The focus of the financial management Performance Enhancement Programme (PEP) remains the attainment of a NAQ (No Audit Qualifications) status. The thrust of the last Vote Account audit report (02/03) was an "except for" qualification, resulting from significant old agency service debt, due by other State Departments, that can not be substantiated. This debt, held in suspense accounts, was reflected as an asset on the Balance Sheet. In agreement with National Treasury the Director General has agreed to a plan that will see the Department effecting a forced savings plan to fund the write off of bad legacy debts. In the Annual Financial Statements submitted to the Office of the Auditor-General at the end of May this year R68 million was written off against forced "savings" and R105m remains to be written off over the next two years. The clearance of this legacy matter will impact upon service delivery.

The current state of the Departmental personnel budget is not sound. The Court Services Business Unit personnel budget was under funded in the 03/04 financial year by R336 million or 26%. This under funding was financed by curtailing other expenditure and by not filling vacancies. The need to cross subsidise core business by effecting forced savings to fund the personnel budget shortfall at a court level together with the need to fund the legacy debt write-offs is of deep concern to the Department.

For the year to 31 March 2004 the Department had neither a surplus nor a deficit as the available "forced" savings were used to effect the write-offs mentioned above.

As mentioned in the last management report issued by the Director General, the improvement of the financial management capacity of the Department must be driven from the bottom up. This is being done through the implementation of a financial services franchise concept within Business Units by way of implementing a uniform standards manual. This process supports the Re Aga Boswa project ("We are re-building") under the auspices of the Court Services Business Unit. The Business Unit franchise concept transfers much of the responsibility for front line financial recordkeeping, budgetary accounting, budget formulation and execution to business units. It has recently been decided by the Director General to formally delegate defined responsibilities to business units to enable him and myself to meet our obligations as imposed by the PFMA and the National Treasury Regulations. These delegations will replace the previous Service Level Agreement approach in the areas of Transaction Processing (Vote Account, Monies in Trust, Donor Funds and Payroll matters).

The Management of Monies in Trust remains a critical matter and the Department is not able to draft a set of Financial Statements that we believe reflects the status of our indebtedness to the public. The manual records maintained at a court level have not been reconciled for many years and notwithstanding the significant improvement in current record keeping practices the opening balances remain, at best, suspect. The implementation of recommendations, targeted for 1 April 2005, is the only practical solution to this problem. The Department is engaged in a formal Public Private Partnership project under the guidance of the National Treasury PPP Unit to effect the recommendations. The MMT project is at the stage of finalising well research options with the National Treasury PPP unit. This stage is formally referred to as the TA 1 stage. The essence of the recommended option sees the appointment of receiving agents (conventional banks, retail stores, ATM’s etc.) to collect money on behalf of beneficiaries. These monies are proposed to be directed to payment agents (again banks, stores etc.) who pay the money to the beneficiaries. A free of bank charges option is to be available to beneficiaries as is the option to use own banking arrangements at own cost. Thus beneficiaries will be required to elect whether or not they want own services at own cost or arranged free services. Queries from the public are proposed to be dealt with by a national call centre that is informed by a database. The database is informed by information sent by all courts as well as by all receiving and payment agents. In terms of the proposed option, the call centre and database functionality is to be transferred back to the Department over time.

It is envisaged that all maintenance and other non-court bound transactions can be removed from the Cash Halls. As seen in the table below maintenance alone accounts for as much as 66% of all MMT transactions.

Maintenance is a priority focus of the MMT project.

• A Maintenance-centric solution would have a profound socio-economic impact;
• These transactions are recurring in nature (monthly) and are most suitable (of all MMT transactions) for end-to-end automation utilising the expanded national footprint that currently exists within the private sector; and
• The utilisation of this financial service footprint would provide secure payment channels and thus address the current high risk profile attached to the receipt and payment of monies held in trust thereby improving "service delivery in line with "Batho Pele".

The recommended solution contemplates the outsourcing of all the financial aspects of Maintenance, including payment, processing, records management and disbursement. The management of all non-court bound trust monies, such as bail and court imposed fines, remain with the DoJ&CD to be managed by the JDAS system that will need to be rolled out to all courts.

Critical to the success of this option would be the link between the Data Management Agency and the courts. Courts would have to complete "new case" information on standard templates and electronically submit the information to the Data Management Agency for input into the Maintenance database. The courts would receive via the same channels data on non-payment cases, on a case-by-case basis (non-performance statistics etc.), for follow up and enforcement. The existence of a reliable network is thus critical to the success of the project.

The volumes and values of the Monies in Trust transaction base for the year to 31 March 2003 were as follows:

In certain large courts where the total maintenance case base exceeds fifty to sixty thousand managed cases the monthly payment activity is in the region of some 10% of the case base. In certain rural areas where the case base is in the region of one thousand cards the monthly payment activity ranges from 25% to 75%. Currently work is in progress to obtain a reliable estimate of the amount of maintenance money that is not paid. In the absence of this estimate, current perceptions are that the amount of money not paid to custodial parents, on an annual basis, could exceed some R1 billion.

Critical to a sound financial management system is the establishment of a reliable computer connectivity network. The current dial up system to SITA is unreliable and does not have the capacity to handle the required data flows. The Department has prioritised the establishment of a virtual private network during the year ahead to resolve this critical problem area.

Financial management improvements during the year under review include:

• Implementation of the transversal financial management system, BAS on 1 April 2004. This implementation did not go without its teething problems but most implementation difficulties, except system connectivity reliability, have been resolved. Training initiatives are ongoing countrywide.

• Implementation of a new Procurement Solution on 1 April 2004. The software package was written and developed by the Office of the CFO. This solution provides catalogue buying (Justice Yellow Pages), commitment accounting enabling budget control, strict application of authorisations in terms of delegations, and asset management capability in accordance with the Asset Management Guidelines issued by National Treasury. Again, training initiatives are ongoing countrywide to capacitate a footprint of 74 sites that are tasked to effect purchases. A fully web enabled JYP package is targeted for release by November this year that will enable all budget units to manage there own budget spend on the network once the connectivity solution is implemented.

• The Department has taken delivery of 550 high specification desktop computers with DVD video readers, external sound systems and printers that are currently being sent to courts such that every court will have at least one computer. These computers will initially be used to run video based training courses on financial processes as a back up to classroom and on job individual training on transaction processing including BAS training via the dial up connection to SITA. Monthly budget information for all budget units (on a court by court basis) will be uploaded to the computers on a monthly basis. Again, training initiatives are ongoing countrywide.

• The Justice Asset Management project (JAM) has experienced implementation delays. Asset management is the responsibility of all officials. Current projections indicate that the asset capturing process will be substantially completed by the end of July 2004.

• Capacity building projects are ongoing to uplift the financial management skills of finance functionaries. On-job training videos (DVD’s) covering Transaction Processing Manuals ( the Governor Brown videos on Vote Account and Trust Account processes) have been released in Xhosa, Zulu, English and Afrikaans.

• Accredited Management Development Programmes have been established to enhance the performance of finance managers. At present more than eighty finance staff are engaged in post graduate courses at the Universities of Cape Town or Pretoria.

• Countrywide hands on computer training initiatives on new software implemented have during January to May 2004 alone seen some 1633 people attend various financial management training courses. The average class size has been about ten people per course.

• The reporting calendar to be used by the Transaction Processing Monitoring Unit (TPMU) who report on the status of transaction processing on a month-to-month basis has been finalised and the status of record keeping on a court by court basis is operational.

• Budget management is being hampered by long standing critical vacancies. A significant impact of the lack of capacity is the delay in the implementation of the Justice Footprint right-sizing initiative. This means that current budgets at a court level are in a large number of instances unrealistic with the result that budgetary control is not exercised. On the positive side however the implementation of the budget pivot table information service has made available to all budget units budget status information that is a best in class benchmark.

• Addressing the implementation of reengineered financial business processes by the finalisation of individual performance agreements. Performance agreements support the newly developed process driven organisational structure. All financial activities are process mapped. The process maps are linked to formal duty sheets within work management schedules that clearly reflect levels of responsibility and these are tied to performance contracts at all levels. Work performance is monitored by the TPMU. These processes are covered, in detail, in the video based training material that is backed up by detailed financial operations manuals.

• A centralised agency services debt management division that has analysed and finalised outstanding debt that has been on the books for more than twenty years has been established.

• A task team is working on systems and processes in the management of the Guardians Fund. At the current rate of backlog reconciliation the outstanding few hundred thousand cards will take about another three years to reconcile. A team is currently conducting a scoping exercise to establish the extent of the backlog. Large quantities of dormant cards on hand (estates) have not had interest earned updated on the cards and current financial obligations are not reconciled with interest earned on the PIC account. A new computerised financial management software package is being piloted in Bloemfontein and the MMT project has also research various solution options and a recommended solution to secure the management of this fund has also been proposed within the MMT PPP project.

• A legislative costing capability has recently been established in the Office of the CFO and it is tasked with costing the implementation requirements relating to maintenance, the establishment of a management information component and equality legislation for inclusion with other unfunded priority projects that will be put to the National Treasury panel that awards supplementary budget allocations this year.

• An audit facilitation desk was launched during 2003 and this capability, charged with the coordination of external, internal and other compliance agency work has ensured that audit queries are efficiently dealt with by staff at the right level.

• The forensic and compliance unit of the Office of the CFO had by 31 March 2004 lodged over 250 investigated financial misconduct dockets with the SAPS. This component was transferred to the Internal Audit component in the Office of the DG with effect from 1 April 2004.

In conclusion, I would like to acknowledge the efforts of all Court Service management and finance personnel in the Western Cape where all financial record keeping is 100% current.

Alan Mackenzie

27 May 2004