DEPARTMENT OF JUSTICE AND CONSTITUTIONAL DEVELOPMENT
OFFICE OF THE CFO: PERFORMANCE ENHANCEMENT PROGRAMME – MARCH 2003 ANNUAL REVIEW
The following is a summary of the current (and previous) financial year’s financial performance for the department excluding other entities contained within the budget vote:
A. VOTED FUNDS RECEIVED BY THE DEPARTMENT
|
2002/03 R ‘000 |
2001/02 R ‘000 |
|||
|
Appropriated Amount |
3 303 258 |
3 001 302 |
||
|
Adjustments |
0 |
0 |
||
|
Virement (NPA) |
20 930 |
96 764 |
||
|
Total amount appropriated |
3 324 188 |
3 098 066 |
||
|
Less total expenditure |
3 400 911 |
3 037 564 |
||
|
Surplus / (Excess) to be surrendered |
(76 723) |
60 502 |
||
B. STATUTORY APPROPRIATION (Judges salaries and allowances)
|
2002/03 R ‘000 |
2001/02 R ‘000 |
|
|
Appropriated Amount |
154 318 |
157 551 |
|
Total amount appropriated |
154 318 |
157 551 |
|
Less total expenditure |
176 557 |
171 083 |
|
Over-expenditure to be funded by National Treasury |
(22 239) |
(13 532) |
C. FOREIGN AID ASSISTANCE (Including RDP funds)
|
2002/03 R ‘000 |
2001/02 R ‘000 |
|
|
Grants received during the financial year |
162 172 |
4 845 |
|
Total amount received |
162 172 |
4 845 |
|
Less total expenditure |
105 468 |
7 832 |
|
Closing Balance |
56 704 |
(2 987) |
D. REVENUE
|
2002/03 R ‘000 |
2001/02 R ‘000 |
|
|
Opening Balance |
20 170 |
3 438 |
|
Revenue Generated |
117 122 |
93 155 |
|
Total revenue generated |
137 292 |
96 593 |
|
Less revenue paid to SARS |
128 567 |
76 423 |
|
To be surrendered to SARS |
8 725 |
20 170 |
The draft financial position, as reflected above, does not include the write off of R199,336,969.08 (R199 million) that the Office of the CFO has recommended should be written off. Substantially, this write off constitutes a prior year adjustment for which no current budget allocation is available. Of this amount R180,314,265.88 (R180 million) relates to agency services paid for on behalf of other departments. These amounts are the subject of discussions with National Treasury and the outcome of these deliberations will affect the financial position as is to be reported in this years financial statements. Please also note that the amounts referred to throughout this PEP report relate to unconfirmed and unaudited numbers per our monthly accounts and may change as the audit process unfolds. In addition to the above amount (R199 million), that the Office of the CFO recommends should be written off, a further amount of similar proportion (R200 million) is still under investigation as to whether or not the funds are recoverable. These matters are discussed below under "suspense accounts" in so far as they relate to last year and below under the heading Audit Qualification.
It should be noted that before allowance for the above write off, in round figures, the department overspent by some R76,723 million. This is an aggregate position and constitutes a current expenditure overspend and a capital expenditure underspend. The final amounts of over and under spending to be reported will depend upon the final virement approvals of National Treasury. The largest overspend relates to personnel – a matter addressed, to an extent, in the current budget allocations awarded by National Treasury.
In addition to the above matters the department faces a contingent loss relating to shortages on monies held in trust, the extent of which, will only be determined in the year ahead.
The NAQ Project (No Audit Qualifications) was established as a drive to target the need to "get back to basics" in relation to compliance with the DFI (Departmental Financial Instructions), delegations and regulations. These matters are likely to be reported upon in the Audit Report under the heading "Emphasis of Matter". The NAQ Project will be relaunched in the year ahead with the communication of non-compliance in these matters to all Business Units. To continue this compliance drive it is planned to issue a summary of transgressions and to follow through with the launch of the NAQ 2004 awareness campaign in August 2003.
Given that the R200 million in receivables (mentioned above and that we propose be carried forward in suspense), is still under investigation at the time of the finalisation of the audit, then the existence of a quantifiable amount of this magnitude, about which we cannot confirm collectibility, will, in all probability, be a matter upon which the Auditor General will disclaim an opinion. The R199 million, proposed for write-off, however, is distinctly differerent in character in that the Department has taken exhaustive steps to recover these funds and we now believe these funds to be irrecoverable. The reason for the uncertainty surrounding the recoverability of the R200 million hinges upon the completeness of recoverability procedures. In short, we believe more can be done to recover the R200 million but that we believe the R199 million to be irrecoverable.
The 199 million proposed for write-off will add to the current overspend of the department and will constitute unauthorised expenditure. Unauthorised expenditure will have to be reported to National Treasury upon the completion of the audit when the treatment of this matter will be finalised. At this stage Treasury have not agreed to the write-off of the R 199 million and require further recovery and analysis procedures to be undertaken.
Given that National Treasury have not agreed to the write-off and that we remain of the opinion that the R199 million should be written off then an interesting set of circumstances shall prevail. In essence a difference of opinion shall exist between National Treasury and the Department. I do not believe that this position was envisaged in the drafting of SAAS 700 (attached for reference purposes). Should audit tests confirm that the amount is irrecoverable then I believe an adverse audit opinion on this matter would be helpful in that it would suggest to the "shareholder" (National Treasury) that the amount is irrecoverable. Should the Office of the Auditor General propose a disclaimer on the amount it would mean that, in this matter, we would not have gone forward for we would have to continue looking for "Ghosts". I am drawn to ponder upon "ghosts" and "skeletons" – "skeletons" may be hidden, are known to some, can be tracked down – but there comes a time when the "skeletons" become "ghosts" and at this point one may as well relax for the best way to find a "ghost" is to let it find you!
The above analogy is not offered to detract from the seriousness of this matter, for it is a material amount, but rather to highlight the frustrations of trying to find vouchers and other supporting documentation that is not where one has already looked, not knowing where else to look etc. The procedure for claiming agency services debts included sending original documentation to the departments responsible for the debt. Some years ago a circular was issued that called for copies of supporting documentation to be destroyed. This circular was intended to relate to the discarding of duplicates on hand, a certain amount of confusion seems to have existed about the implementation of the circular and it was not universally adhered to. In addition, some recall duplicate documentation being sent to National Treasury in support of direct recoveries by National Treasury and so, if there is an unturned stone, I believe it to be at National Treasury who too may have the missing supporting documentation. As has been stated, we are in discussion with National Treasury on the matter and a decision will need to be taken by the stakeholders to resolve the matter.
Another matter for serious debate that I also believe was not envisaged in the drafting of guidelines to public sector audit opinions is that of the "going concern" principle. Consider the following matters that constitute unauthorised expenditure:
Given the above and the fact that unauthorised expenditure is required to be made good from budget savings and the further requirements of the PFMA read together with the fact that the core service delivery responsibility of the department is unlikely to be over funded and that it cannot, in the interests of law and order, be cut back then one needs to ponder the going concern principle in relation to the department as presently constituted. This matter needs to be considered, as it seems that in the year ahead clarity on the extent of the write offs will be at hand. Current estimates are that the extent of unauthorised expenditure may be a multiple of additional funding available to the entire JCPS cluster.
In summary, if the above estimates prove to be correct then the 2003/04 unauthorised budget deficit will be significant, will not be funded and the question of a "going concern" will need to be addressed if "loan" funds are not to be provided in the year ahead. I have said from the outset that matters will get worse before they get better, not because they will have deteriorated but because we will come to know the full extent of how bad they were. Thus, if we are able to write-off the uncollectible receivables and determine the collectibility of the balance then we should receive an unqualified audit opinion (emphasis of matter concerns excluded) in the current year on the vote account but face a going concern debate in the year ahead if funding to enable the carry forward of unauthorised over expenditure is not made available to the department. The funding matter is not critical at this stage in that proposed write-offs are inter-governmental contra entries that do not, at this stage, affect cash flow. On the other hand making good thefts and losses from monies held in trust, funding a secure cash management system and meeting personnel expenditure will, in the year ahead, require a substantial cash injection.
Buying/Procurement and Asset Management now resort under the management and direction of the Office of the CFO. The following are envisaged:
The Performance Enhancement Programme (PEP) has laid solid foundations to building the future financial management system of the department. As with foundations in the construction industry the foundation work done is largely not visible. Visibility will come with the appointment of strong leadership with the ability to sustain the project through continuous improvement processes. The change vision needs to be lead and must be driven down through all levels to finance functionaries at the coalface of service delivery to the public. Improving the financial management capacity of the Department must now be driven from the "bottom". This is being done through the implementation of a financial services franchise concept, to court services, by way of implementing a uniform standard that has been documented in what is called the Governor Brown manual. Recognition for having succeeded will come, in time, with an unqualified audit report and this will attract more highly skilled people to the department that are seeking to be associated with a successful turnaround.
The PEP is to enter Phase II in the year ahead. This phase gives recognition to the extent of work completed and focuses attention on current priority matters again related to people, systems funding and culture.
We are in a service industry, without trained people with the tools to do the job, we cannot deliver optimally.
The PEP has, in recent years, been negatively impacted by the high level of vacancies that have existed in the Office of the CFO. It is anticipated that all the posts vacant at CFO, Chief Director, Director and Deputy Director level will be filled in the short term. The equity analysis and current staffing levels, in the office of the CFO, are as follows:
|
Rank |
Black Male |
Black Female |
Coloured Male |
Coloured Female |
Indian Male |
Indian Female |
White Male |
White Female |
Posts Vacant |
Total Posts |
|
CFO |
|
|
|
|
|
|
|
|
1 |
1 |
|
Chief Director |
|
|
|
|
|
|
|
|
4 |
4 |
|
Director |
2 |
1 |
1 |
|
1 |
|
1 |
1 |
3 |
10 |
|
Deputy Director |
4 |
|
|
|
1 |
1 |
4 |
3 |
2 |
15 |
|
Asst. Director |
22 |
16 |
3 |
3 |
1 |
1 |
9 |
21 |
14 |
90 |
|
State Accountant |
17 |
17 |
|
2 |
|
|
|
7 |
28 |
71 |
|
Chief Acc Clerk |
11 |
18 |
|
3 |
|
|
1 |
9 |
20 |
62 |
|
Acc Clerk |
22 |
15 |
5 |
6 |
|
4 |
2 |
5 |
7 |
66 |
|
Secretary |
|
4 |
|
1 |
|
|
|
2 |
2 |
9 |
|
Data Typist |
|
8 |
|
|
|
1 |
|
1 |
1 |
11 |
|
Messenger |
|
|
|
|
|
|
|
|
1 |
1 |
|
Sub Total |
78 |
79 |
9 |
15 |
3 |
7 |
17 |
49 |
83 |
340 |
Notwithstanding the above high vacancy levels it is believed that substantial progress has been made for it should be remembered that the so called "smart money" bet against the possibility of achieving a turnaround in the ability of the Office of the CFO to meet financial management expectations. It should be noted that some 2 000 finance functionaries at a court level that report directly to court managers are not included in the Office of the CFO which constitutes head office and financial services "franchise management" staff only.
It is too early to declare finality or a victory for the performance enhancement programme. We, in the Office of the CFO, know exactly what still needs to be done. Other than for the matter of our over expenditure, dealt with above, we expect an unqualified Vote Account audit report and a "disclaimer" on the Trust Accounts. There has been a visible improvement in performance and we have a number of short term wins that are detailed below, to celebrate. As stated above, we are in the service business, without high technology systems support and so we are as good as our people. Key people have been identified and others have been developed - these people have had the courage to step into the vacuum of a significant number of vacant posts armed, at the outset, with little more than a clarity of vision and the passion, commitment and drive to make it happen.
People like Llewellyn Loxton who still is to be seen regularly helping others in other provinces and at head office notwithstanding the fact that he only has four staff left in his Western Cape regional office. Nico van Harmelen spent every second week for months running the Eastern Cape office whilst also acting in the position of Finance Director in the North West Province and in addition he has now volunteered to assist Basil Noah in their "free time" fill the vacant post of Chief Director and budget coach to the MD of Court Services. Basil Noah too has given unselfishly of his time such that he too has spent months away from home training and progressing the seemingly endless procession of postponed and cancelled meetings to finalise posts for advertisement. Supported by her Deputy Directors, Sandra Gomm who is based at Head Office has carried the load of the vacant post of Chief Director, financial operations on her shoulders whilst assisting in Durban with the Re aga Boswa project as well as championing many forensic investigative drives. Paul Mthali, Lucas Nkuna, Mams Nyubuse, Shoes Ndlabu, Christo Fourie, Farouk Hoosein, Vic Misser, Karin Visagie, Lena Botha and Anand Moodley to name but a few have given unselfishly ensuring that under their direction close to 2,000 people have been trained in the last few months. Marlene Noeth and Lourenza Mesnard have often been praised by their MD’s for outstanding work and this, too, is acknowledged with thanks.
The Justice Footprint project has delivered international best in class budgeting solutions and we thank Anton Prinsloo and his team of Andries Hartman, Robert Pierce and Bonsani Mtwedi who took over from the CSIR/BAC team.
Across the board many people have risen to the occasion by, in effect, doing work both in terms of volume and complexity that two years ago would not have been considered possible. I believe that we have learnt valuable lessons in the practice of staff development through coaching and mentoring as well as in the dynamics of establishing and building teams.
Across the board people have joined task teams to bust obstacles and now do so on their own without thought of needing an instruction. Yes, there are still those that hide and those that get in the way but overwhelmingly the majority have become leaders, leaders that I salute and thank for their dedication and support. At times I have had to be hard and this may persist to ensure that deliverables are established but generally I have found that fewer people find the need to lobby me to represent their interests at various departmental meetings and forums.
Across the country the Operations Managers have taken to the field with enthusiasm and I have not had a single complaint sent to me about their activities at a court level. I thank them for their efforts for it is through them that our successes will be enhanced. Unless sound financial management at a court level is established, we, as a whole, will not succeed.
People have in recent years been our primary strategic risk for we have not had secure systems and nor have we had a culture of compliance. The launching of Phase II is enabled by the hope of being able to address our people concerns. We have done substantial training and people know what to do, with further training, they must now, across the board, become good at what they do. Given the roll out of Re aga Boswa and the appointment of court managers, tasked with the responsibility of getting the job done and with the financial operations management focus, through the operations managers, upon the quality rather than the legacy backlogs we should move to being able to manage transaction processing at a sub office level. The major strategic risk lies in the existence of an unacceptable number of critical vacancies. The existence of these vacancies has meant that we have not been able to issue job profiles and duty sheets. Given clarity on the bounds of normality versus the current approach of "fighting fires" staff may move to resist being held responsible for more than their "official" duty sheet. This position has existed for an extended period and it is hoped that with the assistance and direct intervention of the Director General that a way will be found to fill these funded vacancies and to do the necessary workstudy to optimise available people resources.
Capacity building thus continues to be a project of the PEP and this project will be strengthened in the year ahead with the establishment of a project initiative to provide operations managers with on-job DVD material in various languages on the Bovernor Brown manual as well as from time to time on other priority matters.
These include:
The continuance of the UCT postgraduate course in strategic cost and financial management.
The Office of the CFO has achieved success in improving the financial transaction processing systems and processes through the development of detailed process maps and manuals and by the enhancement of budgetary accounting systems and processes. The latter has been significantly enhanced by way of the Justice Footprint project.
The United States Department of Justice has voted an aspect of this initiative as one of the best in the world and as having met "the highest standards of excellence for the best analytical map display of crime".
The initiative, included the production of detailed maps that show the courts throughout the country and reflect the position regarding predicted workloads and levels of crime in each area and in this manner we have developed an aid to decision making that has been handed over to the Court Services business unit for future use.
Associated with the above predictive model is a financial model that identifies expenditure for inclusion in the department’s budget projections, prioritises unfunded expenditure needs and ensures that further budget requests are directed to priority needs.
The paymodel exercise that details private sector remuneration comparisons for each staffing category has been completed and has been handed over to the HR Business Unit to aid them with their staff remuneration recommendations to the Departmental remuneration committee.
The budget modelling aspect of the Justice Footprint project has been extended to include an automation of the production of actual to budget reports by enabling the model to extract actual data from the FMS. In addition, the what if capability has been expanded to enable multi level scenario planning and the provision of budget information by way of providing microsoft excel spreadsheets for use on the laptops of operations managers. This excel capability is an alternative to providing access to the Oracle system. Access to the Oracle database is limited as a result of the limited network available and because of the cost of an extensive Oracle software licence.
It is anticipated that the modifications to the budget tool will take some six to seven months to effect. Given that we do not have the staff to manually capture the budgets as well as monthly actual / budget variations thereto the end in this case justifies the wait necessitated.
The cost and delivery timeline on this project have been determined.
The flow-charting of financial processes at head office, regional offices and at a sub-office level was completed in 2001. This project was not pushed through to the signing of Service Level Agreements (SLA’s) with Business Units as in many critical areas the Office of the CFO, due to vacancies, is not in a position to commit to the provision of requisite services. In addition the responsibility for many fundamental aspects such as procurement, court level financial transaction processing etc was not agreed upon by stakeholders.
The departmental delegations give effect to the cascading of responsibility in terms of the PFMA and other regulations, down the line, to implementation levels. The DFI documents minimum control standards and the Governor Brown manual is a "how to" document designed as a reference work to guide operations. To complete the picture one needs to add a document detailing who is to do the work. The documentation of measurable outputs and standards tied to process maps and duty lists that are attached to identified individuals will be the focus of Phase II of the PEP.
Phase II will see the integration of iniatives relating to asset management and procurement and will have a fundamental effect on duties to be allocated. At this stage in many important respects naming the people responsible continues to be a problem but it is the task of the continuance of the "process mapping" project to take this matter from "cradle to grave".
It is envisaged that the redefinition of processes as a result of the Re aga Boswa project should ber complete by mid August 2003. The specifications for a SLA in respect of the centralisation of the payroll function should be complete by the end of August as should the SLA specifications for the Re aga Boswa shared service centre. This project will run into the next financial year.
The cost and delivery timeline on the project should be determinable for the current financial year by the end of July 2003.
It is critical that the office of the CFO is able to maintain e-mail contact with operations and other managers. This project needs to be up and running with reliability as soon as possible. Obstacle after obstacle has presented itself since December 2002 and if not achieved within the next month it is proposed that an outside service provider be appointed.
As discussed above this project needs to dovetail with the other projects and will see the establishment of a contracts negotiation division and a buying support division. It is targeted to be in a position to determine a cost and delivery timeline by the end of the second quarter. Substantial "concept formulation and buy-in establishment" needs to be done as is specified by the PEP project management process. The provision of an IT information support system to manage the "yellow pages" within the short term is seen to be one of the major challenges that will have to be addressed. This matter of IT support will determine the implementation timeline and project costing.
The requirements for the year ahead have been amended in line with the progression to accrual accounting. Two options are available. Secure the services of professional assistance to ensure compliance and the commencement of a DIY project. The latter is not advisable due to the limited skills available but the former is not possible as a budget allocation was not received for this project. By the end of September it is hoped that a project implementation and cost timeline will be available as it is hoped that funding may be provided in the mid-year allocations from National Treasury. Failing a funding allocation the DIY approach will have to be expedited.
It is not possible to implement BAS as a result of the fact that IT connectivity will not achieve a meaningful footprint in the short to medium term.
The FMS is not to be supported in the medium term and so an alternative must be sought. Many alternatives could be considered including the SAPS Polfin system and the Finest system used in the Limpopo Province.
A large enterprise level system such as SAP, currently used by the Gauteng Province Shared Service Centre, needs to be considered. It is my opinion that the department, given the budget limitations discussed above, cannot consider a software installation of this magnitude and cost however it is believed that merit exists for this matter to be raised at higher levels. When one considers the fact that the Logis procurement system and assets register system needs replacement, the IJS needs an information database, the establishment of a secure payments system and information database to support a service delivery call centre is needed, accrual accounting is a reality and budget management is critical etc I believe that this matter needs to be taken up at a national level level.
This project is tasked to find a solution to system deficiencies in the management of monies in trust. An implementation timeline and the costing estimatation process is a formally documented systemic process that is documented by National Treasury within the defined PPP process.
Current efforts centre upon getting this project underway. The bureaucracy of the tender system needs to be, and is being, addressed by seeking support for speeding up "due process".
A comprehensive master plan to address fraud and corruption is in place. The plan is designed to promote a sence of urgency relating to the prevention, detection and reaction to suspected financial misconduct. The appointment of the SIU to investigate matters at some forty courts as well as at the office of the Master of the Supreme Court is to be promoted.
New communication channels have been opened and a representative of the Office of the CFO now visits each and every court at least one a month. In addition each court has, on a monthly basis, received faxed newsletters. Staff at Director level and above from the Office of the CFO have, in person, addressed finance functionaries from at least 100 courts each month and it is suggested that a good start has been made in creating an external output orientated customer focus versus an internal input orientation.
In the drive to progress the PEP we should not lose sight of the fact that we have achieved substantial progress in improving the financial management capacity of the department. During the last year achievements include:
Below is an executive summary of the progress made in resolving the matters included in the Qualified Vote Account Audit Report of the Office of the Auditor-General for the financial year ended 31 March 2002:
The matter of incomplete interfaces has been resolved and the PMG Adjustments account has been cleared. Daily reconciliations are done to ensure that the situation does not recur.
A departmental task team investigated the allocation of revenue items included under departmental revenue as opposed to the financial records for trust funds. Various discussions were held with Internal Audit, the National Treasury and the Office of the Auditor-General throughout the process. It was concluded that these amounts were appropriately recorded under departmental revenue.
The management, control and follow-up of certain suspense and clearing accounts have been centralised with effect from 1 June 2002. Continuous reconciliations were performed on suspense and disallowance accounts, which included:
These factors may continue to have a negative impact on the current year and if not written off could, as discussed above, lead to the disclaimer of an audit opinion as the Department does not have supporting documentation for historical transactions that often originated in previous self governing states and homelands.
Irrecoverable amounts totalling R 199 million have been considered for write-off. However, the write off could not be effected yet, due to the department’s excess spending during the 2003 financial year. National Treasury has been approached to assist the department to resolve the matter. An age analysis of all amounts uncleared in suspense and disallowance accounts and a breakdown per department in relation to amounts outstanding for agency services, is available.
The Office of the CFO has grown leadership and capacity at middle and lower management levels and has created a foundation for building the future financial management capacity of the Department. Whilst I believe that the project is not complete I am pleased to report that the project has succeeded in significantly building the financial management capacity of the Office of the CFO.
In the year ahead the PEP will focus on the Management of Monies in Trust (MMT) PPP, trust account backlog reductions, procurement reengineering, asset management requirements, progressing criminal charges relating to financial misconduct, capacity building, process mapping, establishing SLA’s with other Business Units, payroll reengineering, filling vacancies and enhancements to the financial modelling tool. These and other projects will be progressed within the now tried and tested project management model included in the annual review that was issued last year.
Alan Mackenzie
17 May 2003