PRESENTATION OF THE AUDITOR-GENERAL TO THE PORTFOLIO COMMITTEE

Transcription

1 PRESENTATION OF THE AUDITOR-GENERAL TO THE PORTFOLIO COMMITTEE ON A PERFORMANCE AUDIT OF THE USE OF CONSULTANTS AT THE DEPARTMENT OF RURAL DEVELOPMENT AND LAND REFORM FEBRUARY

2 Reputation promise/mission 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. 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 Performance audit at a glance Why a performance audit on the use of consultants by government 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 How do performance audits differ from other audits? Focus on performance the three Es Focus on finances Economy Financial statements Efficiency Effectiveness Performance auditing vs Regularity auditing Financial management Accounts true and fair Done when problems are Done annually identified 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 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 20% of national departments represent 74% of the total national expenditure on consultants over the 3 years 6

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

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

9 Department of Rural Development and Land Reform R'million Total expenditure on consultants ( to ) R1,008 billion Number of projects audited 13 Value of projects audited R305,4 million Average vacancy rate ( to ) 12,55% 300 Total expenditure per year at Rural Development and Land Reform Agency and support/ outsourced services 150 Consultants 100 Contractors 50 External computer service providers

10 Audit findings Consultant Contractor External computer service providers 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 DEPARTMENT OF RURAL DEVELOPMENT AND LAND REFORM Classification Areas where deficiencies were identified during the audit E affected Consultants per contract audited Best available value of contracts Period of the contract / service Skills audit and HR re-engineering PWC/Hapiloe & Associates (Re-engineering) Dec Feb Sithole Human Capital Consortium (Skills audit) Dec June 2008 Outsourcing of HR recruitment Umhlaba Consortium Nov Nov 2009 Valuations Various contractors to Development of state land leasing debtor system AfriGIS Dec May 2010 Information and communication technology support services HR Computek ICT Support Services Aug Mar 2010 Establishment of a project management office Mpande Technologies Jun Mar

11 Audit findings (continued) Consultant Contractor External computer service providers 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 DEPARTMENT OF RURAL DEVELOPMENT AND LAND REFORM Classification Areas where deficiencies were identified during the audit E affected Consultants per contract audited Best available value of contracts Period of the contract / service Development of claim validation and monitoring system Bula Solutions (Developer) Nov Jan Gijima Ast Holdings (Trainer) Jan Oct Time Quantum (Quality assurer) Jan May 2008 Kgolaganyo project (Public Private Partnership) * SPP Projects (Transaction advisors) Apr Sep JP Labuschagne (Project officer) Mar Sep 2010 Internal audit* Various contractors Various dates 2007/09 to 2008/09 Total * Due to the non-material nature of the findings the consultant was not included in the public report 11

12 Variations per contract Project/ consultant Skills audit and HR reengineering Sithole Human Capital Consortium (Skills audit) Outsourcing of HR recruitment Umhlaba Consortium Information and communication technology support services HR Computek ICT Support Services Development of claim validation and monitoring system a) Bula Solutions (Developer) b) Gijima Ast Holdings (Trainer) c) Time Quantum (Quality assurer) d) Additional resources Original amount of contract R10,1m R28,8m (2 year) R27,3m Original: R6,9m a) R b) R c) R d) No original contract Variation amount R (VO) Plus Ext of R a) R21,7 m extension b) Escalation cost of R19,9m increased the R28,8m to R48,7m 3 extensions: a) R22,8m b) R5,7m c) R5,7m Extensions: R2,3m a) Extension of contract by R b) Extension of contract R c) Extension of contract of R Additional: R5,8m d) R5,8m additional to original project from other service providers Compliance with procurement policy Yes a) Yes b) Yes a) Yes b) Yes c) Yes a) Yes b) Yes c) Yes d) Yes Comments The scope was changed (reduced and extended) during the project as a result of the re-engineering report. The number of job profiles had to be extended from 169 to 918 a) Capacity was not created before the contract lapsed. The departmental bid committee approved the extension. b) No ceiling amount specified in the contract approved by the departmental bid committee. The DG approved the extensions. Alternatives were not considered. No comparison found of appointing staff as to appointing a service provider. The last extension was 67% more per month than when the contract started in a) Scope change to incorporate changes in the development. b) Reasons for extension not found on the SCM file. c) Due to the control being time based and not product based, the contract was extended as the development took longer than anticipated. d) The project plan was incomplete and required additional resources to mitigate the risk of not being able to implement the system. 12

13 Contract specific challenges Skills audit and HR re-engineering project PwC/Hapiloe & Associates and Sithole Human Capital Consortium R19,9m Outsourcing of HR recruitment Umhlaba Consortium R50,5m Valuation services Various valuators R77,9m to Project not coordinated due to turnover of managers at the department HR process outsourced due to lack of internal capacity and inefficient internal processes Management information not compiled on the cost of valuation of properties Project took 5 years to complete due to delayed approval of HR plan Project expenditure escalated by R19,9m due to no cost limitation Invoices paid lacked detail and supporting evidence Contract was extended for another year at R21,7m as capacity was not established in a timely manner Intense scrutiny of strategic plans and accountability reports Activities should be monitored quarterly Follow up on corrective action against action plans 13

14 Contract specific challenges Development of state land leasing debtor system AfriGIS R3,5m Complete system not in place despite the need being identified in 2001 and consultants being appointed for full system development Information and communication technology support services HR Computek ICT Support Services R61,5m Cost/benefit analysis of outsourcing as opposed to appointment of staff was not done Establishment of a project management office Mpande Technologies R1,4m Cost alternatives were not considered and additional consultants performed general administration tasks Development of claim validation and monitoring system Bula Solutions, Gijima Ast Holdings and Time Quantum R9,2m Project plan was signed off despite it being incomplete Hosting and license fees of R1,9 paid although financial module of the system not used No contracts for project managers detailing objectives, responsibilities and deliverables Consultant was not the lowest bidder Cost overruns identified Increased rate charged Additional resources of R5,8m was required to mitigate the risk of not being able to implement the system Intense scrutiny of strategic plans and accountability reports Activities should be monitored quarterly R27,3m contract extended 3 times at a cost of R34,2m due to lack of internal capacity Follow up on corrective action against action plans 14

15 Key recommendations: how government can remedy the current situation Compliance with legal frameworks, laws, regulations and policies Improved planning for the use of consultants Manage and monitor performance Compile and implement policy on acquisition and management of consultants Create sufficient internal capacity Value for money from the use of consultants Training and transfer of skills Extend contracts for valid reasons only Investigate possible fruitless and wasteful expenditure Learn from the past, apply in the future 15

16 Combined assurance: extensive assurance needed at all levels Management assurance First level of assurance Oversight assurance Second level of assurance Independent assurance Third level of assurance Senior management Accounting officers/ authority Executive authority Coordinating / Monitoring institutions Internal audit Audit committee Oversight (portfolio committees / councils) Public accounts committee External audit Required assurance levels Required assurance levels Required assurance levels Extensive Extensive 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 Extensive Extensive Extensive 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 Extensive Extensive Extensive 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 16

17 Commitment to action needed Minister Audited department Portfolio Committee National Treasury Better value for money when using consultants Department of Public Service and Administration 17

18 Commitment given Audited department and Minister HR related matters: - DPSA accredited service providers to conduct competency assessments - SAQA to verify educational qualifications - Internal security directorate to deal with pre-employment screening Valuations: - Analysing the use of valuators in the department Information Technology: - Build own capacity on all skills levels Portfolio Committee The Honourable Stone Sizani mentioned that the department is considering establishing a valuators office 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 Better value for money when using consultants 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 18

19 It takes two to tango: the private sector also needs to come to the party The creation of citizen value is enhanced through a balanced partnership equation A critical part of this equation Public sector + Private = sector Enhanced citizen value 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 19

20 Thank You 20