1. 1 NPA Audit Outcomes for 2005/06 and action plans

2. 2 2 Emphasis of matter Financial Management (Increased Risk of Fiscal Dumping due to late Reprioritization Process) Non-compliance with Treasury Regulations and PFMA –Rentworks contract (16A6.4) –Insurance on hired vehicles exceeding R250 000 –No prior approval of an authorised or delegated official prior incurring expenditure –Payments to creditors made after 30 days –No overtime and fraud prevention policies Donor funds –Foreign donors not received via RDP Account Debt Management –Persal not timely updated leading to management not able to forward monthly statements –Debtors’ files not always updated Accountability and governance status of the NPA Performance Management Information

3. 3 3 NPA03/0404/0505/06Main Finding Financial Management --EOM Late finalisation of the budget reprioritisation process by the DOJCD resulted in additional allocations being approved and received by the NPA in March 2006. This resulted in pressure being placed on the NPA to spend these additional allocations before the end of the financial year, which increases the risk that normal procurement practices may not be complied with. LEGEND - EOM: Emphasis of Matter

4. 4 4 Action plan for addressing deficienciesProgress to date Late finalisation of the budget reprioritisation process by the DOJCD resulted in additional allocations being approved and received by the NPA in March 2006. Quarterly Budget Review Committee meetings to identify underspending. Quarterly Budget Review Committee meetings were held, savings identified and proposed reallocations (reprioritisation) forwarded to the DG: DOJCD on 15 Jan 2007.

5. 5 5 NPA03/0404/0505/06Main Finding Non-compliance with Treasury Regulations and PFMA: 1.Rentworks contract (16A6.4) 2.Insurance on hired vehicles exceeding R250 000 as per Treasury Regulations 12.1.2 3. No prior approval of an authorised or delegated official prior incurring expenditure 4.Payments to creditors made after 30 days 5. No overtime and fraud prevention policies ---------- - EOM Non-compliance to the to Treasury Regulations 16A6.4. Insurance on leased motor vehicle exceeding R250 000. Treasury Regulation 8.2.2, which requires approval from a delegated or authorised official prior to incurring expenditure, was not always complied with. The NPA has no control in place to record the date of receipt of invoice, with the result that compliance with requirement could not be verified. It was identified that approved and formalised policies were still not implemented for overtime and fraud prevention plan policies.

6. 6 6 Action plan for addressing deficienciesProgress to date Treasury Regulation 16A6.4 states: “ If in a specific case it is impractical to invite competitive bids, the accounting officer or accounting authority may procure the required goods or services by other means, provided that reasons for deviating from inviting competitive bids must be recorded and approved by the accounting officer or accounting authority “. The procurement process as stated above for the procurement of leased vehicles was inadequate. To apply to National Treasury to condone irregular expenditure incurred for the finance lease contracted with Rentworks. We have engaged with National Treasury throughout the year on this issue which culminated in the National Treasury issuing the practice note 5 on 5 December 2006, which allows finance leases provided these are more economical than operating leases. Practice note 5 of 5 December 2006 doesn't include date on which the application of the practice note would apply, but officials from National Treasury have verbally assured us that this practice not would cover Rentworks lease agreement. We would continue to engage with National Treasury to get this clarification in writing.

7. 7 7 Action plan for addressing deficienciesProgress to date Treasury Regulations 12.1.2 requires that the accounting officer of an institution (if deemed economical and based on a risk assessment) insure motor vehicles, including hired vehicles, or such other movable assets determined by the relevant treasury, but the insurance premium cost may not exceed R250 000 a year on that vote, unless otherwise approved by the relevant treasury. NPA has incurred quarterly lease rentals for motor vehicles, which were structured to include insurance for the leased motor vehicles. The insurance amounted to more than R250 000. To apply to National Treasury for approval of insurance premium exceeding R250 000 for vehicles leased in terms of the Rentworks lease agreement. We have engaged with National Treasury throughout the year on this issue which culminated in the National Treasury issuing the practice note 5 on 5 December 2006, as above and we need to seek clarification from National Treasury that insurance for equipment or vehicles leased in terms of the practice note 5 issued on 5 December 2006 is covered by the practice note.

8. 8 8 Action plan for addressing deficienciesProgress to date Treasury Regulation 8.2.2, which requires approval from a delegated or authorised official prior to incurring expenditure, was not always complied with. Implement controls to ensure that approval from a delegated or authorised official is obtained prior to incurring expenditure.. Payment documents are checked & verified on a daily basis to ensure that necessary approval is attached before payment is made.

9. 9 9 Action plan for addressing deficienciesProgress to date Treasury Regulation 8.2.3 requires payment to service providers to be made within 30 days of receipt of invoice. The NPA has no control in place to record the date of receipt of invoice, with the result that compliance with requirement could not be verified. -Implementation of date stamps. -Ensuring that the relevant party provides explanation for the late payment. -Implementing controls in place to ensure that there are no duplicate payments. -Circular accompanied by “date received stamps” has been sent to Business Unit Heads. -BAS Report “Duplication of Payments” is checked & verified on weekly basis for any duplications made.

10. 10 Action plan for addressing deficienciesProgress to date Section 38 of the PFMA requires the accounting officer to implement effective, efficient and transparent systems of financial management. It was identified that approved and formalised policies were still not implemented for the following areas, which constituted non- compliance with the PFMA: -No overtime policy -Fraud prevention policy Review policies including the following: -Overtime policy -Fraud prevention policy -Overtime has been included as a subsection in the draft remuneration policy. -The Fraud Prevention Response Plan was submitted together with the Policy on Prevention of Corrupt Activities to the National Management Meeting (NMM) and was approved.

11. 11 NPA03/0404/0505/06Main Finding Donor funds 1.Foreign donors not received via RDP Account -EOM Donations from foreign donors were not received via the RDP fund as required by annexure A, paragraph 2.2 of the ODA guidelines (Official Development Assistance). Furthermore, a lack of monitoring of adherence to donor agreements has resulted in several instances of non- compliance with terms of donor agreements.

12. 12 Action plan for addressing deficienciesProgress to date Donations from foreign donors were not received via the RDP fund as required by annexure A, paragraph 2.2 of the ODA guidelines (Official Development Assistance). Furthermore, a lack of monitoring of adherence to donor agreements has resulted in several instances of non- compliance with terms of donor agreements. To implement the DOJCD’s business processes on Donor funding. DOJCD’s business processes, ODA Guidelines from NT & Vat Act were obtained and implemented. Ongoing process.. A circular was sent to all Business Unit heads to inform them about process to follow before and after donor funds are accepted.

13. 13 NPA03/0404/0505/06Main Finding Debt Management: 1.Persal not timely updated leading to management not able to forward monthly statements 2.Debtors’ files not always updated --EOM The lack of monitoring and reconciliation, debtors by management resulted in the following weaknesses: -PERSAL was not always timely and accurately updated with addresses of debtors, resulting in management being unable to forward monthly statements and recovering amounts due. -Debtors’ files were not always updated and were, in some cases, incomplete.

14. 14 Action plan for addressing deficienciesProgress to date The lack of monitoring and reconciliation, debtors by management resulted in the following weaknesses: -PERSAL was not always timely and accurately updated with addresses of debtors, resulting in management being unable to forward monthly statements and recovering amounts due. -Debtors’ files were not always updated and were, in some cases, incomplete. -Obtain debtors addresses from Risk & Security and update debtor’s files. -Debt files to be updated As at 18 January 2007, 2133 debts (out of 3523) have been verified and files are up to date. The remaining debts will be verified by end of February 2007. During March 2007, attention will be afforded to follow-ups, recoveries and preparation of the information for the annual financial statements.

15. 15 NPA03/0404/0505/06Main Finding Accountability and governance status of the NPA EOM Interim approval has been granted by the Accountant-General for the NPA to prepare its own set of financial statements from the 2002 financial year. No finality has been reached on the following critical matters, affecting the accountability and governance status of the NPA: -Clear definition of the duties of the accounting officer of the NPA -The listing of the NPA as an entity in terms of the PFMA -The mechanism of funding for the NPA

16. 16 Action plan for addressing deficienciesProgress to date Interim approval has been granted by the Accountant-General for the NPA to prepare its own set of financial statements from the 2002 financial year. No finality has been reached on the following critical matters, affecting the accountability and governance status of the NPA: -Clear definition of the duties of the accounting officer of the NPA -The listing of the NPA as an entity in terms of the PFMA -The mechanism of funding for the NPA Applications to be made for a listing of the NPA and the DSO A submission was forwarded to the previous Minister of Justice & Constitutional Development, recommending that the NPA be listed as a separate constitutional entity. The matter concerning the separate listing of the DSO as a schedule 3 entity, has also been taken up with the current Minister, but no final decisions have been reached in this regard. The NPA also reported this matter to National Treasury in terms of section 47(2) of the PFMA but no response has yet been received from them. It is however not entirely correct to state that there is uncertainty about accountability in the current arrangements. The DG of DOJ & CD finalized financial delegations for the NPA in April 2005. The CEO of the NPA is the appointed Accounting Officer for the DSO. The NPA follows the normal reporting requirements.

17. 17 NPA03/0404/0505/06Main Finding Performance Management Information --EOM -Non-establishment of procedures for quarterly reporting to the executive authority. -Inadequate quarterly reporting to the executive authority. -Objectives included in the performance information provided for audit purposes that could not be traced to objectives identified in the strategic plan. -Measures of actual performance not always included for all objectives in the performance information provided for audit purposes.

18. 18 Action plan for addressing deficienciesProgress to date 1. Non-establishment of procedures for quarterly reporting to the executive authority. Establish process and procedures for quarterly reporting to the executive authority There was indeed no formal procedure for quarterly reporting, and a formal procedure is being established with the DOJCD. However, all court related performance figures and targets were integrated with those of the DOJCD and these were updated jointly on monthly basis or even more regularly. In addition, the Executive Authority received regular personal briefings on all key matters from the NDPP. The NPA established its own internal process of formal quarterly performance reviews from April 2006, as well as a Performance Review Committee

19. 19 Action plan for addressing deficienciesProgress to date 2. Inadequate quarterly reporting to the executive authority. Enhance quality of quarterly reporting to the executive authority As indicated above, there was ongoing and regular reporting on court related performance figures and all key matters. The NPA has put a new rigorous reporting system in place that will enable much higher quality of quarterly reporting to the Executive Authority: –Standard template for drafting of business plans, including objectives, deadlines, measures and targets for all activities in plans –Standard template for progress reporting against business plans –Requires reporting on risks, operational statistics, highlights, challenges, verifiable evidence of deliverables and outputs achieved, budget expenditure –Quarterly reviews by Business Unit’s, Performance Review Committee, Executive Committee

20. 20 Action plan for addressing deficienciesProgress to date 3. Objectives included in the performance information provided for audit purposes that could not be traced to objectives identified in the strategic plan Demonstrate alignment between strategic plan, business plans, and annual reporting NPA was in period of transition during the development of its new Strategy 2020 which was adopted Feb 2006 and presented to Parliament in May 2006. During the transition, the previous strategic objectives were adapted to reflect aspects of the emerging new strategy. However, not all performance information was fully aligned to adapted strategic objectives as these were likely to change in the new Strategy 2020, and indeed did change. Strategy 2020 and performance indicators are now aligned, but the actual measurement of some indicators is still being developed

21. 21 Action plan for addressing deficienciesProgress to date 4. Measures of actual performance not always included for all objectives in the performance information provided for audit purposes Define measures for all objectivesMeasures and targets have been identified for new set of strategic objectives and the business plans’ objectives/deliverables and activities related to the strategic objectives As indicated above, the actual measurement of some indicators is still being developed These measures and targets are continuously being refined as part of strategy and business plan review process

22. 22 Area03/0404/0505/06Comment Financial Management Non-compliance with Treasury Regulations and PFMA: -Rentworks contract (16A6.4) -Insurance on hired vehicles exceeding R250 000 -No prior approval of an authorised or delegated official prior incurring expenditure -Payments to creditors made after 30 days -No overtime and fraud prevention policies Donor Funding Debt Management: –Persal not always timely updated resulting in management being unable to forward monthly statements –Debtors’ files not always updated and in some cases incomplete ------------------ - EOM EOM- EOM EOM- EOM New Matter Resolved in 06/07

23. 23 Area03/0404/0505/06Comment Accountability and governance status of the NPA: –Clear definition of the duties of the accounting officer of the NPA –The listing of the NPA as an entity in terms of the PFMA –The mechanism of funding for the NPA EOM EOM- EOM EOM - EOM Unresolved