurance levels Role of independent assurance Oversight (portfolio committees/ councils) – review strategic and business plans as well as the accounting officer’s reports on the use of consultants Public accounts committee – exercise specific oversight on a regular basis External audit – provide independent assurance on the credibility of reported information and identify instances of irregular, fruitless and wasteful expenditure on consultants

Commitment to action needed Better value for money when using consultants National Treasury Audited department Minister Portfolio Committee Department of Public Service and Administration

Commitment given Better value for money when using consultants National Treasury - Guidelines will be reviewed to strengthen the process of appointing consultants - Emphasis to be placed on the monitoring of compliance with legal frameworks related to the appointment, management and use of consultants Audited department and Minister - eNaTIS contract – a determination would be done on whether there is a need for further software development or only maintenance of current software - Taxi recapitalisation programme – submission of quarterly reports will be enforced by withholding payments to the service provider - Department will consider execution and finalisation of projects based on its priorities Portfolio Committee - The following should be implemented: HR planning should have short-, medium- and long-term objectives Long –term career planning should be incorporated into the human resource plans - Department should have its own specialists to identify areas where consultants are needed, to properly plan for the use of consultants and to monitor the work performed by consultants Department of Public Service and Administration - Information on skills in public sector will be provided - Research will be conducted and interventions developed by March 2014 to reduce vacancy rate - Annual departmental submission of HR plans will be increased to 100% compliance

It takes two to tango: the private sector also needs to come to the party The creation of citizen value is enhanced through a balanced partnership equation A critical part of this equation Realising the common goals of economic success requires effort by both government and business Public sector Private sector Enhanced citizen value + = Must not take advantage of weaknesses in government systems Rather be good corporate citizens with a good corporate conscience Take steps to stop malpractices Strong governance support by broader private sector is critical

Thank You