Payment of invoices within 30 days: input by Departments of Defence and Military Veterans, Justice and Constitutional Development & Correctional Services on; Oversight Report on visit to Mpumalanga and Limpopo

Meeting report

Briefing by Department of Defence and Military Veterans
Dr Sam Gulube, Secretary of Defence, said that as the accounting officer, he had made the payment of invoices within 30 days a priority and had established a supplier payment forum which met monthly.  He made himself available for contact directly should suppliers be too afraid to raise the payment issue for fear of victimisation.

The Department had categorised where they were facing difficulties. The biggest issue was medical payments, which accounted for 30% of non-payments. The South African National Defence Force (SANDF) had only three military hospitals, and thus outsourced to service providers and doctors where access to military hospitals was not possible. Doctors and service providers did not provide complete or accurate information and certificates, which led to late payments.  Legacy ICT challenges accounted for 20% of non-payments. The army, air force and navy all had different ICT systems which did not talk to each other. Lack of knowledgeable personnel, vacancies and administrative processes, each accounted for 10% of non-payments.  There were only two procurement centres, Pretoria and Simonstown, and the vacancy rate was high because of a high turnover of staff and a consequent loss of knowledge.  The administrative process component was mainly a case of human error. Receipt vouchers, incomplete supplier details, disputes with suppliers and availability of funds after delivery, each accounted for 5% of non-payments. Receipt vouchers were vouchers personnel had to sign to confirm that they had indeed received specified services. Incomplete supplier details were mainly tax clearance certificates not accompanying claims from doctors. Decentralised financial authorities within the Department were limited in the amount that they could spend, and were not authorised to spend beyond that limit. The personnel’s lack of knowledge was because supply chain management had become a specialised field. The Department had to process 23 000 payments a month via the two centres. Of a total of R60m invoiced last month, R52m had been paid within 30 days

Dr Gulube then moved on to the action plan. The Department would identify the expertise needed and develop retention plans to keep staff. They would be setting up structures to allow staff to be recognised as specialist trained personnel, as currently they were not part of a specified structure. There was currently a moratorium on new structures until the defence review was completed.  The human resource budget from Treasury was R950m short. When the previous defence review had been done, it had not been foreseen that the SANDF would be safeguarding borders and taking part in peacekeeping missions in Africa, and the navy patrolling in anti-piracy operations in the Indian Ocean.

The ICT systems were outdated and the Department was working with Treasury to ensure that invoices were registered on the financial management system, and that the invoices and payments could be traced. The target was to ensure total compliance on the e-system by March 2015. The Department was doing training on the capture of data on to the system. The lengthy paper-based process would be addressed in the medium term by a shift to an e-procurement system. The final point on this matter was that Treasury should not record suppliers that had not been paid because there was a dispute.

On administrative processes, he said tax certificates would be requested with price quotations. Orders would not be processed until all the paperwork was finalised.  Staff who were not performing would be identified, and disciplinary action would be implemented. He concluded by saying that the Department had specific action plans which would be tracked on a quarterly basis.

Mr Tsepe Motumi, Director General of the Department of Military Veterans (DMV), said that the DMV had started only in April 2013 and so to all intents and purposes, what the Secretary of Defence had said applied to the DMV as well.

Discussion
Mr M Swart (DA) said the Department was in breach of the PFMA and needed to correct matters urgently, as this was adversely affecting Small Medium and Micro Enterprises (SMMEs). He suggested that the Department be called back to see what progress had been made.

Mr L Ramatlakane (COPE) said the wording of the presentation slides created doubt that there would be full compliance. Whose responsibility was it to ensure that the action plans were implemented? Could the Department quantify the amount that had not been paid?

Mr S Esau (DA) asked what consequences any officials in the Department had faced. What was the reason for the high staff turnover?  Vacancies could not be used as an excuse, as they were funded posts which had to be filled. What interest was charged and paid on outstanding accounts? How many companies had been liquidated because they had had to be closed down?  Why was there an inadequate budget when there was a budget review and adjustment process?  The 15% non-payment needed to be accompanied by an exception report and details of what steps were being taken to address the issue.  Some staff were just lazy, and medical payments needed to be well managed, as abuse was rife in an environment of chaos.

Mr J Gelderblom ((ANC) wanted stronger action, and a time frame to accompany the action plans.

Ms A Mfulo (ANC) wanted to know Treasury’s view, given the changed operational circumstances of the Defence Force and defence policy since the last review in 1998. Doctors should be included on the database so that all their paperwork would already be complete. She asked whether one had to be a soldier to do procurement.  Why were outside people not employed?  Could disabled former soldiers not be trained to do the job?  Staff should have daily service delivery targets. What actions followed the monthly suppliers’ forum meetings?   The senior managers of the Department should look at the results of the Management Performance Assessment Tool (MPAT) report.

Dr Gulube said they would add timeframes to their action plans, and contact the Committee timeously. He said they would be engaging with management on the MPAT tool the coming Monday.

The Chairperson said staff should be clear about their responsibilities and be held accountable for what they were doing or not doing.

Briefing by Department of Justice and Constitutional Development
The Chairperson said that the people who appeared before the justice system were those who had breached the law. Treasury and the Department of Performance Monitoring and Evaluation had regularly raised the issue of people not being paid timeously. He asked what the Department was doing about this.

Ms Nonkululeko Sindane, Acting DG, Department of Justice and Constitutional Development, said that the Department had prioritised the issue and was proud of the steps it had taken. It had done an analysis which had identified challenges. One challenge was that the organisation was spread out across the country, and that it needed to build capacity within the organisation. The second was that the organisation was a decentralised model, with limited financial management capacity. In 2010, there had been no capacity in finance geared specifically to address issues. For over five years, it had operated using the services of consultants. It had formed a credit management unit, filled positions and as from 1 October would have a CFO -- a post which it had never had before. The Department was using its own imperfect computer system, not the government system, but would be introducing a web-based system to increase control. It had moved significantly from very slow payments, because it had analysed why payments were not happening quickly. It was grateful for Treasury’s support, with accruals standing at a level of R680m because of budget cuts.   They had worked hard to cut down on accruals

Areas that were challenging for the Department were security services, which were not growing as fast as the organisation. For five years, there had been significant under-funding for this budget item. The second one was that of cost escalations, which ran at 10-15%, but where only 5-6% funding was provided. A further challenge was the large number of invoices for expenditure on sheriff services, transcripts and the library services, without which courts could not operate. The Department’s business model was different from the Treasury or the DPME, and they wanted a model which was decentralised to allow payment of invoices where there were no issues, and a centralised account function for those invoices with issues (for example, if a VAT certificate lapsed in the process of payment).  Provisioning for rates and taxes had not caught up with current rates and taxes. It had tried to prioritise SMMEs and delayed payments, for example, to the Department of Public Works.

She said that the Department had a plan for getting results, but the plan was not getting there quick enough.

Mr Johan Johnson, Acting Chief Finance Officer (CFO), Department of Justice and Constitutional Development, said that in the last 13 months, 89.6% of payments had been made within 30 days.  In August, it had been 92% and the Department was working towards a target of 95%.

Discussion
Mr Swart said it was clear that the Department recognised the problem, and was doing something about it.

The Chairperson asked Treasury for comment on the impact of the budget on the Department’s operations.

An official from Treasury said that they received information from departments on a monthly basis, and prepared a bi-monthly report to the Director Generals Forum. Treasury played an administrative role in the preparation of the Department’s budget, but final approval was given by Parliament. He confirmed that the Department had made a significant improvement in the payment of invoices.

Dr S van Dyk (DA) said he was wary of budgets that were 99.99% spent, as was claimed by the Department.

Ms Mfulo asked why the Department did not have internal security staff, instead of outsourcing the function. What was the Department doing when people did not comply?  Why were unfunded priorities not part of the budget?  The cost escalations of municipal rates and taxes could not be used as an excuse.  Why was the Department under-budgeted.

Ms Sindane replied that they were working to get the sheriffs’ industry to become compliant. They were working hard to prevent irregular expenditure.

They had chosen the outsourced model because the transcription service had not been as big then as it was currently, where transcription services were required on a daily and hourly basis. It would be impossible to have all of them working for the Department, and therefore they had outsourced this operation. In other cases, outsourcing had been chosen to buy the Department time to establish its own capacity. In the case of sheriffs, it had been outsourced because of the fidelity fund certificate requirement. Legislation defined how the sheriffs operated. There were exceptions where the Department took on the role of sheriff when,for example, there was no sheriff in that particular area. She said outsourcing was not done on a wholesale basis, and the Department looked for opportunities to save money.

Regarding security services, she said that in 2011 till the current date, the Department had been in talks with the SAPS and the defence force to supply services to the Department. They had looked at what was strategic, and what was not, at the stage where contracts had been adopted and agreed to.

Briefing by Department of Correctional Services
Ms Nontsikelelo Jolingana, Acting Commissioner, Department of Correctional Services, said the total budget of the Department was R18bn, and it had reduced non-compliance for payments within 30 days, to an amount of around R4m, which they felt was a great achievement. The presentation would highlight where the Department has come from, and some of the challenges it faced.

The Acting CFO, Ms Nandi Mareka, said that the Department was monitoring payments to ensure compliance.  The Department was decentralised and provided reports which contained reasons why they had not complied with the 30-day standard for payment. It had a framework where all units had to have monthly meetings to assist in monitoring expenditure and ensuring payments. The Department had ordered that sundry payments be paid within seven days of receipt of all documentation. This requirement had been met, and had been further reduced to two days. The Department had made arrangements to use SITA computer programs when the organisation’s own BAS computer program was slow. The Logis computer programme had also been shut down for ten days at year end. Treasury did not always have a solution for the slowness of BAS and LOGIS. She said it was important to note that the thirty days was calculated from the date of receipt of the invoice, not the date on the invoice.  Delays were caused by suppliers not providing all the information needed or when full delivery had not been completed. In many instances, medical suppliers of services gave insufficient details. The current status of payments for 2013/14 could be found on slide 4 of the presentation. It reflected that the number of payments made after 30 days had decreased from 1 869 to 386 between May and August 2013, representing a drop from 12.68% to 2.66%.

Discussion
Ms M Phaliso (ANC) said that the Committee needed to encourage the Department to improve and to educate the suppliers on the relevant requirements.

Ms R Mashigo (ANC) said that 2% of R18b was a lot of money which was not being paid to SMMEs.

Ms Mfulo asked what the Department was doing about the BAS computer programme which was so slow. What was the Department's plan to overcome the problem of sundry payments?

Dr Van Dyk asked if the Department could indicate whether the May payments were instances of roll-overs from the previous financial year

Ms Jolingana said the first slide indicated what they were doing to pay suppliers within 30 days. The rejection by the system was because of small issues, or incorrect or inaccurate information. She said the 2.6% was an amount of R4.3m.

Ms Mareka said they did not issue notifications to suppliers to provide them with invoices. They had not held back money for fear of overpayment or unauthorised expenditure

Ms Mashigo asked whether the internal capacity of the Department was properly qualified to assist with supply chain procurement.

Ms Mareka said that there were different thresholds. Under R30 000, one did not have to ask for a tax clearance certificate.  A tax clearance certificate was required for fees between R30 000 and R500 000 and the supplier had to be in the data base. A certificate would be required only when they bid.  Tenders over R500 000 were open bid tenders, which required a tax clearance certificate.

When the computer systems were slow, the Department tested to see if the its system, or the national system, was the problem. If it was the national system, then they went to Treasury for assistance.

Oversight Report on Visit to Mpumalanga and Limpopo provinces
The Chairperson said that the purchase of land could be a challenge to the fulfilment of recommendation 5.1.1 of the report. He suggested that it be amended so that ‘detailed project plan’ be replaced with ‘progress report’.

Mr Ramatlakane said the land issue was covered under recommendation 5.1.5

After discussion, it was agreed to retain the original wording and add to recommendation 5.1.1 that the report would be made available by the end of October.

The amended oversight report was adopted.

The meeting was adjourned.