1. TURNAROUND STRATEGY FOR THE ESTATE AGENCY AFFAIRS BOARD (“EAAB”) 23 October 2017
2018/11/19

2. TABLE OF CONTENTS Identifying the underlying causes of the problem
Maintaining Organisational flexibility in the implementation of the turnaround strategy
Implementing the efficiency turnaround strategy for the EAAB
Diagnosing the fundamental challenges leading to the underperformance of the EAAB
Addressing identified operational challenges through the implementation of an efficiency turnaround strategy
Recommendations
Proposed efficiency strategy to restructure financing
Fundamental challenges to effective financial performance by the EAAB
Revenue generation strategy
Long-term revenue generating strategy
Cost containment strategy – administration expenses
Cost containment strategy – employee costs – short term
Cost containment strategy – employee costs – medium to long term
The asset reduction strategy
Asset reduction strategy – long term
Asset reduction strategy – short term
Delivery strategy
TABLE OF CONTENTS
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3. 2018/11/19

4. After careful consideration of the above typology, and taking all relevant factors into account, management concluded that the EAAB was presently underperforming and that the organisation was neither in a distress or crisis situation.
It was, thus, necessary to consider the introduction of an effective turnaround strategy to remedy an underperforming organisation.
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5. The different identified strategies available in this regard could be classified as follows:
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6. 2018/11/19 Performing well Underperforming Distress Crisis
The organisation is able to focus its full
attention on future growth and excellent performance through the best possible use of all available resources – both human and financial.
The organisation should pursue an
efficiency strategy successfully to turn itself around and improve performance.
The focus is on internal operations and doing things right and better.
The organisation will strive to:
improve and optimise capacity utilisation;
lower costs;
restructure financing;
improve supply chain management activities;
reinvigorate both leadership and staff;
rationalise functional departments and positions;
improve efficiencies.
The organisation pursues a forced repositioning strategy and is under pressure speedily to change direction by seeking, and finding, alternative value propositions that will enable it better to accomplish its strategic goals. The organisation focuses on ‘stop the rot’ actions in respect of leadership, staff, financing and departmental organisation.
The organisation, which is characterised by ever-dwindling resources and cash pressures, now pursues a last resort strategy where focused cost-cutting is a major element. An organisation in the throes of crisis may also endeavour to implement a combination strategy utilising successful elements of the forced repositioning strategy to move from ‘crisis’ to ‘distress’.
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7. It was, accordingly, resolved that the creation and implementation of an appropriate efficiency strategy, as more fully set forth herein, was urgently required to restore the EAAB to a well performing organisation.
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8. Maintaining organisational flexibility in the implementation of the turnaround strategy  
Organisational flexibility, or the long-term ability of the EAAB to identify, generate and maintain different strategic options while responding to volatile environmental changes and uncertainties, is important for the successful implementation of the chosen turnaround strategy.
The EAAB must retain the capability to recognise environmental changes and to commit resources and take appropriate and timely actions to meet ever-evolving demands.
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9. The EAAB must, in addition, retain the strategic flexibility of proactivity in the allocation and reconfiguration of organisational resources, processes and strategies to ensure that it does not again become reactive and stalled. The EAAB must always be able to identify, create and maintain options encompassing resources, perspective and flexibility thereby enabling it to build and implement an optimal set of strategic and operational options to cope with change and ensure that it always a well performing organisation.
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10. Implementing the efficiency turnaround strategy for the EAAB Strategic purpose The efficiency turnaround strategy seeks not only to address complaints received from estate agents and the general public but also effectively to eradicate the complaints backlog.
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11. Objectives The objectives of the strategy are to:
eliminate the backlog of queries that has arisen in all affected operational departments;
provide for functional and effective ICT organisational capabilities;
improve internal systems and invest in innovation;
improve customer and stakeholder relationships by re-investing in staff; and
provide for an enhanced organisational value proposition.
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12. a backlog in payment allocation to complete the registration process;
Diagnosing the fundamental challenges leading to the underperformance of the EAAB
The challenges hampering the effective resolution of stakeholder complaints were identified as including, inter alia:
the lack of system-related alignment pertaining, in particular, to the Registration and Finance departments;
a backlog in payment allocation to complete the registration process;
the lack of capacity and resources;
non responsive of ICT system;
unallocated moneys received and deposited into the suspense account.
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13. ADDRESSING IDENTIFIED OPERATIONAL CHALLENGES THROUGH THE IMPLEMENTATION OF AN EFFICIENCY TURNAROUND STRATEGY
Strategy
Responsible official
Deliverables
Target date
Project on identification of estate agents with amounts in unallocated deposits.
CFO
Clearing of the suspense account.
Allocating all overpayments.
Engagement with the Banks
31 March 2018
2. 
System functionality and availability.
Corporate Services Executive
Improve ICT capabilities to functional optimally.
System alignment and coordination in respect of all EAAB transactions.
Investigate the status of server upgrade.
The status/progress made in appointing an external ICT expert to investigate systemic inefficiencies.
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14. Elimination of backlog in complaints and queries Executive Committee
3. 
Elimination of backlog in complaints and queries
Executive Committee
Detailed action plan to be formulated by respective EXCO members and centred around:
unresolved activity reports;
unresolved queries per query online system; and
s that have not been attended to.
31 March 2018
4. 
Communication and information dissemination
Improve and provide feedback to estate agents and stakeholders.
Reporting to EXCO on the management and/or monitoring of queries received.
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15. a review of internal processes;
Recommendations
In addressing the operational matters more fully set forth above the following actions will be required:
Resources to be appointed to clear the suspense account and management to establish appropriate systems and measures to ensure no further recurrence of the identified problem.
The functions of CFO and Corporate Services to be separated to permit effective operations.
Two members of executive team will ensure that the backlog and all operations-related challenges are suitably and speedily addressed by critically considering:
a review of internal processes;
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16. addressing and remedying negative patterns of staff behaviour.
the adoption of appropriate measures to improving customer and stakeholder services and relationships;
the obtaining of additional resources for employees such as, for example, the provision of laptops and internet access outside of the office setting;
inculcating a culture of holding regular departmental meetings and conducting regular staff training; and
addressing and remedying negative patterns of staff behaviour.
A task team will be appointed by the CEO to expedite the implementation of these recommendations
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17. Proposed efficiency strategy to restructure financing
Insofar as the restructuring of finance is concerned it was noted by management that the EAAB had incurred a deficit of R56 million for the 2016/7 financial year.
This deficit was attributable to:
an accounting loss of R39 million that was incurred after the conversion of the EAAB Pension Fund from a defined benefit to a defined contribution pension fund;
an amount of R12 million in respect of the over-budgeting, and consequent under-collection, of expected revenue for the financial year; and
the incurrence of expenditure of R5 million which exceeding the budgeted allocation.
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18. Fundamental challenges to effective financial performance by the EAAB
The fundamental challenges to effective financial performance by the EAAB were, moreover, identified as being:
expenditure structural challenges, namely, 63% employee costs, 32% administration expenses and only 4% capital expenditure;
the seasonality of revenue generation in that fidelity fund certificate revenue is generally receivable by the EAAB in Quarter 3 of each financial year while revenue accruing in respect of the EAAB Continuing Professional development programme is usually receivable in Quarter 4 of each financial year;
over 80% of expenditure is incurred in respect of fixed- and contract-based costs such as employee costs, costs of maintaining the EAAB the call centre, utilities and IT costs.
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19. The cash balance at the end of the financial year was R12 million - as compared to the sum of R33 million for the previous financial year. This decline was largely due to the amount of R19,47 million being paid in January 2017 to cover the deficit necessarily incurred in respect of the conversion of the EAAB Pension Fund from a defined benefit to a defined contribution pension fund.
EAAB current assets of R27 million are presently substantially below its current liabilities of R32 million. This is indicative of an inability by the EAAB to pay debts as they fall due. It was noted, however, that R21 million of the identified liabilities pertained to unallocated receipts. If these unallocated receipts can be allocated, as provided for in the turnaround strategy, the shortfall in current liabilities will be substantially reduced. The EAAB was, moreover, exposed to an unfunded amount of R24 million in respect of the shortfall on the still existing defined benefit plan Pension Plan for current pensioners and as long-term liability of R16 million and R8 million respectively for post-retirement medical costs.
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20. Revenue generation strategy
More realistic revenue projections have been made by the EAAB in respect of the 2017/8 financial year. It is to be noted in this respect that:
the budgeted revenue of R30 million for the issue of fidelity fund certificates appears to be unrealistic having regard to the fact that some R20 million was received by the EAAB in respect of this item during the 2016/2017 financial year – an increase of 36% over the 2016/7 financial year seems to be very unlikely;
budgeted revenue of R42 million in respect of Continuing Professional Development seems equally unrealistic given that an amount of R27 million was received in respect of this item in the 2016/2017 financial year.
The EAAB will, accordingly, rely on a more realistic revenue budget of R125 million for the 2017/8 financial year. While this figure represents a R21 million reduction from the current budget it is, nevertheless, an increase of R10 million over the 2015/6 financial year budget.
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21. budgeted revenue of R42 million in respect of Continuing Professional Development seems equally unrealistic given that an amount of R27 million was received in respect of this item in the 2016/2017 financial year.
The EAAB will, accordingly, rely on a more realistic revenue budget of R125 million for the 2017/8 financial year. While this figure represents a R21 million reduction from the current budget it is, nevertheless, an increase of R10 million over the 2015/6 financial year budget.
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22. Long-term revenue generating strategy
The following long-term revenue-generating strategies are proposed:
the imposition of administrative penalties and fines imposed resulting from identified contraventions by estate agents of the provisions of the Estate Agency Affairs Act as well as the regulations promulgated under the Act;
ensuring that intern estate agents who have held internship status for a period exceeding two years are required to participate in the EAAB CPD programme;
ensuring the recovery of inspection and investigation costs incurred from estate agents who have found not to be compliant with any of the provisions of the Estate Agency Affairs Act and regulations promulgated under the Act
approaching DHS for an operational grant funding
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23. Cost containment strategy – administration expenses
A cost containment strategy will be introduced in respect of:
limiting the expenses incurred by the EAAB in respect of the presentation of the Continuing Professional Development programme by rationalising contact CPD presentations wherever possible and also encouraging CPD participants to make use of the e-learning CPD programme;
placing an immediate moratorium on international travel and strictly controlling local travel by both board and staff members;
strictly controlling expenditure on stationery and printing by rationalising wherever possible, monitoring cartridges used for desktop printers in offices and intruding a password for the printing of documents;
introducing a cap on the amount of bursaries that may be granted to staff members and placing an immediate moratorium on the appointment of consultants; and
focussing on those core activities by only funding programmes aligned to the approved Annual Performance Plan up to the achievement of required target.
2018/11/19

24. Cost containment strategy – employee costs – short term
The following short-term employee cost containment measures will be introduced, namely:
a moratorium on filling vacant positions until financial year-end;
a moratorium on creating new positions whether permanent, contract or temporary;
a moratorium on implementing the pay progression policy;
the alignment of staff performance bonuses to organisational audit outcomes;
formal transfer of the former CEO, to the Housing Development Agency where he has presently been seconded; and
clarification of the position of the Business Operations Executive, who presently performs functions at the DHS and the EAAB.
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25. Cost containment strategy – employee costs – medium to long term
The following medium- to long-term employee cost containment measures will be introduced, namely:
investing in online systems and business process re-engineering to keep the staff complement at a manageable level; and
migration to the approved organogram as contained in the Annual Performance Plan.
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26. The asset reduction strategy Asset reduction strategy – short term
The following short-term asset reduction measures will be introduced, namely:
implementation of the project on identifying estate agents with amounts in the unallocated deposits account which will either reduce debtors or increase revenue;
the assignment of debt recovery functions (penalties and fines) to an existing staff member or, alternatively, the outsourcing of this function on a ‘pay-per-recovery’ basis; and
payments of Fidelity Fund expenses henceforth to be made from the Fidelity Fund account to avoid incurring large amounts owed to the EAAB by the fidelity Fund.
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27. Asset reduction strategy – long term
The following long-term asset reduction measures will be introduced, namely:
reducing the number of internal printers;
investing on the online EAAB e-platforms thereby reducing the need for regional offices and the costly infrastructure associated with de-centralisation; and
instigating the cost benefits of building ownership as opposed to leasing premises having regard to the high maintenance costs in respect of the current EAAB building.
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28. Delivery strategy IMPLEMENTATION OF STRATEGY
Responsible Official
Deliverables
Due Date
Revenue generation strategies 1
Increase in revenue generated from penalties and fines from identified contraventions
Exec. Manager- Compliance and enforcement
Detailed action plan, for consideration and approval
31 March 2018 2
Incorporation of serial interns into the CPD program
Exec. Manager-Education
Detailed action plan, for consideration ad approval 3
Recovery of inspection and investigation costs from estates agents
Exec. Manager- Inspections
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29. IMPLEMENTATION OF STRATEGY
Responsible Official
deliverables
Due Date
Cost-containment strategies 1
Significant reduction in CPD contact sessions
Exec, Manager- Education
CPD program with a reduced contact sessions
31 March 2018 2
Moratorium on international travel and strict control of local travel
CEO and CFO
Below budget travel expenses in quarterly financial reports 3
Strict control on stationery and printing cost
CFO
Below budget expenses in quarterly financial reports 4
Reduce expenditure on consultants.
2018/11/19

30. Cost-containment strategies (cont’d)
IMPLEMENTATION OF STRATEGY
No.
Strategy
Responsible Official
deliverables
Due Date
Cost-containment strategies (cont’d) 1
Focus on core activities and funding only APP programmes
CEO and CFO
Below budget expenses in quarterly financial reports
31 March 2018 2
Moratorium on all vacant positions until financial year end
No approval of staff requisitions 3
Moratorium on creation of any new positions 4
Moratorium implementation of the pay progression policy
CFO
No Actual spent against pay progression in quarterly reports
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31. IMPLEMENTATION OF STRATEGY
Responsible Official
deliverables
Due Date
Cost-containment strategies (cont’d) 1
Alignment of performance bonuses to audit outcome
Moderation committee
Resolution of the Moderation Committee
31 March 2018 2
Investing in online systems and business processes re-engineering to keep staff compliment at manageable level
IT steering committee
ICT strategy and Quarterly Reports
2018/2019 Financial year 3
Migration into approved organogram
EXCO
Report of HR Consultant/ Service Provider
2018/11/19

32. IMPLEMENTATION OF STRATEGY
Responsible Official
deliverables
Due Date
Asset – reduction strategies 1
Unallocated deposits clearing and reconciliations
CFO
Quarterly financial reports
31 March 2018 2
Assignment of debt recovery functions to an existing staff member or outsourcing on pay-per-recovery basis
Legal Technical Analyst
Detailed action plan, for consideration and approval
31 March 2018 3
Payments of Fidelity Fund expenses from Fidelity Fund bank account 4
Reduction of the number of printers and costs associated thereof 5
Building ownership vs. leasing cost benefit analysis
2018/11/19

33. IMPACT ASSESSMENT- REVENUE GENERATION
EVALUATION STRATEGY
IMPACT ASSESSMENT- REVENUE GENERATION
No.
Strategy
Impact on 2017/2018 Financial performance
Revenue generation strategies
2017/2018 BUDGETED REVENUE
R146  1
Increase in revenue from penalties and fines R0 2
Incorporation of serial interns into the CPD program 3
Recovery of inspection and investigation costs from estate agents 4
Over statements in the budgeted revenue
(R21 000 000)
REVISED OVERAL EXPECTED REVENUE
R125 000 000
2018/11/19

34. IMPACT ASSESSMENT-ADMINISTRATION COSTS CONTAINMENT (cont’d)
No.
Strategy
Impact on 2017/2018 Financial performance
Cost-containment strategies- administration expenses
2017/2018 BUDGETED ADMINISTRATION EXPENSES
R46  1
Significant reduction in contact sessions R0 2
Moratorium on international and strict control of local travel
(R1 000 000) 3
Strict control on stationery and printing costs
(R500 000) 4
Moratorium on consultants and appointment and cap on bursaries
(R3 000 000) 5
Focus on core activities and funding only APP programmes
REVISED OVERALL EXPECTED ADMINISTRATION COSTS R
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35. IMPACT ASSESSMENT-EMPLOYEE COSTS CONTAINMENT
No.
Strategy
Impact on 2017/2018 Financial performance
Cost-containment strategies- employee expenses
2017/2018 BUDGETED EMPLOYESS COSTS
R91  1
Moratorium on all vacant positions
(R17 000 000) 2
Migration into approved organogram R0 3
Moratorium on implementation of the pay progression policy
(R2 000 000) 4
Alignment of performance bonuses to organisation audit outcome
REVISED OVERALL EXPECTED EMPLOYEE COSTS R
IMPACT ASSESSMENT-EMPLOYEE COSTS CONTAINMENT
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36. OVERALL FINANCIAL PERFORMANCE IMPACT ASSESSMENT
Original 2017/2018 budget
Adjustments based on turnaround strategy
Revised 2017/2018 budget
REVENUE
R146 
(R21 000 000)
R125 
ADMINISTRATION COSTS
(R )
R5 
(R40 900 000)
EMPLOYEE COSTS
(R91 200 00)
R21 
(R70 200 000)
CAPITAL EXPENDITURE
(R5 300 000) R0
BOARD REMUNERATION
(R2 900 000)
BUDGETED SURPLUS 5  5 
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37. 2018/11/19

38. 2.
Resignation of three independent Audit and Risk Committee members after year end.
The resignation did not occur in the financial reporting period under review. No reasons were provided. The positions have since been advertised and the process of filing the vacancies is underway 3.
Non – independent Audit Committee members performed management functions as part of their Section 8A Committee duties from February 2017
During the financial reporting period, the majority of members of the Audit and Risk Committee were Independent. The resignations of the independent Audit and Risk Committee members only occurred after the financial year end. The CEO and CFO were also in attendance during the Audit and Risk Committee meetings 4.
Those charge with governance procured certain forensic professional services above R without following the competitive bidding process. Deviations were approved by the Section 8A Committee even though it was not impractical to invite competitive bids.
The matter was deemed to be urgent due to ongoing and unknown losses on the suspense accounts. The approval to deviate was based on a motivation by the Company Secretary as per the requirements of the PFMA
2018/11/19

39. Root cause of audit finding Remedial action to be implemented
REMEDIAL PLANS – PERFORMANCE INFORMATION AUDIT FINDINGS No
Audit Matter Raised
Root cause of audit finding
Remedial action to be implemented 1
Some of the Key performance indicators were found to be not measurable
Turnaround times for processing of claims and complaints
Some technical indicators were not measureable/available and some process description were not adequately documented
All technical indicators are being reviewed for measurability of the key performance indicators. Process descriptions are also being updated to augment the technical indicators in achieving measurability.
2018/11/19

40. REMEDIAL ACTION – PLAN MTSF TARGET AUDIT FINDINGSNO
Audit Matter Raised
Root cause of audit finding
Remedial action to be implemented 1.
Some of the key performance indicators were found to be not measurable
Listenership
Transactional support data
All MTSF targets established and set by DHS. Some technical indicators were not measurable/available and some process descriptions were not adequately documented
All technical indicators are being reviewed for measurability of the key performance indicators. Process descriptions are also being updated to augment the technical indicators in achieving measurability. 2.
Insufficiency and inadequacy of evidence provided to support some achieved targets
Readerships
Project management
Intern Placement
The supporting documentation was not aligned to the technical indicators and process descriptions
2018/11/19

41. REMEDIAL ACTION PLANS – FINANCIAL INFORMATION AUDIT FINDINGSNo
Audit Matter Raised
Impact on audit finding
Root cause of Audit finding
Remedial action to be implemented 1.
Examination revenue not recognized in terms of GRAP9
Basis of qualified opinion
IT System Configuration- The system was configured to allocate a examination seat number, raised an invoice on completion of the online enrolment and payment of examination fees
The system configurations are currently being amended to ensure the recognition of examination revenue on the date when candidate do not sit for the examination without an acceptable valid reason. 2.
Accuracy and completeness of revenue from fidelity fund certificates raised as an audit finding as a result of duplicate estate agent profiles found during an applications control audit
Basis of qualified opinion
The IT Configuration on matching of ID Numbers did not work as intended in that a few duplicate estate agent profiles were identified
The duplicate estate agent profiles although only few were identified, brought into question the data integrity. The implementation of recommendation on the IT application controls and matching of ID numbers is currently in progress and will eliminate the future creation of duplicate profiles. The resolution of the duplicate estate agent profiles already identified is finalized.
2018/11/19

42. REMEDIAL ACTION PLANS – FINANCIAL INFORMATION AUDIT FINDINGSNO
Audit Matter Raised
Impact on audit report
Root cause of audit finding
Remedial action to be implemented 1
Classification of unallocated receipts as a results of long outstanding receipts received without reference numbers
Basis of qualified opinion
Deposits into the EAAB account were made by estate agents without using the unique seven digit reference number allocated to them
The bank is in the process of recognizing EAAB as a beneficiary for references restricted to the seven digit reference. This will completely eliminate deposits without reference numbers which will end up in unallocated receipts.
Implementations of recommendations arising from the audit of the suspense accounts
2018/11/19

43. THANK YOU
2018/11/19