1. 1 Presentation to the Portfolio Committee on DPW Annual Report 2008/09 Auditor- General’s Report 13 October 2009 Presented by the Acting Director General Mr N S Malebye

2. 2 Table of Contents Background Key Audit Report Findings DPW Key Audit Findings PMTE Interventions by the Department Conclusion

3. 3 Background Prior to this report, the Department of Public Works has been enjoying a spate of unqualified audit reports from 2005/06. The passing of Government-wide Immovable Asset Management Act in 2007 and the devolution of capital works and municipal rates & service budgets to client Departments and Provincial Departments of Public Works, necessitated the implementation of a new sustainable business model for providing services to client departments. The establishment of a Property Management Trading Entity (PMTE) was then conceptualised and implemented in 2007. This business model necessitated the production of two sets of annual financial statements to enable compliance with the relevant accounting policies. As the Property Management entity evolved it became inevitable that it should comply with Generally Accepted Accounting Policies for acceptable reporting on its operations.

4. 4 Background (Cont…) The department was then given an exemption in 2007/09 for not complying with GAAP. This exemption came with certain conditions that were supposed to be met during the 2008/09 financial year. Unfortunately due to capacity constraints and unavoidable changes in the leadership of the department the business case for the full implementation of the PMTE did not receive the necessary attention and focus. Apart from the above, the department had also received an exemption with conditions attached for the provision of a complete and accurate Immovable Asset Register. While significant progress was made on the updating of information in the Register, it became apparent during the audit that there were still serious shortcomings on the completeness of the register.

5. 5 Audit Qualification -Movable Asset Register The following three key findings became the basis for the Qualification (refer to Page 52): (i)The lack of a complete and accurate asset registers and the consequent inability by the AG to account for almost R249 million in both moveable tangible capital as well as minor assets. (ii) The lack of or poor verification and valuation of certain immovable tangible assets worth R5.3 billion. (iii) The purchase of and subsequent failure to utilize a software system to the value of R40, 3 Million.

6. 6 Audit Qualification -Movable Asset Register Department’s response: The discrepancies in the Departments movable asset register were compounded by the flooding at Isivuno Building which forced the department to seek temporary accommodation. The movable assets were kept in a store room and rental furniture was made available at the alternative accommodation provided. Unfortunately the move to a new building took place while the audit was in progress, and the asset register could only be updated after the audit was completed. The department has since made significant progress in correcting the situation –An asset count has already been conducted –The register has been updated with new locations –A new structure of the asset management unit comprising of a Deputy Director and Ass. Director: Asset Management has been created and it is in the process of being advertised. –A service provider will be appointed before end October to assist with the comprehensive assset verification within the department and the Prestige environment.

7. 7 Audit Qualification - Immovable Asset Register Basis for Qualification: The auditors could not verify the completeness, rights and obligation, and valuations of the immovable tangible assets due to the following shortcomings: Not all assets owned by the DPW were accounted for in the asset register that supports the financial statements. Title deeds and stand numbers for some of the assets were not indicated on the asset register and therefore the DPW’s rights and obligation to these properties could not be verified. The DPW, in conjunction with the Department of Rural Development and Land Reform and all provincial departments’ custodians, was tasked with leading a government-wide initiative to complete the vesting of ownership of state-owned land. This initiative is still in progress.

8. 8 Audit Qualification - Immovable Asset Register Cont. Interventions by dept –A detailed action plan has been developed –The Deputy Minister has been allocated the task of providing leadership in this area. –Capacity has been created to provide dedicated attention to the enhancing of the register –The project regarding the interfacing of the WCS and PMIS systems in progress –Vesting team is working closely with RD&LR –An Asset Register Enhancement Programme is currently underway to improve the asset register to have complete and accurate basic minimum requirements of a comprehensive Asset Register. –The dept is also working closely with the Provinces to ensure uniformity and support.

9. 9 Audit Qualification - Intangible Assets Basis for Qualification The adjustment to the prior year balance of intangible assets as disclosed in note 42 to the annual financial statements consisted of software to the value of R40,3 million purchased and paid for in advance during the 2005-06 financial year. Up to the completion of this report the software was not yet utilised by the DPW. A project charter has been compiled after year-end to manage the project. As a result could not verify existence of the software at year-end. Department’s response In a quest to build a world-class Public Works, the Department in 2005 purchased the SAS Business Intelligence Solutions software to manage strategic business information and other data. At the time of the auditing the system was sent back to the service providers for upgrades and therefore the auditors did not have access to it. The Business Intelligence solution is still relevant and is needed much more at present due to increased reporting requirements. There is an arrangement in place now to implement the solution with the latest Upgrades with no additional cost to the Department. The implementation charter has been finalized and implementation is in progress.

10. 10 Emphasis of Matter – Contingent Liabilities Significant uncertainty At the bottom of annexure 3B, Statement of contingent liabilities, is a narrative referring to a potential liability regarding a conditional assessment of properties under the custodianship of the DPW by two service providers. The potential liability will only be determined after validation of the work performed. Progress This matter relates to the services that were provided by Servcon and Intersite regarding the conditional assessment of Properties of the state. The department is currently reviewing the reports for final settlement of this project.

11. 11 Property Management Trading Entity (PMTE) Audit Report 2008/09

12. 12 Adverse Audit Opinion Basis for adverse opinion 1.Basis of accounting The required accounting framework in terms of TR 18.2 for the PMTE is SA Statements of GAAP. The department prepared the AFS using the modified cash basis instead of GAAP. 2.Interdepartmental receivables Included in the interdepartmental receivables as disclosed in note 17 to the financial statements is an amount of R419 million (31 March 2008: R48million), which is owed by a number of national departments and national public entities which has been outstanding for more than two years. The receivables amount disclosed is thus overstated by an unknown amount and the provision is understated due to the assessment not being performed.

13. 13 Other Matters- Non compliance with the PFMA Treasury Regulations The accounting officer did not comply with the following legislative requirements: –Treasury Regulation 8.2.3: payments of invoices were not always made within 30 days of receipt of invoice, as required. –Treasury Regulation 9.1.2: fruitless and wasteful expenditure was not reported on a monthly basis. Entity revenue Section 51(1)(a)(i) of the PFMA states that the accounting officer must ensure that the PMTE has and maintains effective, efficient and transparent systems of financial and risk management and internal control. Various discrepancies in respect of the process of revenue collected from client departments were noted, including lack of proper reconciliation and review, unauthorised manual journals, manual journal incorrectly completed, misallocation between the regions, manual PACE systems not agreeing to Basic Accounting System (BAS) and incorrect capturing of data.

14. 14 Interventions A detailed action plan has already been developed and project managed by the senior managers of the department. Service providers will be on board by mid October for providing the necessary technical skills and support for the effective implementation of the PMTE. The CFO has already established task teams that are vigorously reconciling all outstanding debts and engaging departments to pay. A project dubbed “Debtors Clean Up” aimed at implementing a high drive on the collection of revenue and clearing of long outstanding is yielding positive results. Some of the rental defaulters particularly in the Prestige environment are being addressed through the Minister’s intervention. National Treasury has also committed to providing support with regard to enforcing payment by client departments. A new Director responsible for revenue management has already been appointed and she has already started to engage Regions to get the billing right. The newly implemented “Operations Re Ya Patala” ( We Pay) established by the CFO is another initiative for injecting a high drive with regards to the payments of service providers within 30 days and the clearing of all back log.

15. 15 In conclusion Clearly the audit report received by the department is a disheartening one, and requires urgent turnaround strategies at all levels. I can comfortably report that there is commitment at all levels of management to turn around the situation. The action plans developed are monitored at executive level. The Ministry is also actively involved in ensuring that the department receives the necessary support and guidance which is critical to the success of the turnaround strategy. Clean governance and corruption-free administration is a stated key priority area of Public Works.

16. 16 Thank You