1. 11 June 2013 Progress Report Addressing Non-paying Client Departments & Fixing the Billing System 11 June 2013

2. PRESENTATION OVERVIEW. 1.Recap on root causes for client non-payment 2.Update on prior year engagement 3.PMTE Current Operating Model 4.PMTE Debtors Status and action plans for recovery 5.Highlevel PMTE IT System Rollout Plan 2

3. Recap – Root causes for non-payment by clients Previously, no binding agreements between DPW and client Departments (SLA’s) Minimal enforcement of GIAMA by DPW re: UAMPs as bidding process documents with National Treasury for client departments’ budget allocations Lack of capacity within client departments for compilation of UAMPs PMTE not yet in position to provide itemised bills to clients PMTE only bills clients on basis of devolved budgets Due to above, clients resistant to pay as AGSA raises findings with payments made not supported by detailed itemised bills 3

4. Recap on prior year’s engagement Service Level Agreement (SLA) was developed as the preferred form of agreement to bind User Departments and DPW in terms of agreed Service Delivery Standards. Service Delivery Standards were developed Both the SLA and the SDS documents meant to entrench the delivery of accommodation services according to agreed turnaround times, performance measures and business processes. 4

5. Progress re: Conclusion of SLAs with clients 2012/13 DEPARTMENTSENTITIESCOMMITTEETOTAL Users: 3317151 SLA’s signed: 218023 SLA’s not signed: 115023 * SLA’s not required : 1415 Level of compliance :64%47%0%45% 5 * Note: a number of national departments and entities currently do not require SLA’s for a variety of reasons (e.g. where services are rendered through the parent department, where they are co-located in premises with other departments).

6. 6 PMTE Current Operating Model

7.  PMTE = Trading entity/account of the NDPW since 2006 but never operationalised  Trades under the control of the Department  The Accounting Officer (AO) of the NDPW = AO of the PMTE  Purpose for the formation of the PMTE: Ring fencing of revenues and expenditures (and related balance sheet items) relating to the property management function (including construction and maintenance) of the Department  Main benefit - Any revenue generated may be retained by PMTE to run itself if declared to National Treasury and approved. (TR 19.7.1. – National Treasury may not approve and require the PMTE to re deposit in Exchequer account). If remain in Department any revenue generated would be surrended  Incentive therefore to perform better  Ultimate goal to be self sustaining: the PMTE recovers its cost from the revenue it generates from clients rather than from the allocation from DPW (Treasury).  Reality – this is a long way off  Why? Unable to effectively/accurately determine cost recovery of PMTE  Incomplete and inaccurate records relating to which clients occupy which of our state owned and privately leased premises (i.e. square meters occupied etc)  Outdated /manual matching of expense recoveries (risk of under recoveries)  Lack of proper systems for recording invoices issued – manual MS excel system 7

8.  Currently mismatch between the fact that the revenue and expenditure from the Departments property management function is accounted for in the PMTE’s financial records but the:  Immoveable Assets (Buildings and land) that generate part of this revenue, and for which the expenditure is incurred, is accounted for in the Department’s financial records.  Capital expenditure – not capitalised – no proper record of asset value  Capital budget with client departments but assets within DPW  An interim business case for the PMTE was approved by DG at end of March 2013 effectively transferring the property management functions (and related business units) from DPW to the PMTE effective 1 April 2013 (next financial year)  This means that the Immoveable assets etc will only be accounted for by the PMTE in the 2013/14 financial year  The functions and related staff etc will also only move in the 2013/14 year  PMTE required to prepare AFS on GRAP as opposed to modified cash basis  Challenge is convert accounts from modified cash basis to GRAP  Extensive manual process to perform the conversion 8

9. 9 PMTE Current Operating Model Result Running high bank overdraft Execute now and recover late Cashflow timing difference – only invoice client after we have paid – about 60 days delay

10. 10 PMTE Current Operating Model – Bank Overdraft The bank overdraft is due to the “recoverable” business model being used by the PMTE (Debtors) At lease R 800 m of the overdraft can be accounted for by the time difference between payment to the supplier and receiving of funds from the Client The balance of the overdraft is due to older outstanding debt and has improved over the last three financial years

11. 11 Source systems WCS PMIS ie Works BAS Cash based system Cash TB payments invoices debtors Manually on Excel spreadsheets Prepare Journals based on spreadsheets and capture on Caseware CASE WARE AFS

12.  Migration to accrual based accounting  Compliance with GRAP requirements  Automation of the billing process and possibly also certain future PMTE business processes to enhance operational efficiencies  Operationalisation of the PMTE as a standalone business entity  Current systems not integrated across the business  Extensive, Legacy Data Quality issues (System and manual) 12

13. 13 PMTE Debtors Status

14. Debt Collection Division  Effective date  This unit was established in October 2011  The Structure consist of 3 ASD and 1 DD  Impact to date  Outstanding debts can be substantiated with proper supporting documentation  Monthly process relating to debt collection  Preparing statements and issue to client departments  Send reminder letters to follow up on outstanding debt  Meeting with the client departments  Prepare age analysis 14

15. Age Analysis as at 31 March 2013 Current30 Days60 Days > 90 Days Total 2012/13 Prev Years Total R’000 Accommodation (State Owned) 00236 223817 95118 188 Accommodation (Private) 203 71744 1308 996360 647617 490561 4871 178 977 Municipal Services 126 4466211 615123 330252 012222 872474 884 PACE 223 73042 254078266 063(19 148)246 915 Recoverable: CA 83 63717 2558 352157 738260 982145 840403 823 Total 637 530104 26019 199641 7951 402 706929 0022 322 787 % 27%4.5%0.8%28%60%40%100% 15

16. PMTE DEBTORS ANALYSIS AS AT THE END OF MARCH 2013. The PMTE has an debtors balance of R 2.3 billion as at the end of March 2013. R 929m (40%) relates to debts from Prior years. R1.4 billion relates to debts outstanding for the current financial year. Focus meetings will be held with Clients during June to August to analyze the individual accounts. 16

17. TOP 5 CLIENT: DEFENCE Current30 Days60 Days> 90 Days Total 2012/13 Prev Years Total R’000 Accommodation (State Owned) --- --- Accommodation (Private) 1 1333 558017 06221 7533 26425 017 Municipal Services ---38 59 26659 304 PACE ------- Recoverable: CA 79 85217 1868 179138 434243 65260 081303 732 Total 80 98520 7448 179155 534265 443122 611388 053 % 21%5%2%40%68%32% 17

18. DEFENCE ANALYSIS Meetings are being held on monthly basis with this client starting from March 2013. The outstanding balance for municipal services relate to 2006-10 expenditure that was claimed in 2011. This invoice cannot be substantiated by supporting schedule per property hence the client is disputing this debt. The outstanding balance on CA will still be recovered, the client has requested additional information relating to these projects and this was submitted. 18

19. TOP 5 CLIENT: JUSTICE Current30 Days60 Days> 90 Days Total 2012/13 Prev Years Total R’000 Accommodation (State Owned) 000 009 070 Accommodation (Private) 46 36816 456016 64079 46426 900106 364 Municipal Services ---993 36 07637 069 PACE 8 562000 788 640 Recoverable: CA 0000000 Total 54 93016 456017 63389 01972 124161 143 % 34%10%011%55%45% 19

20. JUSTICE ANALYSIS The outstanding balance for municipal services relate to 2006-10 expenditure that was claimed in 2011. This invoice cannot be substantiated by supporting schedule per property hence the client is disputing this debt. The outstanding balance of R26.9m in previous year under leases is for the SALU building that is being disputed by the client department. The rest of the debt is still recoverable. 20

21. TOP 5 CLIENT: DIRCO Current30 Days60 Days> 90 Days Total 2012/13 Prev Years Total R’000 Accommodation (State Owned) --- --7 258 Accommodation (Private) 1 174--- 95 71496 888 Municipal Services 1 467--- 15 58217 049 PACE ------ Recoverable: CA -----60 054 Total 2 641--- 178 608181 249 % 1.5% 98.5% 21

22. DIRCO ANALYSIS The debt under CA relate to the Pan African Parliament. The project was stopped but the client is disputing this amount. Further engagements will be held with the client Meetings have been held with the client regarding the municipal services balance. The client is disputing stating that the properties were not occupied by them at the time this expenditure was incurred. R95m outstanding for leases is the outcome of the reconstruction, meetings will be scheduled with the client to assess recoverability. 22

23. TOP 5 CLIENT: CORRECTIONAL SERVICE Current30 Days60 Days> 90 Days Total 2012/13 Prev Years Total R’000 Accommodation (State Owned) Accommodation (Private) 4--7 7457 74924 58632 335 Municipal Services 60 477000 0 PACE 49 21522 6920071 9071 13773 044 Recoverable: CA -----2 781 Total 109 69622 692-7 745140 13328 504168 637 % 65%13%-4.6%83%17% 23

24. CORRECTIONAL SERVISES ANALYSIS 83% of the outstanding debt is current and recoverable. Meeting will be scheduled with the client to resolve the R24m outstanding under leases 24

25. TOP 5 CLIENT: SAPS Current30 Days60 Days> 90 Days Total 2012/13 Prev Years Total R’000 Accommodation (State Owned) Accommodation (Private) Municipal Services 57 104--80 425137 5290 PACE 84 660 11 93796 598 Recoverable: CA ------- Total 141 76480 425222 18911 937234 127 % 61%34%95%5% 25

26. SAPS ANALYSIS 95% of the outstanding debt is current and recoverable. Meeting will be scheduled with the client to resolve the R12m outstanding under leases for previous years. This client is paying regularly and recoverability is not an issue 26

27.  Private leases (Lease out)  Reconciling paid amounts (expense side) to amount claimed back from client  Develop new standard contract and roll out to ensure all clients have contract (per property or per client)  Accounts receivable  Complete "reconstruction" exercise (Step 2-5 per plan)  Drive and manage collections  Drive and manage actual "write off" process of all debt (post impairment done)  Revenue and billing (2013/2014)  Implementing new billing and accounting system  Revenue and billing (2014/2015)  Cost recovery model (update one already developed)  Can be done only when IAR and lease verification projects complete 27

28. 28 Reconstruction of Private Leases StageReconstructions stages 1Verified invoices, credit notes and payments received to supporting documents Payments received verified to BAS (2006 to date) 2Reconciled what was invoiced to the expense paid in PMIS 3Matching unallocated receipts to invoices 4Verifying invoiced amounts to leased agreements (taking Lease verification project findings into account) 5Client meetings to obtain agreement to amounts owed. Assisting with preparing submissions to National Treasury for collection of prior year funds

29.  Clearing "payable: Advance Account  Purpose of account to record money paid in advance by client departments for lease rentals, municipal charges but also includes a large portion of unallocated receipts. Needs to be investigated and cleared out (difficult as clients pay single amount to cover multiple debts)  Need to engage National Treasury  Operating model of PMTE – bank overdraft (PMTE pays suppliers and only recovers the costs from client departments after 60 days  Revisit the Devolution of Budgets matter 29

30. 30 PMTE IT System Rollout Plan

31. Highlevel IT Software Rollout Plan Jun-13Jul-13Aug-13Sep-13Oct-13Nov-13Dec-13Jan-14Feb-14Mar-14 1Specifications for IT Solution - Billing and Administration - Immovable Assets Register - Leases - Municipal payments 2SCM Process to acquire solution 3Other project dependencies - Lease Review - Physical verification of immovable assets 4Data cleansing - PMIS - WCS - iE Works 5Basic Customisation of software 6Pilot modules 7Go live

32. Considerations to rollout a business automation process

33. Lease ‘in’ expenses information Buildings under construction expenses information Purchased property cost information Expenses and payables management information Expenses and payables financial reporting information Lease ‘out’ property revenue and debtor information Revenue and debtor management information Revenue and debtor financial reporting information 33 PMTE IT System Specifications Extent of business requirements

34. 34 PMTE IT System Specifications (cont’d) Addressed 3 areas related to the B&A system, namely: Receipts and revenue Expenses and payables Budgeting (also used for performance analysis) Provided an overview of the operational and GRAP requirements in each section and detailed certain areas of complexity. In the above sections, following are addressed: System requirements to facilitate GRAP compliance (This incorporates the GL considerations) System requirements to facilitate operational needs System reporting requirements Segregation of duties We have included the relevant laws and regulations with which the system needs to comply The non functional requirements documented highlight what the system is required to do from a technical perspective. The areas covered include the following: Performance requirements Usability requirements Data requirements Security requirements Scalability requirements User interface requirements System interface requirements External and third party system interface requirements Availability requirements Documentation requirements Functional RequirementsNon Functional Requirements

35. 35 PMTE IT System Specifications (cont’d) Information System Security PolicyInteroperability Standards Security Management Certification and accreditation Application systems and acquisition System operation Data security System access control and password security Workstation security Communication security Physical security Interconnectivity Data interoperability Information access

36. 36 National Department of Public Works (NDPW) Head Office: Public Works CGO Building Cnr Bosman and Madiba Pretoria Central Private Bag X65 Pretoria 0001 Website: http://www.publicworks.gov.zahttp://www.publicworks.gov.za