cidb Presentation of Annual Report 2009/10 Parliamentary Portfolio Committee Tuesday, 16 November 2010 development through partnership

Presentation Layout Introduction –Legislative framework & Mandate Highlights for the FY 2009/10 Performance Summary Financial Performance/A-G Report –Financial Performance –Report of the A-G –Corrective Action Plan development through partnership

Introduction development through partnership Legislative Framework & Mandate CIDB Act 38 of 2000…mandates the cidb to  provide strategic leadership to industry stakeholders to stimulate sustainable growth, reform and development  Regulate the construction industry

Highlights for 2009/10 Challenges/priorities –Training and Contractor Development * –Review of the registration criteria * –Board /ManagementTask Team set up-in process of finalising regulations amendments on registration criteria –Improving communication with stakeholders –Research & Development and Academic Excellence R5 m set aside –Industry Performance and Best Practice development through partnership

Highlights for 2009/10 Challenges/priorities –Improving efficiency of the registration process (major Registers software re-write) and document handling (EDMS-Electronic Document management System) –Expenditure on the 2010 FIFA World Cup clothing and tickets(expensed for FY 2010/11 but disclosed as requested in FY 2009/10) No tickets were purchased Cheaper version of shirts purchased and printed with staff/Board/Audit Comm names as part of team building/patriotic support Total cost for 214 Bafana Bafana shirts at R incl VAT. development through partnership

Highlights for 2009/10 Challenges/priorities –Establishment of the Construction Contact Centres Limpopo office completed and launched during the reporting period NW CCC delayed again as provincial department (DPW) had procurement problems –Register of Professional Service Providers BTT(Board Task Team) recommendation: –Phased approach –Phase 1-basic database –Phase 2-more consultation and possible regulations/amendment of the Act –WIP (Work in Progress) development through partnership

Performance Summary-background Performance information-modified during the course of the year when a need was identified after the audit process and in response to prompt by Minister and Board Training and review of targets completed Revised targets submitted to Minister for approval- advised it would not be approved as the process involves Parliament and Budget Vote Reverted to original targets and advised A-G development through partnership

Performance Summary-GCD Growth and Contractor Development-GCD Main Pillars/strategic projects –National Contractor Development Programme- NCDP (a Framework) –Construction Contact Centres-CCCs, established in conjunction with provincial DPW’s. development through partnership

Performance Summary-GCD/cont… National Contractor Development Programme-NCDP –Focused implementation of NCDP, M&E CII’s, Quarterly Monitor and other documents, workshops- done –Private Sector involvement MoU signed with Standard Bank, Nedbank delayed Now 3 MoU’s Also Blue Financial Services –Facilitation of M&E Scoping completed Workshops conducted –Best Practice Contractor Development Could not be published Phased implementation adopted development through partnership

Performance Summary-GCD/cont… National Contractor Development Programme-NCDP –Integrating CD/Charter (CD-Contractor Development) –Contractor Tips and Advice/Training-revised Tips and Advice to consolidate/others delivered development through partnership

Performance Summary-GCD/cont… Construction Contact Centres-CCCs. 8 th CCCs launched in Limpopo NW CCC could not be launched as provincial department was still grappling with its procurement issues Communication strategy-revised to link with corporate strategy Various objectives achieved at various levels and/or according to targets development through partnership

Performance Summary-CIP Various objectives achieved as targeted NIMS-had to be delayed again as funding could not be provided ESDA as part of Infrastructure Delivery Skills – funding requests not approved (DoL and NSF)-now being done as a pilot from internal resources; development of learning materials then further delays due combination of funding/procurement constraints development through partnership

Performance Summary-PDM Procurement and Delivery management-PDM  Improving Public Sector Infrastructure Delivery:  IDIP Brochure completed and printed  Aligned IDIP with NDPW Initiatives  Training to various departments-done  Improving Public Sector Procurement Reform- amendment to regulations-SfU:  GCC2010, FIDIC Gold Book, NEC3 and Practice Notes 18 and 19 approved for inclusion in SfU development through partnership

Performance Summary-PDM/cont… Procurement and Delivery management-PDM  Register of Professional Service Providers- RoPSP:  Board Task Team/Management recommendation  Challenges on Act and (new) stakeholder expectations  Phased exploration before Board consideration  Compliance enforcement  Fraud and corruption have escalated  cidb has had to increase capacity and contract value to match demand  Appointed Compliance Officer(in addition to Legal and Compliance Manager)-boosting internal capacity to manage the process development through partnership

Performance Summary-CRS Construction Registers Service-CRS  Service Excellence – BPM(Business Process Management  Achieved and implemented  Enhancement of Software systems (see next point-done together)  EDMS (Electronic Document Management System)  PSP appointment delayed  Independent assessment planned  Analysis shows this as a major project to overhaul registration system to date  Stakeholder Communications  Achieved as required development through partnership

Performance Summary-CS and CEO Corporate Services (CS) and the Office of the CEO  These are mainly support functions and the targets are internal  Some are therefore covered under the Core Programmes  Stakeholder Management and Communications  Stakeholder Forum (membership) was established in between June and October 2009  Stakeholder Forum (meeting) was held in October 2009-Minister chooses the date  Communication strategy-approach changed to have Policy first approved, followed by the strategy as an annually updated document development through partnership

Financial Performance/A-G Report 2009/10 OVERVIEW Financial Performance –Actual vs. Budget –Annual Financial Statements Report of the Auditor-General –Opinion –Emphasis of matter: Irregular expenditure Corrective Action Plan Fruitless and wasteful expenditure

Financial Performance (Actual vs. Budget) 18 Thank You development through partnership

Financial Performance (Annual Financial Statements) Revenue –Revenue from government increased by 41% from R41,891m in the previous year. –Revenue from registers increased by 33% from R35,325m in the previous year Total expenditure –Total expenditure increased by 12,0% compared to the previous year. The bulk of this increase relates to Staff and Marketing costs which increased by R6,784m (18%) and R0,783m (47%) respectively from previous year.

Finance income –Interest income increased by 27% from R2,947m in the previous year. The Deficit –Surplus for the year is R21,026m inclusive of R6,971m non cash items. Financial Performance (Annual Financial Statements) cont.

Cash & Cash Equivalents –Cash & cash equivalents increased by R26,515m from R35,797m. The bulk of this increase relates to Investments which grew by R29,784m (94%) from R31,529m. Accounts Payable & Income Received in advance –Total Payables decreased by R1,274m from R16,536m. –Income Received in advance decreased by R0,243m to R24,031m from R24,274m Financial Performance (Annual Financial Statements) cont.

Report of the Auditor-General 22 Thank You Opinion The cidb received an unqualified report in the 2009/10 financial year Emphasis of Matter (Irregular Expenditure) There were two (2) Irregular Expenditure items highlighted by the A-G for the 2009/10 financial year: Item 1: Finance Lease (R357K) Item 2:Rental of Office Furniture (R738K) development through partnership

Report of the Auditor-General 23 Thank You Item 1: Finance Lease (R357K) The cidb entered into a 5-year leasing arrangement with a service provider for the rental of 7 printers to support the day-to-day operating activities of the organisation. The non-compliance with clause 32.2 (b), which seeks prior approval from the Minister of Finance before entering into finance lease agreements, as well as non-compliance to Practice Note 5, which limits finance lease agreements to no more than 36 months- Our lease agreement was for 60 months, and no prior approval was obtained by the Minister of Finance. development through partnership

Report of the Auditor-General cont. 24 Thank You cidb sought the necessary condonation from National Treasury (NT) and NT responded that in their view there was 'no impropriety' on the part of cidb, however NT does not have the powers to condone the irregular expenditure. However, in terms of Practice Note 4 of 2008/2009,it is clear that NT is mandated to approve such condonation according to par 7 of the Practice Note and this fact has been highlighted by the A-G himself. development through partnership

Report of the Auditor-General cont. 25 Thank You Following a meeting that was held on 13 October 2010 between cidb, NT Public Finance office, NT SCM office and Office of the Accountant-General (OAG) to revisit this matter, it was agreed that the cidb must lodge a formal appeal to NT's response highlighting the fact that NT does have the powers to condone this irregular expenditure in terms of Practice Note 4 of 2008/2009. We are awaiting a response from NT. development through partnership

26 Thank You Item 2:Rental of Office Furniture (R738K) The cidb entered into an agreement to rent office furniture on a temporary basis a number of years ago. At the time of entering into the arrangement, the cidb was still trying to sort out its office space needs. The last unit was only occupied in October Thereafter, the furniture requirements could be determined with certainty. However, the manner in which the agreement was entered into has created a problem for the cidb. Report of the Auditor-General cont. development through partnership

27 Thank You Item 2:Rental of Office Furniture (R738K)/cont... Reliance was placed on the landlord's (SABS) supplier at the time because cidb did not have the procurement capacity to do that on its own. Thus no competitive bids were invited. A tender, inviting competitive bidding, will be going out in November 2010 to replace all rental furniture. In the meantime, in line with National Treasury provisions, a sole service provider motivation has been signed off by the Accounting Officer as required and will be presented to the Board in December Report of the Auditor-General cont. development through partnership

A-G Management Letter Report & Corrective Action Plan 28 Thank You development through partnership The A-G has raised a number of issues in the management letter report for the 2009/10 financial year. In response to these matters the cidb has designed a Corrective Action Plan (CAP). The CAP sets down: Timelines within which the issues will be resolved Who the responsible official is to resolve the issue The specific action to be taken to resolve the issue Monitoring is performed by the CEO, Audit Committee and the Board.

A-G Management Letter Report & Corrective Action Plan 29 Thank You development through partnership Over and above the CAP, the A-G has developed a Key Controls document which lists the key control matters that the cidb must take care of during the course of the new financial year (2010/11) in order to avoid a qualification. Regular meetings between the A-G, CEO and CFO where progress is assessed, have been arranged for this financial year and one meeting has been held already. The cidb Internal Audit unit has also started with the follow up audit on the matters raised by the A-G in the management letter report.

Audit FindingsAction Plan Description and Narrative Capital AssetsA detailed asset strategy has been formulated and has been rolled out. Presentation and DisclosureContinuous training is being undertaken to improve the technical skills of the Finance personnel. Also, on a quarterly basis a full set of Financials will be produced. Finance Manager has recently attended the GRAP workshop with NT which will assist in the review process. Mock financials are also planned for the interim audit. Revenue and DebtorsFiles stock count has been performed by CRS. CRS is currently busy with a reconciliation process. The status report will be completed by mid November Thank You development through partnership A-G Management Letter Report & Corrective Action Plan Listed below are the detailed matters raised by the A-G in the management letter report:

Audit FindingsAction Plan Description and Narrative Expenses and CreditorsMonthly accruals are being performed. Supplier statements reconciliations are performed. Period is closed timeously to avoid raising accruals for the invoices that have already been captured. Finance LeasesThe service provider has been contacted to establish why invoicing is not done in line with the contract provisions. We are awaiting a response and in the meantime accruals are being done on the difference between the contract amount and supplier invoice amounts Appeals lodged with NT for condonation. 31 development through partnership A-G Management Letter Report & Corrective Action Plan

Audit FindingsAction Plan Description and Narrative JournalsJournal descriptions are being carefully reviewed before posting to ensure that the description and supporting documents are adequate. Journals stock count will be conducted in November 2010 to ensure validity and completeness of the above exercise. Performance InformationTraining on performance information management was conducted from August A second session is planned for Nov/Dec 2010 The targets for the current financial year are being reviewed for submission to the Executive Authority for approval. 32 development through partnership A-G Management Letter Report & Corrective Action Plan

Fruitless and Wasteful Expenditure (R71K) 33 Thank You cidb experienced problems with contractor accounts and the refunds process during that period. Controls were later put in place where individual contractors are reconciled based on the proofs that are in the files. The refunds process has been improved from preparation to review and to process in general to minimize the risk. development through partnership

Fruitless and Wasteful Expenditure (R71K) 34 Thank You The bad debts written off in the 2009/10 financial year amounted to R146k including R71K which represents the amounts erroneously refunded to debtors in prior years. The above refunds were erroneously made to contractors because prior to September 2007 no reconciliations were performed on contractor accounts. From the period October 2007 controls were put in place to reconcile contractor accounts. This was only picked up in the current financial year/reporting period when the cidb embarked on an analysis and write-off exercise of debtors outstanding for more than three years as per legislation. development through partnership

……………………….Thank you development through partnership