1. Finance & Human Resources Presentation to the Portfolio Committee on Economic Development 16 October 2014

2. Overview Overall Performance LevelNumber of KPIs Total Number of KPIs38 KPIs with Targets exceeded11 KPIs with Targets met26 KPIs with Targets under-achieved1 2 EDD delivered effectively on the 206 core business KPIs and in relation to the 22 Administrative targets, we under-achieved on 1. The Department is able to resource the core business for delivery on the APP. There is room for improvement in the demand planning and recruitment of staff. The management systems of the Department are settling. Improved stability of staffing will enhance this. Governance is improving through risk management, internal audit, ICT governance, security management and the system of management; and the audit committee oversight support. In response to the AG queries on performance information, a comprehensive review was undertake. This information was resubmitted and accepted by the AG.

3. Financial Performance 3 For the year under review the department spent 99.99% of the allocated budget as compared to 96.7% in 2012/13. Under-spending has reduced from 3.3% to 0.01% in 2013/14 (see Table on slide 5). This constitutes a reduction of 3.29% ( see slide 5). In slide 7, there is a variance of -100%; this is just an indication that in the previous year there was a transfer and in this year there was no transfer to universities and technikons.

4. Financial Performance per Programme 4 Programmes 2013/142012/13 Annual Budget ExpensesVariance Annual Budget ExpensesVariance R'000 % % Administration91 34291 301410.04%62 93155 3947 53712% Economic Policy Development23 89123 88650.02%19 19711 5757 62239.7% Economic Planning and Coordination644 515644 51140%601 824597 5234 3010.7% Economic Development and Dialogue11 71811 697210.18%12 5658 9813 58428.5% Total771 466 771 395710.01%696 518 673 47323 0453.3%

5. Year on Year Performance per Programme 5 Programmes2013/142012/13Variance Administration99.96%88.0% 11.96% Economic Policy Development99.98%60.3% 39.68% Economic Planning and Coordination100.0%99.3% 0.70% Economic Development and Dialogue99.82%71.5% 28.32% Total99.99%96.7% 3.29% Total (R’000) 771 395 673 47397 922

6. Financial Performance per Economic Classification 6 Programmes 2013/142012/13 Annual Budget ExpensesVariance Annual Budget ExpensesVariance R'000 % % Compensation70 94870 922260.04%70 39962 0748 32511.8% Goods & services66 27766 239380.06%69 56258 54411 01815.8% Departmental Agencies273 603 00%249 220 0 0% Universities & Technikons0000%12 280 00% Public Corporations353 979 00%289 328289 3271% Households49949540.8%22322210.4% Machinery & equipment6 1606 15730.05%5 5061 8063 70032.8% Totals 771 466 771 395 710.01% 696 518 673 473 23 0453.3%

7. Financial Performance per Economic Classification 7 Programmes2013/142012/13Variance Compensation of Employees99.96%88.2%11.76% Goods & services99.94%84.2%15.74% Departmental Agencies100.0%100 %0% Universities & Technikons0%100 %-100% Public Corporations100.0%100%0% Households99.20%99.6%-0.4% Machinery & equipment99.95%32.8%67.15% Totals99.99%96.7%3.29%

8. Compensation of Employees’ baseline allocation is for 166 posts. The targeted number as per the approved APP2013/14 was 146. In the Adjusted ENE, EDD did a straightline projection based on historical spending for the first 5 months of the year and projected for the remainder of the 7 months on a number of posts. Savings realised in compensation of employees was utilised to absorb: o Increased office space (Block G): R7.5 million o Increased legal fees: R6.7 million o The PICC publicity campaign: R19.1 million o The Video Conference facility: R 456 thousand o Budget cuts to sefa’s economic competitiveness funding by R50 million: R15 million. Unlike in 2012/13, the department did not receive any unsolicited additional funding in the Adjusted Estimates of National Expenditure (AENE) Spending for the 2012/13 financial year was hampered by the additional funding received to develop capacity for the Economic Regulatory Bodies (ERBs) during the AENE and could not be implemented on time. Improvement of spending Year on Year 8

9. KPIs Total Number of KPIs38 KPI’s with targets exceeded11 KPI’s with targets met26 KPI’s with targets under-achieved1 Overall Performance for 2013/14 9 R’000 Budget771 466 Expenditure771 395 Under spending71 Post numbers funded 166 Post numbers (APP target)146 Staff employed139

10. KPIs Total Number of KPIs 5 KPIs with targets Exceeded 1 KPI’s with targets met 3 KPI’s with targets under-achieved 1 Performance for the 2013/14 - Programme 1 10 R’000 Budget91 342 Expenditure91 301 Under spending41 Funded Post numbers 77 Staff employed 73

11. KPIs Total Number of KPIs 11 KPIs with targets Exceeded 3 KPI’s with targets met 8 KPI’s with targets under-achieved 0 Performance for the 2013/14 - Programme 2 11 R’000 Budget23 891 Expenditure23 886 Under spending5 Funded Post numbers 24 Staff employed 18

12. KPIs Total Number of KPIs 14 KPIs with targets Exceeded 6 KPI’s with targets met 8 KPI’s with targets under-achieved 0 Performance for the 2013/14 – Programme 3 12 R’000 Budget644 515 Expenditure644 511 Under spending4 Funded Post numbers 49 Staff employed 31

13. KPIs Total Number of KPIs 8 KPIs with targets Exceeded 1 KPI’s with targets met 7 KPI’s with targets under-achieved 0 Performance for the 2013/14 – Programme 4 13 R’000 Budget11 718 Expenditure11 697 Under spending21 Funded Post numbers 16 Staff employed 14

14. Transfers to Entities 14 Description 2013/142012/13 R'000 Industrial Development Corporation108 000109 000 Industrial Development Corporation: Sefa245 979171 330 Competition Commission 176 888 157 211 Competition Tribunal 16 945 15 798 International Trade Administration 79 770 74 403 Total 627 582 527 742 1. The additional R15 million transferred to sefa for the budget shortfall of the 2014/15 ECSP allocation is included in the above figure.

15. Revenue Performance 15 Description 2013/142012/13 R'000 Sales of goods and services other than capital assets 23 21 Fines, penalties and forfeits 1 037 454 617 344 Interest, dividends and rent on land 50 229 50 106 Transactions in financial assets and liabilities 9 836 1 191 Total 1 097 542 668 662 Revenue collection increased from R669 m to R1.1b and this was largely due to the increase in fines and penalties imposed by the Competition Commission. 1.Fines, penalties & forfeits are imposed by the Competition Commission and confirmed by the Competition Tribunal. 2.Interest is earned from the Commercial bank 3.Dividends are received from Industrial Development Corporation

16. Employment and vacancies by programme as at 31 st March 2014 Note: additional comments on this table on the Annual Report ( page 77, table 3.2.1 ) Employment and vacancies by programme as at 31 st March 2014 Note: additional comments on this table on the Annual Report ( page 77, table 3.2.1 ) Human Resource Management 16 ProgrammeNumber of posts on approved establishment Number of posts filled Vacancy rate against approved establishment Number of employees additional to the establishment Vacancy rate against APP target Administration77735.48%3 Economic Policy Development 241833.33%0 Economic Planning Coordination 493158.06%0 Economic Development and Social Dialogue 161414.29%0 Total 16613622.06%35.04%

17. EDD’s mandate requires relatively little routine administration and requires high-level professionals and managers to analyse economic developments, propose sustainable and practical responses, to work constructively with stakeholders inside and outside the state, and to oversee and support major regulatory and development finance institutions. EDD’s approved post establishment is funded over the MTEF to 166 posts. Parliament endorsed the APP for 2013/4 with a target for staffing of 146 – set to allow the Department time to source high-quality staff each year and to progressively achieve its full approved post establishment over a three-year period. As at the end of March 2014, the staff complement of the department was at 139 officials, which was 4.8% short of the departmental annual target of 146 at the end of the 2013/14 financial year. In the Adjusted ENE, Finance did a straight-line projection based on historical spending for the first 5 months of the year and projected for the remainder of the 7 months not on a number of posts given that a restructuring process was being considered. Achieving the 146 target faced challenges. – Caution was exercised in filling senior posts, given the department’s need for some restructuring. – Decision to only fill high priority posts in the last quarter in order to achieve savings so as to improve funding for sefa. – The shortage of skills in the market impacted on the filling of posts. The line functions of the department are dominated by very high-level professionals and managers with relatively scarce skills such as economics and spatial planning that cannot be filled overnight. Department has been engaged in a process of identifying the right people for the job. Ensuring Appropriate Human Resources 17

18. To help deal with these challenges, EDD utilised staff provided by other agencies for the PICC work. – Currently, about 70 people across the government assist the EDD in overseeing and supporting the build programme. This approach has mobilised expertise from all spheres of the state. It is a very helpful arrangement, but it is not sustainable. In future, the EDD will have to bear some of the staff requirements on its own budget structure. – The EDD was also able to secure short-term secondments of staff from the Independent Development Trust (IDT) and sefa for special projects, and from other departments for activities requiring specific skills. Although the Department only filled 139 of the targeted posts, it was able to realise its mandate effectively in each of its core areas of work. Since the staffing model relies on both short-term contract employees and secondments as well as permanent positions, the turnover rate is unusual compared to departments that are able to rely more on permanent staff. Going forward, the EDD will focus on filling the remaining managerial and professional positions. Senior expert positions that are advertised will be subject to a simultaneous headhunting process. There will be care taken to create a balance between recruiting and appointing quality staff. EDD made considerable progress in terms of organisational development over the past year. This lays the basis for EDD to fulfil its increased responsibilities under the new MTSF adopted by the in-coming fifth Administration. Ensuring Appropriate Human Resources cont’d 18

19. The department has been doing well on the Management Performance Assessment Tool, with scores showing an upward trend from the 2011/12 assessment period to the 2013/14 assessment period. This is a demonstration of departmental governance structures, policies and system s that have been put into place to make sure that the department achieves its strategic objective goals. Management Performance Assessment Tool 19 KPA2011/122012/132013/14 1. Strategic Management2,73,0 2. Governance and Accountability2,21,62,5 3. Employees, Systems and Processes1,71,82,2 4. Financial Management2,33,02,1 Average scores2,22,42,6 Financial Management: a disposal committee had not been appointed and not paying some invoices within 30 days. The disposal committee has since been established and consequence management for non compliance.

20. Auditor–General Report 20 Audit Outcome  The department obtained an unqualified audit report  One emphasis of matter relating to the incorrect accounting of departmental revenue, according to Par 7 of the Modified Cash Standards, which requires that revenue collected by the Competition Commission but paid to the National Revenue Fund through EDD not to be disclosed by the Department as it does not directly relate to EDD’s operations.  The department obtained approval from National Treasury (Office of the Accountant General (OAG)) to depart from par 7 of the Modified Cash Standard.  OAG has also promised to review the standard as this contradicts the MTEF/ENE process that requires revenue collected by entities to be projected by the Departments

21. Outcomes of Auditor–General Report 21 The management report issued by the Auditor-General for the 2013/14 financial year reflected 41 findings compared to 70 findings in the 2012/13 financial year, of which 16 were repeat findings from the 2012/13 financial year:  46% (i.e. 19)of the findings relate to Human Resources Management  27% (i.e. 11) of these findings relate to Financial Accounting (7) and Supply Chain Management (4)  The remainder 27% (i.e 11) relate to Planning (3), Information Technology (2), Management Accounting (1), and Internal Audit (1), Financial Accounting and Management (1), Financial Accounting and Human Resources (2), OCFO and Financial Accounting (1).

22. Outcomes of Auditor–General Report 22 Area of responsibility No. of Findings % Matters Affecting the Audit % Internal Audit12%0% Management Accounting12% 0% Financial and Management Accounts12% 0% OCFO and Financial Accounting12% 1 33.3% Information Technology25% Planning37% 0% Financial Accounts & Human Resources37% Supply Chain Management 4 10% Financial Accounting 7 17% 2 66.7% Human Resources Management 19 44% Totals 41 100%3

23. The area with the high number of findings is Human Resources Management with 19 findings and 10 repeat findings from 2012/13 financial year. The turn over of leadership in Corporate Management and HRM has impacted negatively on business continuity in addressing audit findings, while middle management staff have neglected to drive the correction. This will be investigated. The Heatmap Process will pay special attention to the repeat audit findings 23 Outcomes of Auditor–General Report FINDING NO OF REPEATS Status of implementation of previous year(s) recommendation Employee verification not performed2Not addressed HR Oversight report1Not addressed Leave balances misstated2Not addressed Leave not captured on time3In progress Overtime not approved in advance2Not addressed Overtime allowance incorrectly calculated1Not addressed High vacancy rate3In progress Vacant SMS posts not advertised3In progress No job descriptions for new appointments3Not addressed Performance agreements for the 2013/14 period signed after 31 May 2013 2Not addressed SMS members without performance agreement2Not addressed

24. Auditor–General Report 24 Material misstatements in the annual financial statements (AFS) o Areas: Disclosure notes (3 areas) Receivables: error in capturing a sub note in the word version of the AFS Accruals: a claim received from the Department of Justice for a service rendered in March 2014 not recognised in the AFS Asset disclosure note: Inconsistencies in the layout of the asset comparative disclosure note o Remedies EDD already compiles monthly disclosure notes with the detailed working file and relevant supporting documents Legal services is now required to ensure that all services sourced via the Dept. of Justice are recorded with SCM as commitments/accruals The current method is being implemented as directed in the guide, the OAG has been contacted to provide a consistent template.

25. Increased from R61 thousand to R592 thousand Root causes –Consultant appointed without a tax clearance certificate –Consultant engaged with a certified copy of the tax clearance certificate –Consultant engaged in periods where tax clearance was not provided –Verification of officials details using a service provider whose term had lapsed –Engaging a service provider without following SCM processes –Overtime worked without prior approval –Overtime paid in exceeds 30% monthly basic salary –Acting allowance paid beyond the permitted timeframe Controls implemented –Only original tax clearance certificates are accepted from potential service providers –Tax clearance certificates are verified before payments are effected –All procurement is initiated at SCM –SMS members acting longer than 6 months will not be paid –Transactions will not be processed for overtime not pre approved. Irregular expenditure 25

26.  A consolidated ‘heatmap’ to rectify the audit findings has been compiled, which reflects responsible persons and timeframes to rectify each finding  In the Heatmap process, specific attention is given to the priority areas of the AG findings such as performance information but most importantly to repeat findings around human resource management matters  ‘Heatmap’ mitigation plans are being monitored every second Friday at the progress meetings, attended by the process owners & chaired by the CFO. Internal Audit attends these meetings and will audit the corrective measures that have been implemented as part of the audit coverage plan  Progress reports on the implementation of corrective measures are presented to the Audit Committee, Executive Authority, DG and EXCO. Commitments on addressing Audit Issues 26

27. The new APP and the identification of clear outputs for delivery in 2014/15 will build on this and lead to a more focused use of resources of the Department to impact on economic development. Improved quality control over quarterly reporting and submission of evidence in support of quarterly reporting has been put in place Alignment of budget programme structure with the revised strategic outcomes has been effected and will be visible in the 2015 ENE, Strategic Plan and Annual Performance Plan (APP) Review of the organisational structure is at an advanced stage EDD is in the process of implementing a human resource management turn-around strategy as well as addressing the audit findings On going work on monitoring controls – heatmap Conclusion 27

28. 28 THANK YOU SIYABONGA