1. Performance report for 2018/19FY - Q1, Q2 & Q3
Parliamentary Portfolio Committee
19 February 2019

2. Highlights – Q3
The mail backlog for domestic mail was cleared in December 2018 with International mail backlog of items still to be cleared.
The number of vehicles increased to 1123 of the required 1300 (86% allocation rate), thus improving deliveries.
Revenue target was exceeded by R94m mainly due to the SASSA project.
SAPO and SASSA integrated project teams have achieved successes during Q3:
Swopped over 7.7 million social grant recipients to the new gold SASSA cards, which increased to million to date.
social grant recipients have already been successfully paid via SAPO’s mobile units.
7 KPIs (70%) achieved their planned targets, improving from 33% in Q1 and 57% in Q2.
households have been registered and STB’s have been issued for the BDM project.
During the mid-term budgets an allocation of R2.9 billion was made to recapitalise SAPO. The funds were received in January 2019 and is being utilised to:
Repay all loans
Pay critical suppliers
Invest in capital projects
SAPO has been allocated R1.5 billion over the MTEF period for the Public Service Mandate.
SA Post Office – Q1, Q2 & Q3 Performance for 2018/19FY

3. Lowlights – Q3
Expenses exceeded budget by R260m (18%) mainly incurred by security and card costs for the SASSA project.
Shortage of containers, motorbikes, bicycles, and other tools of trade affects service delivery negatively.
Mail service delivery improved to 64% in Q3, by 8% from Q2, and further improved to 75,6% to date.
SAPO had a creditors payment backlog of R622m at Q3, which has reduced to R348m to date.
SA Post Office – Q1, Q2 & Q3 Performance for 2018/19FY

4. Summary Performance Overview
Strategic Themes
Year
Target Q3
Number of KPIs Achieved Q1 Q2
1. Revenue Retention Through Operational Effectiveness 4 1 2 3
2. Reduce Operating Costs (Operations Company)
3. Grow and Diversify Revenues
4. Performance Management
5. Structural Reorganisation
6. Governance
Total 12 10 7
% Achieved
33.3%
57.1%
70%
Note: Q1, Q2 and Q3 – Strategic Themes (5) Structural Reorganisation and (6) Governance have no targets and not measured for these quarters, targets in Q4.
Q2 - – Strategic Theme (4) Performance Management has no target and not measured in Q2
Improved performance from Q1 to Q3 due to the loan extensions to pay critical suppliers and operational stability.
SA Post Office – Q1, Q2 & Q3 Performance for 2018/19FY

5. Theme 1 – Revenue Retention Through Operational Effectiveness
KPI Achieve current baseline Revenues target as per Corporate Plan
2018/19 Annual Target
Quarter
Quarterly Targets
Actual Performance
Status at end of Q3
Explanation of Variance
The Current progress to date
R4.6bn Q1
R1.10bn
R1.06bn
Achieved
The revenue target has been exceeded due to income of R310 million in quarter 3 from the SASSA Project and R27 million for the DTT project. The increase in the SASSA revenue is offset by an increase in operating costs.
Variance due to the SASSA revenues and interest earned by Postbank
The increase in the SASSA revenues has supplemented the lower letter and parcel revenues.
More has to be done to encourage SASSA grantees to collect their grants from SAPO pay points to ensure recovery of operational and investment costs. Q2
R1.22bn Q3
R1.17bn
R1.41bn
SA Post Office – Q1, Q2 & Q3 Performance for 2018/19FY

6. Theme 1 – Revenue Retention Through Operational Effectiveness
KPI Achieve the regulated mail delivery standard of 92% as per the agreed delivery model with ICASA
2018/19 Annual Target
Quarter
Quarterly Targets
Actual Performance
Status at end of Q3
Explanation of Variance
Current progress to date
92% Q1
85%
83%
Not Achieved
Operations were primarily challenged with labour issues and work stoppages at the Tshwane and Witspos mail centres. The ripple effect in Logistics due to interrupted transportation of local and national mail contributed to further delays of mail to customers.
Shortages of containers, forklifts, vehicles, motorbikes, bicycles and other tools of trade still effects service delivery negatively.
The remaining backlog will be dealt with in the early part of 2019, considering the positive trend experienced for the past couple of months. Staff resources are managed in the best possible way through work on Saturday's and cross utilization of operational and administrative staff, to clear the backlogs. The introduction of new vehicles into operations will continue to support the processes of clearing the backlogs,
The network has been improved at JIMC which allows faster capturing and processing.
We have doubled the capacity of customs assessments at JIMC.
Operations have intensified SMS to get customers to collect in branch offices.
Direct despatch has been introduced to Durban and Cape Town from the source centres to alleviate the pressure and clogging at JIMC. Q2
87%
55.9% Q3
90%
64%
SA Post Office – Q1, Q2 & Q3 Performance for 2018/19FY

7. Theme 1 – Revenue Retention Through Operational Effectiveness
KPI % Uptime for ATM and POS Transactions per industry standard
2018/19 Annual Target
Quarter
Quarterly Targets
Actual Performance
Status at end of Q3
Explanation of Variance
Current progress to date
98% Q1
97.34%
Achieved
The target was achieved in Q3.
The quarterly achieved performance was due to the over performance in October and November, where the system was functioning at its optimal.
The following mitigating factors have been implemented during the 3 quarters: The IGPS system moved to SAPO data Centre with a stable Telkom server;
The splitting of lines between the normal Postbank transactions and the SASSA transactions.
Introduction of the Bank serve switch The IT systems will continuously be monitored to ensure that the 98% industry success rate is achieved. Q2
97.24% Q3
98.57%
KPI % of all customer complaints must be resolved within 14 working days from date of receipt of complaint
2018/19 Annual Target
Quarter
Quarterly Targets
Actual Performance
Status at end of Q3
Explanation of Variance
Current progress to date
100% by 31 March 2019 Q1
80%
91%
Achieved
The target has been achieved despite the high volume of complaints. 435 complaints resolved within 14 days from the 483 complaints received during Q3.
Regular communication with ICASA Consumer department that makes it possible for us to resolve complaints quicker.
Close monitoring is required from National Control Centre daily, Customer Service and the involvement of Regional General Managers’ assisting with the positive performance achieved. Despite all these dependencies we strive to always achieve out of this difficult circumstances. Q2
85%
90% Q3
SA Post Office – Q1, Q2 & Q3 Performance for 2018/19FY

8. Theme 2 – Reduce Operating Costs (Operations Company)
KPI Achieve baseline expenditure target as per Corporate Plan
2018/19 Annual Target
Quarter
Quarterly Targets
Actual Performance
Status at end of Q3
Explanation of Variance
Current progress to date
R5.7bn Q1
R1.42bn
R1.30bn
Not Achieved
In Q3 staff expenditure of R948m is above budget by R51m (6%) This is as a result of extended hours for part time employees and overtime and night duty allowances throughout the quarter. The high over expenditure of R254m for Other Expenses is mainly incurred by security costs R121m and cards costs of R59m and bank charges of R10m for the SASSA project.
The costs for the SASSA cash payouts are being reviewed. Grantees to be encouraged to access their payments from SAPO paypoints to offset the operating costs.
Not all of the SASSA cost will recur and income will increase.
The clearing of the backlog will result in lower overtime costs
Prudent cost management continues. Q2
R1.77bn Q3
R1.44bn
R1.72bn
SA Post Office – Q1, Q2 & Q3 Performance for 2018/19FY

9. Theme 2 – Reduce Operating Costs (Operations Company)
KPI Consolidation and optimisation of the regional operations infrastructure network
2018/19 Annual Target
Quarter
Quarterly Targets
Actual Performan ce
Status at end of Q3
Explanation of Variance
Current progress to date
Approved consolidation and optimisation plan by 31 March 2019 Q3
Exco approved draft consolidation and optimisation plan
Approved by EXCO on 05 December 2018
Achieved
The target has been achieved
The prioject must move into the implementation phase after labour consultations are concluded.
Individual Regional workshops to launch the project are continuing. The Regions will identify sites for consolidation, amalgamation or closure and fully motivated site proposals will be based on the standard framework as prescribed by the approved policy.
Note: Q1 and Q2 – KPI has no target and not measured for Q1 and Q2
SA Post Office – Q1, Q2 & Q3 Performance for 2018/19FY

10. Theme 3 – Grow and diversify Revenues
KPI Achieve Corporate Plan Revenue Growth Target
2018/19 Annual Target
Quarter
Quarterly Targets
Actual Performance
Status at end of Q3
Explanation of Variance
Current progress to date
R162m Q3
R60m
R74m
Achieved
The SASSA revenue contributed to the target being exceeded.
The allocation of revenue between SAPO (Contracting party with SASSA) and Postbank (Implementation Partner) is still to be finalised.
The increase in the SASSA revenue is offset by an increase in operating costs.
More has to be done to encourage SASSA grantees to collect their grants from SAPO pay points to ensure recovery of operational and investment costs.
Note: Q1 and Q2 – KPI has no target and not measured for these quarters
SA Post Office – Q1, Q2 & Q3 Performance for 2018/19FY

11. Theme 3 – Grow and diversify Revenues
KPI Achieve Postbank Revenue target per Corporate Plan
2018/19 Annual Target
Quarter
Quarterly Targets
Actual Performance
Status at end of Q3
Explanation of Variance
Current progress to date
R822m Q1
R202m
R200m
Achieved
Postbank has achieved the set target for Q3 and this is mainly due the following: • The amendment in the SASSA contract which removed the BOT (Build, operate and transfer). The change in the contract was implemented in July • The tariff for the NPS system was also revised from R9.39 to R13 per beneficiary. • The increase in the number of beneficiaries using the NPS system (ATM and POS) has resulted in an increase in the Saswitch Income. Interest Income has also increased and this is mainly due to the investment mix.
Non-Interest Revenue:
• Increase the number of beneficiaries that use the new SASSA card as this will have a direct impact on the revenue.
• Invest in other revenue growing initiatives such as:
o Government business: ECDPW, DEA (Increasing the number of customers)
o New channels: Internet, mobile banking, ATM and POS acquisition.
o Revisit its consumer value proposition with the aim of increasing the customer base and maximising returns
o Improve and increase our marketing programmes.
Net Interest Income:
We expect that the increase in the investment book from the above opportunities will result in growth in interest earned. Q2
R201m
R395m Q3
R207m
R452m
SA Post Office – Q1, Q2 & Q3 Performance for 2018/19FY

12. Theme 3 – Grow and diversify Revenues
KPI % Growth in the total number of Postbank accounts, from the prior year actuals
2018/19 Annual Target
Quarter
Quarterly Targets
Actual Performance
Status at end of Q3
Explanation of Variance
Current progress to date
3% from the prior year actuals Q1
0.75%
25.6%
Achieved
The increase in the number of accounts opened in Q3 is mainly due to the SASSA project, where Postbank has opened 8.2 million accounts for the beneficiaries.
Number of depositor accounts as at end December 2018 are
The following initiatives are planned for FY2019 so as to continue depositor’s growth:
• Intense marketing and financial education workshops, drive to promote financial literacy and inclusion, customer value and affordable banking solutions.
• Increase the number of beneficiaries rolled out for the ECDPW project, DEA and Waste Bureau. Q2
81.55% Q3
2.3%
SA Post Office – Q1, Q2 & Q3 Performance for 2018/19FY

13. Theme 4 – Performance Management
KPI % adherence of performance management targets
2018/19 Annual Target
Quarter
Quarterly Targets
Actual Performan ce
Status at end of Q3
Explanation of Variance
Current progress to date
100% adherence to performance management processes by management level staff Q1
100% contracting of all management staff
34%
Not Achieved
The target has not been achieved. The reasons for the negative variance are:
The submission rate is very low due to the instabilities within the organisation where a number of executives have resigned and have not contracted with their general managers, impacting lower management levels.
The Group Executive: HR has resigned from the organisation and left during January 2019.
Planned actions going forward are the follow-up on performance reviews with line managers.
The performance reviews and submissions have increased during Q4. Q3
100% completion of midyear reviews by management staff
49%
Note: Q2 – KPI has no target and not measured for quarter two
The Q1 target improved from 34% to 100% during Q2
SA Post Office – Q1, Q2 & Q3 Performance for 2018/19FY

14. Financial Performance for Q1No
Detail
Prior Year YTD
Q1 – 30 June 2018 (R’m)
Target
Actual
Variance
% Variance
% Change 1
Revenue
1,136
1,133
1,063
-71
-6% 2
Expenses
1,460
1,513
1,301
212
14%
11% 3
Non-Operating items
-29
-31
-30 2%
-5% 4
Net loss
-353
-411
-268
142
35%
24%
Revenue for Q1 below target due to the decline in mail revenue, slow recovery on DTT project, and motor vehicle licence revenue.
Expenditure performed below target due to constraints on spending.
Lower expenses contributed to the lower net loss position.
Revenues for Q1 are insufficient to meet all operational expenses, resulting in severe pressure on cash flow
SA Post Office – Q1, Q2 & Q3 Performance for 2018/19FY

15. Financial Performance for Q2No
Detail
Prior Year Q2
Quarter September 2018 (R’m)
Budget
Actual
Variance
% Variance
% Change 1
Revenue
1,132
1,102
1,227
125
11% 8% 2
Expenses
1,500
1,528
1,772
-244
-16%
-18% 3
Non-Operating items -1
-15
-12
22%
-100% 4
Net loss
-369
-441
-557
-115
-26%
-51%
Revenues exceeded the target due to the SASSA revenues.
Expenditure exceeded the target due to the increased SASSA project costs and settlement of staff increases with back pay.
Revenues for Q2 still insufficient to meet all operational expenses.
SA Post Office – Q1, Q2 & Q3 Performance for 2018/19FY

16. Financial Performance for Q3No
Detail
Prior Year YTD
Q December 2018 (R’m)
Target
Actual
Variance
% Variance
% Change 1
Revenue
1,161
1,321
1,415 94 7%
22% 2
Expenses
1,395
1,465
1,725
-260
-18%
-24% 3
Non-Operating items
-33
-344
-34
310
90%
-3% 4
Net loss
-266
-489
144
30%
-29%
Revenue of R1 415 million for the quarter is above budget by R94 million (7%) due to the SASSA project (R310 million).
Expenditure of R1 725 million for the quarter has exceeded budget by R260 million (18%) linked to the additional expenses of R216 million on the SASSA project, for staff – R26 million, security – R121 million, bank charges – R10 million and cards – R59 million.
A net loss of R344 million for Q 3, better than budget by R144 million. Targeted net loss of R489 million includes R313 million provision for staff optimisation expenses.
Revenues for Q3 still remain insufficient to meet all operational expenses, resulting in severe pressure on cash flow.
SA Post Office – Q1, Q2 & Q3 Performance for 2018/19FY

17. Financial Performance for YTD Q3No
Detail
Prior Year YTD
SAPO Group - YTD (R’m)
Target
Actual
Variance
% Variance
% Change 1
Revenue
3,429
3,557
3,705
148 4% 8% 2
Expenses
4,355
4,507
4,798
-291
-6%
-10% 3
Non-Operating items
-63
-391
-77
314
80%
-21% 4
Net loss
-989
-1,342
-1,170
171
13%
-18%
Revenue of R3 705 million
Increase of R275 million (8%) and exceeded budget by R148 million (4%)
R506 million for the SASSA project.
R122 million for postbox revenue.
R12 million for text book project from DOE.
Expenditure of R4 798 million
Increased by R443 million (10%) and exceeded budget by R291million (6%)
Staff costs of R2,8bn (59 % of total cost), year on year increase of R175 million due to salary increases paid in August and additional temporary staff for SASSA project.
SASSA project costs of R545 million - Postbank cards of R246 million, staff costs of R60 million, security costs of R161 million and other operating cost of R78 million.
SA Post Office – Q1, Q2 & Q3 Performance for 2018/19FY

18. AG Audit Findings - Status
SA Post Office – Q3 Performance at 31 December 2018

19. AG Audit Findings - Status
Business Unit
Items Reported
Items resolved
Unresolved
Mail Operations 2
Retail 4
Docex 22 11
Finance 77 33 44
HCM 5 3
SCM 19 9 10 IT 17 7
Strategy 15 8
Postbank
Commercial 1
Comp Secretary
Internal Audit
Totals
180 86 94
A total of 86 (48%) items has been resolved out of 180 AG findings.
SA Post Office – Q3 Performance at 31 December 2018

20. AG Audit Findings - Status
Company
Area of Audit Finding
Finding Heading
Actions/Controls to be implemented and current status
SAPO
Finance
Going Concern basis of accounting is appropriate but material uncertainty exists relating to going concern/financial sustainability
Sapo was allocated R2.9 billion and will provide relieve to the going concern matter.
MTEF allocation of R1.5bn to fund public service mandate
CFG
Going concern Going concern assumption incorrectly applied in preparing the annual financial statements
Matter is being discussed at SAPO board level for a decision.
Property, plant and equipment Discrepancies identified between the asset register and asset verification performed
We are currently busy with the Asset verification process and we have sent out clear guidelines as to how the verification should be done to avoid these issues going forward.
Prior year finding not addressed - Assets could be found and traced to fixed asset register
Trade and other payables Trade payables and other payables materially misstated as at 31 March 2018.
Accounts Payable will reconcile all vendor statement balances. The accruals will be informed by the reconciliations to ensure accuracy and completeness of the liability. The trade payable discounting will then be performed on the confirmed liability.
Expenditure Other operating expense materially misstated as at 31 March 2018
(A) SAPO properties will finalise lease agreements between SAPO and the the landlords of all buildings taken over from CFG to ensure that the rentals are accordingly allocated to the correct entity. (B-E) Proper record keeping is now in place because the AP staff has settled since the move from Eco point to NPC happened when some records could not be located in the process.
Finance costs Finance costs: Supporting documentation not provided for audit
Invoices for all interest paid are in place and available for audit purpose. The discounting calculations will be completed in time during the finalisation of the AFS
SA Post Office – Q3 Performance at 31 December 2018

21. AG Audit Findings - Status
Company
Area of Audit Finding
Finding Heading
Actions/Controls to be implemented and current status
CFG
Finance
Risk management Errors in the risk management disclosure note.
The final set of AFS attended to this note. We have also brought additional skill in our Financial reporting section to ensure that these disclosure notes are seemless.
Fruitless and wasteful expenditure Understatement of Fruitless and Wasteful Expenditure
The schedule for fruitless expense is maintained and readily available. The timing of the disclosure in the AFS and the FMC meetings will be aligned to ensure that it meets timelines.
Disclosure note not prepared in accordance with National Treasury Guidelines
The disclosure note was since corrected in the final set of AFS and the framework will be maintained for all future AFS preparation
Compliance Effective steps were not taken to prevent fruitless and wasteful expenditure, as required by section 51(1)(b)(ii) of the PFMA.
Continued updates and training on all SCM aspects are done on a weekly basis at the procurement meetings/workshop SCM is planning the implementation of SAP controls ensuring all transactions are linked to a valid procurement process. Engaging with IA to review all procurement within SAPO ensuring compliance with policies and regulations
The financial statements submitted for auditing were not prepared in accordance with the prescribed financial reporting framework and supported by full and proper records, as required by section 55(1)(a) and (b) of the PFMA and section 29(1)(a) of the Companies Act. Material misstatements of non-current liabilities and disclosure items identified by the auditors in the submitted financial statements were subsequently corrected and the supporting records were provided subsequently, but the uncorrected material misstatements and supporting records that could not be provided resulted in the financial statements receiving an adverse audit opinion.
The finalised set of AFS attended to all the issues raised. Finance has also brought additional skill in our FI section which will assist in ensuring that the preparation of AFS is also accompanied by the supporting files of all the relevant schedules
SA Post Office – Q3 Performance at 31 December 2018

22. AG Audit Findings - Status
Company
Area of Audit Finding
Finding Heading
Actions/Controls to be implemented and current status
CFG
Finance
Effective measures not in place to ensure effective revenue management
The collection of debt is an ongoing process of engagement with customers by the AR team. The CFG sales have dropped significantly due to its operational paralysis and therefore the ratio of debt to sales is skewed.
Inter-company loan Discrepancies identified on intercompany loans.
Management is of the view that the existing records of these transaction balances are correct. These balances that date back to a couple of years back were also looked into by the SIU (Special Investigative Unit)‘s process. The loan amounts at the end of the financial period are reconciled between SAPO and CFG to ensure that they are in agreement, the reconciliation will be signed-off by SAPO EXCO or CFO.
SAPO/Docex
SCM
Inadequate documentation on internal investigations of irregular expenditure
FMC process relating to BU's responsibilities to investigate the responsible individuals for Irregular expenditure and evidence of disciplinary process followed.
SAPO
Goods, works or service were not procured through a procurement process which is fair, equitable, transparent and competitive as required by the PFMA section 51(1)(a)(iii).
Continued updates and training on all SCM aspects are done on a weekly basis at the procurement meetings/workshop SCM is planning the implementation of SAP controls ensuring all transactions are linked to a valid procurement process. Engaging with IA to review all procurement within SAPO ensuring compliance with policies and regulations
The accounting authority did not take effective steps to prevent irregular, fruitless and wasteful expenditure
SA Post Office – Q3 Performance at 31 December 2018

23. AG Audit Findings - Status
Company
Area of Audit Finding
Finding Heading
Actions/Controls to be implemented and current status
SAPO
SCM
The allocation and calculation of preference points was not correctly done in accordance with the requirements of the PPPF Act and PPR.
Continued updates and training on all SCM aspects are done on a weekly basis at the procurement meetings/workshop SCM is planning the implementation of SAP controls ensuring all transactions are linked to a valid procurement process. Engaging with IA to review all procurement within SAPO ensuring compliance with policies and regulations
CFG
Prior Year Finding not addressed - Fruitless and wasteful expenditure supporting documents not provided for audit – Prior year unresolved finding
SCM receives the fruitless and wasteful expenditure information from BU on a monthly basis reflecting the individual transactions. The individual transactions per month for legal and interest payments are consolidated per month due to the volume of transactions. The consolidated values are registered as such on RUBI and recorded in the Fruitless and wasteful expenditure register. The request for invoices and other supporting documentation will delay the process due to the number of invoices. SCM has informed AG that all invoices are captured, filed and held at Accounts payable.
Irregular Expenditure Non-disclosure of Irregular Expenditure
The schedule for irregular expense is maintained and readily available. The timing of the disclosure in the AFS and the FMC meetings will be aligned to ensure that it meets timelines. And AFS review will be improved
Discrepancies noted in the irregular expenditure disclosed in note 29 of the financial statements – Prior year finding not resolved.
SCM will ensure that all findings from previous financial years are registered and the amounts correctly calculated.
Postbank
Material compliance deviations identified with Section 21 of FICA act 38 of 2001
An application is being developed in house to store and index the KYC information. The current problem with the requested information above is the team can confirm that the information was received however the information cannot be retrieved from Emerge Africa system as contract was cancelled with the supplier.
SA Post Office – Q3 Performance at 31 December 2018

24. AG Audit Findings - Status
Company
Area of Audit Finding
Finding Heading
Actions/Controls to be implemented and current status
SAPO
Strategy
Theme 1 – Performance targets and indicators documented in the SAPO corporate plan are not consistent, specific, measurable, well defined, verifiable and relevant as required by the FMPPI.
The reporting of the actual performance is done from the SAP GL account no , which is R14.5m for the year. The actual transactions are captured at the post office or mail Centre throughout the country. Source documents are therefore kept at the point of capture and at most centres copying or scanning facilities are not available. The sample received of 5 from the total sample population of 40 is only 12.5%.
Limitation of scope – Portfolio of Evidence (POE) not submitted for audit
Strategic planning office have strengthened their monitoring process with BU's and for 2018FY TID's were completed for every KPI.
Theme 4 – Performance targets and indicators documented in the SAPO corporate plan are not consistent, specific, measurable, well defined, verifiable and relevant as required by the FMPPI.
Targets for 2019FY was vetted by AG and IA before being finalised.
Property Companies
Audit of predetermined objectives 1. Predetermined objectives: A shareholder’s compact was not concluded in consultation with the board of directors as required by Treasury Regulation
It is not practical and feasible to have a shareholders compact for the property companies as these companies were set up for a specific purpose many years ago and is not normal trading entities.
CFG
AOPO No Corporate plan & Annual performance plan for the audit of 31 March 2018
SAPO is in the process to apply for voluntary liquidation of CFG. Even for the current financial year, the company is largely inactive therefore a shareholders compact and strategic plan would be uncalled for.
SA Post Office – Q3 Performance at 31 December 2018

25. End of presentation