PRESENTATION OF THE AUDITORGENERAL of SOUTH AFRICA TO

PRESENTATION OF THE AUDITOR-GENERAL of SOUTH AFRICA TO THE PORTFOLIO COMMITTEE OF HUMAN SETTLEMENTS ON A PERFORMANCE AUDIT OF THE USE OF CONSULTANTS AT SELECTED NATIONAL DEPARTMENTS 22 FEBRUARY 2013

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

Performance Audit Definition Legislative Requirements Constitution Section 195 (1)(b) of the Constitution of the Republic of South Africa states: Public administration must be governed by the democratic values and principles enshrined in the Constitution, including the following principle(s): … (b) Efficient, economic and effective use of resources must be promoted. 3

Performance Audit Why a performance audit on the use of consultants by government? Significant expenditure over past 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 • Economy • Efficiency • Effectiveness Done when problems are identified Performance auditing vs Regularity auditing Focus on finances • Financial statements • Financial management • Accounts true and fair Done annually 4

Guiding principles of the audit Economy Includes a competitive procurement process for the appointment of consultants and the creation and maintenance of a permanent staff capacity where required Efficiency An optimal relationship between the outputs produced by consultants and the resources expended by departments to remunerate these consultants. The management of the process to achieve this relationship Effectiveness The achievement of the objectives that informed the appointment of consultants 5

The term ‘consultants’ What did the term “consultant” include for the purpose of this audit? Consulting/professional services: • Specialist services and skills required for the achievement of a specific objective, with the aim of providing expert and professional advice on a time and material basis Contractors: • Required to provide services that are of a non-specialised nature that are not core business of the department Agency/outsourced services: • Services where the relevant department ordinarily has the capacity and expertise to carry out these services, but for some reasons are not using their own staff 6

Focus areas 1. Planning and appointment processes 2. Internal capacity at departments 6. Closing and finalising projects Audit focus areas 3. Training and transfer of skills from consultants to employees 5. Extension of contracts 4. Performance management and monitoring of consultants 7

Key challenges across departments 1. Planning and appointment process • Comprehensive needs assessments not done • Competitive procurement processes not followed • Expectations on milestones, timelines and cost not clearly specified 2. Internal capacity • Consultants appointed where permanent capacity should have been created • Consultants appointed due to lack of internal staff capacity 3. Training and transfer of skills • Skills transfer was ineffective 4. 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 5. Extension of contracts • Contracts extended due to lack of project management and monitoring 6. Closing and finalising projects • Failure to retrospectively analyse projects 8

Key findings: economy The economical acquisition of consultants was negatively affected due to: Comprehensive needs assessments not always being done Consultants being appointed instead of creating permanent capacity or consultants performing duties which formed part of departments’ daily operations Competitive procurement processes not always being followed and departments not ensuring that consultants complied with all the qualifying criteria Cost overruns not always being motivated and approved at the correct level Bid documents not always including clear specifications regarding costs and time 9

Key findings: efficiency The efficient use consultants was negatively affected because: Expected services, roles, responsibilities and deliverables relating to milestones, timelines and applicable measures were not always clearly specified Effective oversight and internal controls were not executed before authorising payments A lack of proper project management and monitoring of consultancy projects contributed to the extension of a number of projects 10

Key findings: effectiveness The effective use consultants was negatively affected because: Planning for financial and other resources necessary for projects/ implementation not always done. In some instances, this rendered the work of consultants redundant Skills transfer from consultants to departmental staff were not always effective Projects were not analysed to determine whether objectives were met and to determine the benefits received 11

Key recommendations: how government can remedy the current situation Proper financial management and control Leadership accountable for three Es Create sufficient internal capacity Compliance with legal frameworks, laws, regulations and policies Improved planning for the use of consultants Value for money from the use of consultants Manage and monitor performance Training and transfer of skills Extend contracts for valid reasons only Learn from the past, apply in the future 12

Combined assurance: extensive assurance needed at all levels Management assurance First level of assurance Senior management Accounting officers/ authority Executive authority Oversight assurance Second level of assurance Coordinating / Monitoring institutions Required assurance levels Extensive Internal audit Audit committee Required assurance levels Extensive Independent assurance Third level of assurance Oversight (portfolio committees / councils) Public accounts committee External audit Required assurance levels Extensive Management’s assurance role Oversight’s assurance role Role of independent assurance • 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 • 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 • 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 13

Commitment to action needed from Stakeholders Minister Entities National Treasury Portfolio and Public Accounts Committees Better value for money when using consultants Department of Public Service and Administration 14

Way forward by departments Compliance with supply chain management practices and contract administration must be ensured Sufficient internal capacity must be provided to enable the departments to deliver on their mandates Prescripts issued by the National Treasury and the Department of Public Service and Administration must be adopted and customised Extension of contracts must only be granted in exceptional cases and based on valid and documented reasons Staff development and training through the transfer of skills must be monitored Greater emphasis must be placed on planning for the use of consultants The performance of consultants must be monitored to ensure that contractually agreed deliverables are met Better value for money when using consultants Procedures for closing consultancy contracts must be enforced 15

Comments from other role players Role player Department of Public Service & Administration National Treasury Guidelines will be reviewed in an attempt to strengthen the process for appointing consultants and Treasury Regulations will be enhanced The monitoring of compliance with legal frameworks related to consultants will be emphasised The annual departmental submissions of HR plans will be increased to a 100% compliance rate to support the HR planning Strategic Framework for the Public Service by 2014 Research will be conducted and appropriate interventions developed by March 2014 to reduce the vacancy rate and improve the recruitment processes Information on skills in the public service in relation to job requirements will be provided to contribute towards addressing the skills gap in the public service 16

Way forward Focus Areas • AUDITORGENERAL of SOUTH AFRICA Role Player • Ineffective management of consultants; • Unnecessary/ continuous contract extensions; • Consultants appointed for requirements which can be addressed by internal resources; • Over dependency on consultants as a result of unfilled vacancies; • Lack of transfer of skills resulting in continued dependence on consultants • Lack of implementation of the results of consultant’s work. • Develop procedures to address identified Focus Areas to be performed as part of Regularity Audit at all Departments for the 2012/13 financial year, also including SCM procurement testing. • Reporting of material findings noted from audits Way forward 17

Thank You 18