Progress Report on Payment of Suppliers 06 June 2018 Ms Mpumi Mpofu Director-General

Purpose To provide an update to the President’s Coordinating Council (PCC) on the progress on payment of suppliers within 30 days. To appraise the PCC on measures being taken to address continuing challenges on payment of suppliers.

Background and Context Government has identified the small business sector as an important area to grow the economy and reduce unemployment, hence the establishment of the Department of Small Business Development. One of the challenges faced by the sector has been the late or non-payment of suppliers. The establishment of a unit on payment of suppliers gives evidence to government’s unwavering resolve to address this challenge.

Background and Context Following a Cabinet decision in 2015, the DPME has been attending to cases of unpaid invoices. To this end, the department has facilitated payments of over R300m to service providers. This presentation and the accompanying report seek to provide progress on government efforts to address the problem. Progress is measured in two main areas: Number and Rand Value of invoices paid after 30 days. Number and Rand Value of invoices older than 30 days and not paid. The report is sourced from the information submitted by departments and provinces to the National Treasury on a monthly basis as part of the requirements of Instruction Note 34 of 2011.

PERFORMANCE OF NATIONAL DEPARTMENTS

Performance of National Departments – Invoices Paid after 30 Days Trend Analysis: Quarter 1 to Quarter 4 Number and Rand Value of Invoices Paid after 30 Days by National Departments   Number of Invoices Value of Invoices Q1 58 510 R 1,5 billion Q2 36 253 R 1,7 billion Q3 47 390 R 1,3 billion Q4 54 306 Comment: Increase in number of invoices between Quarter 3 and Quarter 4.

National Departments that Paid all their Invoices on time during the Fourth Quarter of 2017/18 1. Planning, Monitoring and Evaluation 13. International Relations and Cooperation 2. Communications/ Government Communication and Information Systems 14. National Treasury 3. Public Enterprises 15. Public Service and Administration 4. Statistics South Africa 16. Arts and Culture 5. Basic Education 17. Health 6. Sport and Recreation South Africa 18. Defence 7. Telecommunications & postal services 19. Economic Development 8. Energy 20. Environmental Affairs 9. Human Settlements 21. Mineral Resources 10. Science and Technology 22. Tourism 11. Trade and Industry 23. Transport 12. Military Veterans 24. Small Business Development

Performance of National Departments – Invoices Older than 30 Days and Unpaid at the end of the Fourth Quarter of 2017/18 Trend Analysis: Quarter 1 to Quarter 4 Number and Rand Value of Invoices Older than 30 Days and which remain Unpaid by National Departments   Number of Invoices Value of Invoices Q1 9 755 R 42 million Q2 8 930 R 39 million Q3 11 081 R 124 million Q4 14 746 R 334 million Comment: Increase in both number and rand value of unpaid invoices between Quarter 3 and Quarter 4.

National Departments with Unpaid Invoices at the end of Quarter 4 National Departments with the highest amounts of Unpaid invoices Department Number of Invoices Amount Outstanding at the end of 2017/18 1. Cooperative Governance and Traditional Affairs 666 138 118 649 2. Agriculture, Forestry and Fisheries 30 96 892 193 3. Water and Sanitation 1842 52 080 637 4. Police 11 23 351 498 5. Independent Police Investigative Directorate 197 16 849 748 6. Social Development 31 3 006 593 7. Public Works & PMTE 11924 2 165 082 8. Women 1 2 212 016 Total 14702 334 676 415

PERFORMANCE OF PROVINCIAL DEPARTMENTS

Invoices Paid after 30 Days Performance of Provincial Departments – Invoices Paid after 30 Days during the fourth Quarter of 2017/18 Trend Analysis: Quarter 1 to Quarter 4 Invoices Paid after 30 Days   Number of Invoices Amount of Invoices Q1 106 390 R 8,3 billion Q2 70 636 R 6,1 billion Q3 75 696 Q4 57 275 R 5,1 billion Comment: Decrease in both number and rand value of invoices between Quarter 3 and Quarter 4.

Invoices Older than 30 days and not Paid Performance of Provincial Departments – Invoices older than 30 days which remained unpaid at the end of the fourth Quarter of 2017/18 Trend analysis: Quarter 1 to Quarter 4 Invoices Older than 30 days and not Paid   Number of Invoices Amount of Invoices Q1 56 897 R 4,4 billion Q2 66 596 R 4,5 billion Q3 67 218 R 4,9 billion Q4 93 339 R 6,7 billion Comment: Significant increase in both the number and rand value of invoices between Quarter 3 and Quarter 4.

Comparative analysis of Quarter 3 and Quarter 4 - Invoices older than 30 days and Unpaid   THIRD QUARTER 2017/18 FOURTH QUARTER 2017/18 Number of Invoices older than 30 days and unpaid Value of Invoices older than 30 days and unpaid % of total amount not paid Gauteng 48 643 2 959 934 800 62 770 R 4 041 664 733 60% Eastern Cape 6 108 462 054 822 19 123 R 1 043 625 932 15% Kwazulu-Natal 3 456 511 950 285 3 338 R 587 883 339 8% Free State 1 903 134 549 054 2 149 R 502 575 921 7% Limpopo 583 80 256 739 4 681 R 472 886 395 Mpumalanga 511 69 822 737 555 R 39 580 876 1% North West 4 739 427 616 565 548 R 37 928 824 Northern Cape 1 274 247 134 035 171 R 20 657 935 Western Cape 1 37 210 4 R 96 855 0% Total 67 218 4 893 356 247 93 339 6 746 900 810 100%

Analysis by Sector – Number of Invoices Older than 30 Days and Unpaid by Provinces (In order of highest to lowest) Mar-18 Health Education Public Works Others Total % of Total GP 58 597 3 690 476 7 62 770 67% 93% 6% 1% 0%   EC 18 675 6 246 196 19 123 20% 98% LP 4 571 43 67 4 681 5% KZN 2 316 296 507 219 3 338 4% 69% 9% 15% 7% FS 1 519 505 125 2 149 2% 71% 23% MP 532 23 555 96% NW 538 8 2 548 NC 144 27 171 84% 16% WC 4 100% 86 210 5 226 1 237 666 93 339 % 92% 100%  Comment: The Health sector is responsible for 92% of 93 339 invoices that were due to suppliers. Gauteng province is responsible for 67% of that.

Reasons forwarded by departments for Late or Non-payment Medico-legal claims due medical negligence. Cross border and boundary migration. Cash flow challenges, resulting in accruals. Revenue management (Collection and debtor management). Poor internal controls. Poor administrative processes. Lack of consequence management.

SUMMARY AND CONCLUSION

Summary and Conclusion There are eight departments that are mostly responsible for R334 million that national departments owe service providers (Cooperative Governance and Traditional Affairs, Agriculture, Forestry and Fisheries, Water and Sanitation, Police, Independent Police Investigative Directorate, Social Development, Public Works and PMTE and Department of Women) The health sector is responsible for 92% of the 93 339 invoices that provincial departments owed suppliers at the end of March 2018. Whilst Gauteng Health is responsible for 62% of all the invoices that are older than 30 days and unpaid, data shows that the numbers in other provinces such as Kwazulu-Natal, North West, Free State, Eastern Cape and Limpopo are gradually increasing.

The Work of the DPME Unit on Payment of Suppliers DPME actively engaging departments that are not complying in order to find sustainable solutions. DPME has initiated a project with the health sector to find solutions to its non-payment challenges. This area has been prioritised for Accounting officers It has now been included as an indicator in their performance agreements. We are exploring mechanisms of working with the Auditor General in line with the newly approved Bill to root out corruption that contribute to non payment of service providers.

Recommendations for PCC   The following are recommendations for the PCC: PCC should note that Cooperative Governance and Traditional Affairs, Agriculture, Forestry and Fisheries and Water and Sanitation together make up 86% of the R334m owed by national departments to service providers at the end of the fourth quarter of 2017/18 financial year. PCC should note that the health sector is responsible for 92% of the 93 339 invoices that provincial departments owed suppliers at the end of March 2018. PCC should note the continuing failure by Gauteng Department of Health to pay suppliers. The Department was responsible for 62% of the 93 339 invoices that were older than 30 days and which remained unpaid at the end of March 2018. PCC should take note that the entire health sector is struggling to pay suppliers with data showing that the number of outstanding invoices in Kwazulu-Natal, North West, Free State, Eastern Cape and Limpopo are continuing to increase.