22 FEBRUARY 2013 PRESENTATION OF THE AUDITOR-GENERAL of SOUTH AFRICA TO THE PORTFOLIO COMMITTEE OF HUMAN SETTLEMENTS ON A PERFORMANCE AUDIT OF THE USE OF CONSULTANTS AT SELECTED NATIONAL DEPARTMENTS 22 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.

Legislative Requirements Performance Audit 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. Definition Legislative Requirements Constitution Section 195 (1)(b) of the Constitution of the Republic of South Africa states: Public administration must be governed by the democratic values and principles enshrined in the Constitution, including the following principle(s):… (b) Efficient, economic and effective use of resources must be promoted.

Performance Audit Why a performance audit on the use of consultants by government? Significant expenditure - over past 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

Guiding principles of the audit Economy Includes a competitive procurement process for the appointment of consultants and the creation and maintenance of a permanent staff capacity where required Efficiency An optimal relationship between the outputs produced by consultants and the resources expended by departments to remunerate these consultants. The management of the process to achieve this relationship Effectiveness The achievement of the objectives that informed the appointment of consultants

The term ‘consultants’ What did the term “consultant” include for the purpose of this audit? Specialist services and skills required for the achievement of a specific objective, with the aim of providing expert and professional advice on a time and material basis Consulting/professional services: Required to provide services that are of a non-specialised nature that are not core business of the department Contractors: Services where the relevant department ordinarily has the capacity and expertise to carry out these services, but for some reasons are not using their own staff Agency/outsourced services:

Audit focus areas Focus areas 1. Planning and appointment processes 2. Internal capacity at departments 3. Training and transfer of skills from consultants to employees 4. Performance management and monitoring of consultants 5. Extension of contracts 6. Closing and finalising projects

Key challenges across departments Comprehensive needs assessments not done Competitive procurement processes not followed Expectations on milestones, timelines and cost not clearly specified 1. Planning and appointment process Consultants appointed where permanent capacity should have been created Consultants appointed due to lack of internal staff capacity 2. Internal capacity Skills transfer was ineffective 3. Training and transfer of skills Effective oversight and internal controls not executed prior to payments Lack of proper project management and monitoring Cost overruns not motivated and approved 4. Performance management and monitoring Contracts extended due to lack of project management and monitoring 5. Extension of contracts Failure to retrospectively analyse projects 6. Closing and finalising projects

Comprehensive needs assessments not always being done Key findings: economy The economical acquisition of consultants was negatively affected due to: Comprehensive needs assessments not always being done Consultants being appointed instead of creating permanent capacity or consultants performing duties which formed part of departments’ daily operations Competitive procurement processes not always being followed and departments not ensuring that consultants complied with all the qualifying criteria Cost overruns not always being motivated and approved at the correct level Bid documents not always including clear specifications regarding costs and time

Key findings: efficiency The efficient use consultants was negatively affected because: Expected services, roles, responsibilities and deliverables relating to milestones, timelines and applicable measures were not always clearly specified Effective oversight and internal controls were not executed before authorising payments A lack of proper project management and monitoring of consultancy projects contributed to the extension of a number of projects

Key findings: effectiveness The effective use consultants was negatively affected because: Planning for financial and other resources necessary for projects/ implementation not always done. In some instances, this rendered the work of consultants redundant Skills transfer from consultants to departmental staff were not always effective Projects were not analysed to determine whether objectives were met and to determine the benefits received

Key recommendations: how government can remedy the current situation Compliance with legal frameworks, laws, regulations and policies Improved planning for the use of consultants Proper financial management and control Manage and monitor performance Learn from the past, apply in the future Leadership accountable for three Es Training and transfer of skills Value for money from the use of consultants Create sufficient internal capacity Extend contracts for valid reasons only

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 from Stakeholders Better value for money when using consultants National Treasury Entities Minister Portfolio and Public Accounts Committees Department of Public Service and Administration

Way forward by departments Better value for money when using consultants Greater emphasis must be placed on planning for the use of consultants Staff development and training through the transfer of skills must be monitored Compliance with supply chain management practices and contract administration must be ensured Sufficient internal capacity must be provided to enable the departments to deliver on their mandates Prescripts issued by the National Treasury and the Department of Public Service and Administration must be adopted and customised The performance of consultants must be monitored to ensure that contractually agreed deliverables are met Extension of contracts must only be granted in exceptional cases and based on valid and documented reasons Procedures for closing consultancy contracts must be enforced

Comments from other role players National Treasury Guidelines will be reviewed in an attempt to strengthen the process for appointing consultants and Treasury Regulations will be enhanced The monitoring of compliance with legal frameworks related to consultants will be emphasised Department of Public Service & Administration The annual departmental submissions of HR plans will be increased to a 100% compliance rate to support the HR planning Strategic Framework for the Public Service by 2014 Research will be conducted and appropriate interventions developed by March 2014 to reduce the vacancy rate and improve the recruitment processes Information on skills in the public service in relation to job requirements will be provided to contribute towards addressing the skills gap in the public service

AUDITOR-GENERAL of SOUTH AFRICA Way forward AUDITOR-GENERAL of SOUTH AFRICA Role Player Ineffective management of consultants; Unnecessary/ continuous contract extensions; Consultants appointed for requirements which can be addressed by internal resources; Over dependency on consultants as a result of unfilled vacancies; Lack of transfer of skills resulting in continued dependence on consultants Lack of implementation of the results of consultant’s work. Focus Areas Develop procedures to address identified Focus Areas to be performed as part of Regularity Audit at all Departments for the 2012/13 financial year, also including SCM procurement testing. Reporting of material findings noted from audits Way forward

Thank You