1. MARCH 2013 PRESENTATION OF THE AUDITOR-GENERAL TO THE PORTFOLIO COMMITTEE ON A PERFORMANCE AUDIT OF THE USE OF CONSULTANTS AT THE DEPARTMENT OF ENVIRONMENTAL AFFAIRS 1

2. 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. Reputation promise/mission 2

3. 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. 3

4. 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 Significant expenditure - R102 billion over 3 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 Why a performance audit on the use of consultants by government How do performance audits differ from other audits? Performance auditing Regularity auditing vs Performance audit at a glance 4

5. Scope of the audit The departments we audited and why others were not audited Focus of this report – national departments R33,5 billion Similar provincial audits conducted – to be tabled in due course R68,5 billion 5

6. Scope of the audit The departments we audited and why others were not audited 20% of national departments represent 74% of the total national expenditure on consultants over the 3 years Eight national departments were audited - total expenditure on consultants R24,6 billion over 3 years Selection also guided by outcomes of financial audits and other assessments 6

7. Key focus areas of the audit Focus areas crucial in ensuring the Economical, Efficient and Effective use of consultants by departments 7 Audit focus areas Planning and appointment processes Internal capacity at departments Training and transfer of skills from consultants to employees Performance management and monitoring of consultants Extension of contracts Closing and finalising projects

8. 8 Key challenges across departments Comprehensive needs assessments not done Competitive procurement processes not followed Expectations on milestones, timelines and cost not clearly specified Planning and appointment process Consultants appointed where permanent capacity should have been created Consultants appointed due to lack of internal staff capacity Internal capacity Skills transfer was ineffective 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 Performance management and monitoring Contracts extended due to lack of project management and monitoring Extension of contracts Failure to retrospectively analyse projects Closing and finalising projects

9. 9 Department of Environmental Affairs Total expenditure on consultants (2008 ‑ 09 to 2010-11)R550,6 million Number of projects audited15 Value of projects auditedR57,6 million Average vacancy rate (2009-10 to 2010 ‑ 11)30,35%

10. 10 Audit findings DEPARTMENT OF ENVIRONMENTAL AFFAIRS Classification Areas where deficiencies were identified during the auditE affected Consultants per contract audited Best available value of contracts Period of contract/service Consultants Contractors Agency/0utsourced services Planning and appointment Internal capacity Training and transfer of skills Performance management and monitoring Extension of contracts Closing and finalising of projects Economy Efficiency Effectiveness Developing the National Framework as contemplated in section 7 of the National Environmental Air Quality Act3 883 287  1.Council for Scientific and Industrial Research 3 883 287 22 Mar 2007 - 30 Apr 2008    Assistance with the backlog in the approval of waste disposal sites4 521 649  2.Jeffares & Green (Pty) Ltd 4 521 649 15 Jan 2009 - 14 Jan 2010  Develop and implement a monitoring and evaluation system4 069 250  3. Katiba PMC CC & A(S) G Consulting Solutions (Pty) Ltd * 4 069 250 1 Sep 2006 - 10 May 2009     Evaluation of aviation tariffs1 899 378  4.3P Consulting 1 899 378 6 Nov 2007 - 5 Nov 2010    Supply, installation and management of five air quality monitoring stations12 441 809  5.SI Analytics (Pty) Ltd 12 441 809 15 Aug 2007 - 14 Aug 2012    Support the development of the Environmental Management Framework1 530 069  6.SRK Consulting (South Africa) (Pty) Ltd 1 530 069 20 Aug 2007 – 3 June 2010    * Projects placed on hold following presidential announcement of the split of department on 10 May 2009

11. 11 Audit findings (continued) DEPARTMENT OF ENVIRONMENTAL AFFAIRS Classification Areas where deficiencies were identified during the auditE affected Consultants per contract audited Best available value of contracts Period of contract/service Consultants Contractors Agency/outsourced services Planning and appointment Internal capacity Training and transfer of skills Performance management and monitoring Extension of contracts Closing and finalising of projects Economy Efficiency Effectiveness Stakeholder publication1 446 546  7.Bembani Sustainability Training (Pty) Ltd* 1 446 546 1 Sep 2008 - 10 May 2009  Development of the South African Air Quality Information System4 874 800   8.Gondwana Environmental Solutions (Pty) Ltd 4 874 800 1 Jul 2007 – 30 Sep 2009      Establishment of an inventory assessment of infrastructure and capacity for the development of National Implementation Plans 4 538 552  9.BKS (Pty) Ltd 4 538 552 24 Apr 2007 - 23 Apr 2009    Study to review the state of transformation in the tourism industry 2 037 294  10.Yarona Management Services 2 037 2942 Oct 2006 – 1 Feb 2007    Public Private Partnership transaction advisor10 500 000  11.Mi3 Consortium 10 500 000 Appointment on 8 May 2007. Multi year contract     * Projects placed on hold following presidential announcement of the split of department on 10 May 2009

12. 12 Audit findings (continued) DEPARTMENT OF ENVIRONMENTAL AFFAIRS Classification Areas where deficiencies were identified during the auditE affected Consultants per contract audited Best available value of contracts Period of contract/service Consultants Contractors Agency/outsourced services Planning and appointment Internal capacity Training and transfer of skills Performance management and monitoring Extension of contracts Closing and finalising of projects Economy Efficiency Effectiveness Assistance with financial services 2 563 632    12.GDP Public Finance Consultancy CC ** 2 563 632 1 Jul 2008 - 30 Sep 2009    Greening project 2010 264 480   13.Bembani Sustainability Training (Pty) Ltd 264 480 30 Jul 2007 - 15 Sep 2007    Technical advisor for disposal 1 488 840   14. Joubert Environmental & Development Services *** 1 488 840 23 May 2007 - 22 May 2009   Placement of recruitment advertisements in the print media 1 500 000   15. Kone Staffing Solutions, Human Communications (Pty) Ltd, and Ayanda Mbanga Communications (Pty) Ltd*** 1 500 000 3 Jul 2008 - 2 Jul 2010   Total57 559 586 1422240 ** The consultant has been appointed various times from 6 Dec 1999 to 28 Jul 2010 for which consultant was paid an amount of R9 731 491 *** No material findings were identified during the audit, therefore not included in the public report

13. 13 Variations per contract Contractor Original amount of contractVariation amount Compliance with procurement policyComments Pubic Private Partnership transaction advisor Mi3 Consortium R9 000 000R1 500 000Yes The Consortium did not have environmental and heritage specialists as required by the terms of reference, which had to be procured by means of a variation order Establishment of an inventory assessment of infrastructure and capacity for the development of National Implementation Plans BKS (Pty) Ltd R4 538 552 Not applicable (time extension) Yes Development of the South African Air Quality Information Systems Gondwana Environmental Solutions (Pty) Ltd R4 874 800 Not applicable (time extension) Yes Approved by deputy director- general: environmental quality and protection Support the development of the Environmental Management Framework SRK Consulting (South Africa) (Pty) Ltd R1 530 069 Not applicable (time extension) Yes Approved by deputy director- general: environmental quality and protection

14. 14 Comprehensive needs determination 10 consultants with a total contract amount of R41,2 million Comprehensive needs assessments, including market related costs and project estimates were not performed resulting in an increase of 81% between estimated project cost and contract cost Delay in appointment process Seven contracts with a total contract cost of R27 million Appointment process took on average seven months due to poorly coordinated planning and activities Assistance with the backlog in the approval of waste disposal sites Jeffares & Green (Pty) Ltd R4,5 million 15 Jan 2009 - 14 Jan 2010 The contract cost could have been minimised had the necessary funding and resources been transferred at the same time as the function was transferred Contract specific challenges Intense scrutiny of strategic plans and accountability reports Activities should be monitored quarterly Follow up on corrective action against action plans

15. 15 Contract specific challenges Development of South African Air Quality Information System Gondwana Environmental Solutions (Pty) Ltd R4,9 million 1 Jul 2007 - 30 Sep 2009 The consultant did not have the required skills to procure computer equipment and a sub- contractor had to be appointed Stakeholder publication Bembani Sustainability Training (Pty) Ltd R1,4 million 1 Sep 2008 – 10 May 2009 (Initial contract period was from 1 Sep 2008 to 31 Aug 2011) Terms of reference were not clear and specific on the deliverables Public Private Partnership Transaction Advisor Mi3 Consortium R10,5 million Multi-year contract (Appointment date: 8 May 2007) The bidder with the highest overall score was not appointed Delays of up to 1 445 days had been experienced in achieving the proposed deliverables Intense scrutiny of strategic plans and accountability reports Activities should be monitored quarterly Follow up on corrective action against action plans

16. 16 Greening project 2010 Bembani Sustainability Training (Pty) Ltd R264 480 30 Jul 2007 - 15 Sep 2007 Competitive bidding process was not followed Assistance with financial services GDP Public Finance Consultancy CC R2,6 million 1 Jul 2008 - 30 Sep 2009 (The consultant has been appointed various times from 6 Dec 1999 to 28 Jul 2010 for which consultant was paid an amount of R9 731 491) Lack of internal capacity Skills transfer was not specified in the terms of reference and contract Contract specific challenges Intense scrutiny of strategic plans and accountability reports Activities should be monitored quarterly Follow up on corrective action against action plans

17. Key recommendations: how government can remedy the current situation Value for money from the use of consultants Comprehensive needs assessments, which include accurate cost estimates should be conducted Compliance with legal frameworks, laws, regulations and policies Consider cost implications before appointing consultants Timely appointment of consultants Learn from the past, apply in the future Develop a strategy governing the use of consultants 17 Investigate possible irregular, fruitless and wasteful expenditure Training and transfer of skills

18. Combined assurance: extensive assurance needed at all levels 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 Management assurance First level of assurance Senior management Accounting officers/ authority Executive authority 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 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 18

19. Commitment to action needed Better value for money when using consultants National Treasury Audited department MinisterPortfolio Committee Department of Public Service and Administration 19

20. Commitment given Better value for money when using consultants National Treasury - Guidelines will be reviewed to strengthen the process of appointing consultants - Emphasis to be placed on the monitoring of compliance with legal frameworks related to the appointment, management and use of consultants Audited department and Minister - The appointment of consultants at materially higher amounts than estimated and the significant delays in the appointment process of consultants has been addressed - Department will instruct project managers to link milestones/deliverables with the progress payment - Mechanism of monitoring has been introduced where close-out reports and questionnaires completed by project managers would have to be submitted Department of Public Service and Administration - Information on skills in public sector will be provided - Research will be conducted and interventions developed by March 2014 to reduce vacancy rate - Annual departmental submission of HR plans will be increased to 100% compliance 20

21. It takes two to tango: the private sector also needs to come to the party Public sector Private sector Enhanced citizen value += A critical part of this equation Must not take advantage of weaknesses in government systems Rather be good corporate citizens with a good corporate conscience Take steps to stop malpractices Strong governance support by broader private sector is critical Realising the common goals of economic success requires effort by both government and business The creation of citizen value is enhanced through a balanced partnership equation 21

22. Thank You 22