Progress Report

Addressing Non-paying Client Departments

&Fixing the Billing System

11 June 201311 June 2013

PRESENTATION OVERVIEW.

1. Recap on root causes for client non-payment2. Update on prior year engagement3. PMTE Current Operating Model 4. PMTE Debtors Status and action plans for recovery5. Highlevel PMTE IT System Rollout Plan

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Recap – Root causes for non-payment by clients

• Previously, no binding agreements between DPW and client Departments (SLA’s)

• Minimal enforcement of GIAMA by DPW re: UAMPs as bidding process documents with National Treasury for client departments’ budget allocations

• Lack of capacity within client departments for compilation of UAMPs

• PMTE not yet in position to provide itemised bills to clients• PMTE only bills clients on basis of devolved budgets• Due to above, clients resistant to pay as AGSA raises

findings with payments made not supported by detailed itemised bills

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Recap on prior year’s engagement

• Service Level Agreement (SLA) was developed as the preferred form of agreement to bind User Departments and DPW in terms of agreed Service Delivery Standards.

• Service Delivery Standards were developed

• Both the SLA and the SDS documents meant to entrench the delivery of accommodation services according to agreed turnaround times, performance measures and business processes.

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Progress re: Conclusion of SLAs with clients

2012/13

DEPARTMENTS ENTITIES COMMITTEE TOTAL

Users: 33 17 1 51

SLA’s signed: 21 8 0 23

SLA’s not signed: 11 5 0 23

* SLA’s not required : 1 4 1 5

Level of compliance: 64% 47% 0% 45%

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* Note: a number of national departments and entities currently do not require SLA’s for a variety of reasons (e.g. where services are rendered through the parent department, where they are co-located in premises with other departments).

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PMTE Current Operating ModelPMTE Current Operating Model

PMTE = Trading entity/account of the NDPW since 2006 but never operationalised Trades under the control of the Department The Accounting Officer (AO) of the NDPW = AO of the PMTE Purpose for the formation of the PMTE: Ring fencing of revenues and expenditures (and

related balance sheet items) relating to the property management function (including construction and maintenance) of the Department

Main benefit - Any revenue generated may be retained by PMTE to run itself if declared to National Treasury and approved. (TR 19.7.1. – National Treasury may not approve and require the PMTE to re deposit in Exchequer account) . If remain in Department any revenue generated would be surrended

Incentive therefore to perform better Ultimate goal to be self sustaining: the PMTE recovers its cost from the revenue it

generates from clients rather than from the allocation from DPW (Treasury). Reality – this is a long way off Why? Unable to effectively/accurately determine cost recovery of PMTE Incomplete and inaccurate records relating to which clients occupy which of our state

owned and privately leased premises (i.e. square meters occupied etc) Outdated /manual matching of expense recoveries (risk of under recoveries) Lack of proper systems for recording invoices issued – manual MS excel system

PMTE = Trading entity/account of the NDPW since 2006 but never operationalised Trades under the control of the Department The Accounting Officer (AO) of the NDPW = AO of the PMTE Purpose for the formation of the PMTE: Ring fencing of revenues and expenditures (and

related balance sheet items) relating to the property management function (including construction and maintenance) of the Department

Main benefit - Any revenue generated may be retained by PMTE to run itself if declared to National Treasury and approved. (TR 19.7.1. – National Treasury may not approve and require the PMTE to re deposit in Exchequer account) . If remain in Department any revenue generated would be surrended

Incentive therefore to perform better Ultimate goal to be self sustaining: the PMTE recovers its cost from the revenue it

generates from clients rather than from the allocation from DPW (Treasury). Reality – this is a long way off Why? Unable to effectively/accurately determine cost recovery of PMTE Incomplete and inaccurate records relating to which clients occupy which of our state

owned and privately leased premises (i.e. square meters occupied etc) Outdated /manual matching of expense recoveries (risk of under recoveries) Lack of proper systems for recording invoices issued – manual MS excel system

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Currently mismatch between the fact that the revenue and expenditure from the Departments property management function is accounted for in the PMTE’s financial records but the:

Immoveable Assets (Buildings and land) that generate part of this revenue, and for which the expenditure is incurred, is accounted for in the Department’s financial records.

Capital expenditure – not capitalised – no proper record of asset value Capital budget with client departments but assets within DPW

An interim business case for the PMTE was approved by DG at end of March 2013 effectively transferring the property management functions (and related business units) from DPW to the PMTE effective 1 April 2013 (next financial year)

This means that the Immoveable assets etc will only be accounted for by the PMTE in the 2013/14 financial year

The functions and related staff etc will also only move in the 2013/14 year PMTE required to prepare AFS on GRAP as opposed to modified cash basis Challenge is convert accounts from modified cash basis to GRAP Extensive manual process to perform the conversion

Currently mismatch between the fact that the revenue and expenditure from the Departments property management function is accounted for in the PMTE’s financial records but the:

Immoveable Assets (Buildings and land) that generate part of this revenue, and for which the expenditure is incurred, is accounted for in the Department’s financial records.

Capital expenditure – not capitalised – no proper record of asset value Capital budget with client departments but assets within DPW

An interim business case for the PMTE was approved by DG at end of March 2013 effectively transferring the property management functions (and related business units) from DPW to the PMTE effective 1 April 2013 (next financial year)

This means that the Immoveable assets etc will only be accounted for by the PMTE in the 2013/14 financial year

The functions and related staff etc will also only move in the 2013/14 year PMTE required to prepare AFS on GRAP as opposed to modified cash basis Challenge is convert accounts from modified cash basis to GRAP Extensive manual process to perform the conversion

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PMTE Current Operating Model PMTE Current Operating Model

Result

•Running high bank overdraft

Result

•Running high bank overdraft

•Execute now and recover late

•Cashflow timing difference – only invoice client after we have paid – about 60 days delay

•Execute now and recover late

•Cashflow timing difference – only invoice client after we have paid – about 60 days delay

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PMTE Current Operating Model – Bank OverdraftPMTE Current Operating Model – Bank Overdraft

• The bank overdraft is due to the “recoverable” business model being used by the PMTE (Debtors)

• At lease R 800 m of the overdraft can be accounted for by the time difference between payment to the supplier and receiving of funds from the Client

• The balance of the overdraft is due to older outstanding debt and has improved over the last three financial years

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Source systems

WCS

PMIS

ie WorksBAS

• Cash based system• Cash TB

• Cash based system• Cash TB

payments

invoices

debtors Manually on Excel spreadsheets

Manually on Excel spreadsheets

PrepareJournals based

on spreadsheets and capture on

Caseware

PrepareJournals based

on spreadsheets and capture on

Caseware

CASE WARE

AFS

Migration to accrual based accounting Compliance with GRAP requirements Automation of the billing process and possibly also certain

future PMTE business processes to enhance operational efficiencies

Operationalisation of the PMTE as a standalone business entity

Current systems not integrated across the business Extensive, Legacy Data Quality issues (System and

manual)

Migration to accrual based accounting Compliance with GRAP requirements Automation of the billing process and possibly also certain

future PMTE business processes to enhance operational efficiencies

Operationalisation of the PMTE as a standalone business entity

Current systems not integrated across the business Extensive, Legacy Data Quality issues (System and

manual)

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PMTE Debtors StatusPMTE Debtors Status

Debt Collection Division

Effective date This unit was established in October 2011

The Structure consist of 3 ASD and 1 DD

Impact to date Outstanding debts can be substantiated with proper supporting

documentation

Monthly process relating to debt collection

Preparing statements and issue to client departments Send reminder letters to follow up on outstanding debt Meeting with the client departments Prepare age analysis

Debt Collection Division

Effective date This unit was established in October 2011

The Structure consist of 3 ASD and 1 DD

Impact to date Outstanding debts can be substantiated with proper supporting

documentation

Monthly process relating to debt collection

Preparing statements and issue to client departments Send reminder letters to follow up on outstanding debt Meeting with the client departments Prepare age analysis

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Age Analysis as at 31 March 2013

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PMTE DEBTORS ANALYSIS AS AT THE END OF MARCH 2013.

• The PMTE has an debtors balance of R 2.3 billion as at the end of March 2013.

• R 929m (40%) relates to debts from Prior years.

• R1.4 billion relates to debts outstanding for the current financial year.

• Focus meetings will be held with Clients during June to August to analyze the individual accounts.

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TOP 5 CLIENT: DEFENCETOP 5 CLIENT: DEFENCE

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DEFENCE ANALYSIS

• Meetings are being held on monthly basis with this client starting from March 2013.

• The outstanding balance for municipal services relate to 2006-10 expenditure that was claimed in 2011. This invoice cannot be substantiated by supporting schedule per property hence the client is disputing this debt.

• The outstanding balance on CA will still be recovered, the client has requested additional information relating to these projects and this was submitted.

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TOP 5 CLIENT: JUSTICE

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JUSTICE ANALYSIS

• The outstanding balance for municipal services relate to 2006-10 expenditure that was claimed in 2011. This invoice cannot be substantiated by supporting schedule per property hence the client is disputing this debt.

• The outstanding balance of R26.9m in previous year under leases is for the SALU building that is being disputed by the client department. The rest of the debt is still recoverable.

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TOP 5 CLIENT: DIRCO

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DIRCO ANALYSIS

• The debt under CA relate to the Pan African Parliament. The project was stopped but the client is disputing this amount. Further engagements will be held with the client

• Meetings have been held with the client regarding the municipal services balance. The client is disputing stating that the properties were not occupied by them at the time this expenditure was incurred.

• R95m outstanding for leases is the outcome of the reconstruction, meetings will be scheduled with the client to assess recoverability.

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TOP 5 CLIENT: CORRECTIONAL SERVICE

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CORRECTIONAL SERVISES ANALYSIS

• 83% of the outstanding debt is current and recoverable.• Meeting will be scheduled with the client to resolve the R24m

outstanding under leases

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TOP 5 CLIENT: SAPS

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SAPS ANALYSIS

• 95% of the outstanding debt is current and recoverable.• Meeting will be scheduled with the client to resolve the R12m

outstanding under leases for previous years.• This client is paying regularly and recoverability is not an

issue

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Private leases (Lease out) Reconciling paid amounts (expense side) to amount claimed back from

client Develop new standard contract and roll out to ensure all clients have

contract (per property or per client) Accounts receivable

Complete "reconstruction" exercise (Step 2-5 per plan) Drive and manage collections Drive and manage actual "write off" process of all debt (post impairment

done) Revenue and billing (2013/2014)

Implementing new billing and accounting system Revenue and billing (2014/2015)

Cost recovery model (update one already developed) Can be done only when IAR and lease verification projects complete

Private leases (Lease out) Reconciling paid amounts (expense side) to amount claimed back from

client Develop new standard contract and roll out to ensure all clients have

contract (per property or per client) Accounts receivable

Complete "reconstruction" exercise (Step 2-5 per plan) Drive and manage collections Drive and manage actual "write off" process of all debt (post impairment

done) Revenue and billing (2013/2014)

Implementing new billing and accounting system Revenue and billing (2014/2015)

Cost recovery model (update one already developed) Can be done only when IAR and lease verification projects complete

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Reconstruction of Private Leases

Stage Reconstructions stages

1 Verified invoices, credit notes and payments received to supporting documents Payments received verified to BAS (2006 to date)

2 Reconciled what was invoiced to the expense paid in PMIS

3 Matching unallocated receipts to invoices

4 Verifying invoiced amounts to leased agreements (taking Lease verification project findings into account)

5 Client meetings to obtain agreement to amounts owed. Assisting with preparing submissions to National Treasury for collection of prior year funds

Clearing "payable: Advance Account

Purpose of account to record money paid in advance by client departments for lease rentals, municipal charges but also includes a large portion of unallocated receipts. Needs to be investigated and cleared out (difficult as clients pay single amount to cover multiple debts)

Need to engage National Treasury Operating model of PMTE – bank overdraft (PMTE pays suppliers and only

recovers the costs from client departments after 60 days Revisit the Devolution of Budgets matter

Clearing "payable: Advance Account

Purpose of account to record money paid in advance by client departments for lease rentals, municipal charges but also includes a large portion of unallocated receipts. Needs to be investigated and cleared out (difficult as clients pay single amount to cover multiple debts)

Need to engage National Treasury Operating model of PMTE – bank overdraft (PMTE pays suppliers and only

recovers the costs from client departments after 60 days Revisit the Devolution of Budgets matter

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PMTE IT System Rollout PlanPMTE IT System Rollout Plan

Highlevel IT Software Rollout Plan

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14

1Specifications for IT Solution

- Billing and Administration

- Immovable Assets Register

- Leases

- Municipal payments

2SCM Process to acquire solution

3Other project dependencies

- Lease Review

- Physical verification of immovable assets

4Data cleansing

- PMIS

- WCS

- iE Works

5Basic Customisation of software

6Pilot modules

7Go live

Considerations to rollout a business automation process

• Lease ‘in’ expenses information

• Buildings under construction expenses information

• Purchased property cost information

• Expenses and payables management information

• Expenses and payables financial reporting information

• Lease ‘out’ property revenue and debtor information

• Revenue and debtor management information

• Revenue and debtor financial reporting information

• Lease ‘in’ expenses information

• Buildings under construction expenses information

• Purchased property cost information

• Expenses and payables management information

• Expenses and payables financial reporting information

• Lease ‘out’ property revenue and debtor information

• Revenue and debtor management information

• Revenue and debtor financial reporting information

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PMTE IT System Specifications

Extent of business requirements

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PMTE IT System Specifications (cont’d)

Addressed 3 areas related to the B&A system, namely:•Receipts and revenue•Expenses and payables•Budgeting (also used for performance analysis)

Provided an overview of the operational and GRAP requirements in each section and detailed certain areas of complexity.  In the above sections, following are addressed:• System requirements to facilitate GRAP

compliance (This incorporates the GL considerations)

• System requirements to facilitate operational needs

• System reporting requirements• Segregation of duties We have included the relevant laws and regulations with which the system needs to comply

Addressed 3 areas related to the B&A system, namely:•Receipts and revenue•Expenses and payables•Budgeting (also used for performance analysis)

Provided an overview of the operational and GRAP requirements in each section and detailed certain areas of complexity.  In the above sections, following are addressed:• System requirements to facilitate GRAP

compliance (This incorporates the GL considerations)

• System requirements to facilitate operational needs

• System reporting requirements• Segregation of duties We have included the relevant laws and regulations with which the system needs to comply

The non functional requirements documented highlight what the system is required to do from a technical perspective. The areas covered include the following: • Performance requirements • Usability requirements • Data requirements• Security requirements• Scalability requirements• User interface requirements• System interface requirements• External and third party system interface

requirements• Availability requirements• Documentation requirements

The non functional requirements documented highlight what the system is required to do from a technical perspective. The areas covered include the following: • Performance requirements • Usability requirements • Data requirements• Security requirements• Scalability requirements• User interface requirements• System interface requirements• External and third party system interface

requirements• Availability requirements• Documentation requirements

Functional Requirements Non Functional Requirements

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PMTE IT System Specifications (cont’d)

Information System Security Policy Interoperability Standards

• Security Management• Certification and accreditation• Application systems and acquisition• System operation• Data security• System access control and password

security• Workstation security• Communication security• Physical security

• Security Management• Certification and accreditation• Application systems and acquisition• System operation• Data security• System access control and password

security• Workstation security• Communication security• Physical security

• Interconnectivity• Data interoperability• Information access

• Interconnectivity• Data interoperability• Information access

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National Department of Public Works (NDPW)Head Office: Public WorksCGO BuildingCnr Bosman and MadibaPretoria CentralPrivate BagX65Pretoria0001Website: http://www.publicworks.gov.za