2014/10/08 1

Economic Development Department2013/14 Annual Report

Finance & Human Resources

Presentation to the Portfolio Committee on Economic Development

16 October 2014

Overview

Overall Performance Level Number of KPIs

Total Number of KPIs 38

KPIs with Targets exceeded 11

KPIs with Targets met 26

KPIs with Targets under-achieved 1

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• EDD delivered effectively on the 206 core business KPIs and in relation to the 22 Administrative targets, we under-achieved on 1.

• The Department is able to resource the core business for delivery on the APP. There is room for improvement in the demand planning and recruitment of staff.

• The management systems of the Department are settling. Improved stability of staffing will enhance this.

• Governance is improving through risk management, internal audit, ICT governance, security management and the system of management; and the audit committee oversight support.

• In response to the AG queries on performance information, a comprehensive review was undertake. This information was resubmitted and accepted by the AG.

Financial Performance

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• For the year under review the department spent 99.99%

of the allocated budget as compared to 96.7% in

2012/13.• Under-spending has reduced from 3.3% to 0.01% in

2013/14 (see Table on slide 5).• This constitutes a reduction of 3.29% ( see slide 5).• In slide 7, there is a variance of -100%; this is just an

indication that in the previous year there was a transfer

and in this year there was no transfer to universities and

technikons.

Financial Performance per Programme

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Programmes

2013/14 2012/13Annual Budget Expenses Variance Annual

Budget Expenses Variance

R'000 R'000 R'000 % R'000 R'000 R'000 %

Administration 91 342 91 301 41 0.04% 62 931 55 394 7 537 12%

Economic Policy Development 23 891 23 886 5 0.02% 19 197 11 575 7 622 39.7%Economic Planning and Coordination 644 515 644 511 4 0% 601 824 597 523 4 301 0.7%Economic Development and Dialogue 11 718 11 697 21 0.18% 12 565 8 981 3 584 28.5%

Total 771 466 771 395 71 0.01% 696 518 673 473 23 045 3.3%

Year on Year Performance per Programme

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Programmes 2013/14 2012/13 Variance

Administration 99.96% 88.0% 11.96%

Economic Policy Development 99.98% 60.3% 39.68%

Economic Planning and Coordination 100.0% 99.3% 0.70%

Economic Development and Dialogue 99.82% 71.5% 28.32%

Total 99.99% 96.7% 3.29%

Total (R’000) 771 395 673 473 97 922

Financial Performance per Economic Classification

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Programmes

2013/14 2012/13Annual Budget Expenses Variance Annual

Budget Expenses Variance

R'000 R'000 R'000 % R'000 R'000 R'000 %

Compensation 70 948 70 922 26 0.04% 70 399 62 074 8 325 11.8%

Goods & services 66 277 66 239 38 0.06% 69 562 58 544 11 018 15.8% Departmental Agencies 273 603 273 603 0 0% 249 220 249 220 0 0% Universities & Technikons 0 0 0 0% 12 280 12 280 0 0%

Public Corporations 353 979 353 979 0 0% 289 328 289 327 1 %

Households 499 495 4 0.8% 223 222 1 0.4% Machinery & equipment 6 160 6 157 3 0.05% 5 506 1 806 3 700 32.8%

Totals 771 466 771 395 71 0.01% 696 518 673 473 23 045 3.3%

Financial Performance per Economic Classification

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Programmes 2013/14 2012/13 Variance

Compensation of Employees 99.96% 88.2% 11.76%

Goods & services 99.94% 84.2% 15.74%

Departmental Agencies 100 .0% 100 % 0%

Universities & Technikons 0% 100 % -100%

Public Corporations 100.0% 100% 0%

Households 99.20% 99.6% -0.4%

Machinery & equipment 99.95% 32.8% 67.15%

Totals 99.99% 96.7% 3.29%

• Compensation of Employees’ baseline allocation is for 166 posts. The targeted number as per the approved APP2013/14 was 146. In the Adjusted ENE, EDD did a straightline projection based on historical spending for the first 5 months of the year and projected for the remainder of the 7 months on a number of posts.

• Savings realised in compensation of employees was utilised to absorb: o Increased office space (Block G): R7.5 milliono Increased legal fees: R6.7 milliono The PICC publicity campaign: R19.1 milliono The Video Conference facility: R 456 thousando Budget cuts to sefa’s economic competitiveness funding by R50

million: R15 million.

• Unlike in 2012/13, the department did not receive any unsolicited additional funding in the Adjusted Estimates of National Expenditure (AENE)

• Spending for the 2012/13 financial year was hampered by the additional funding received to develop capacity for the Economic Regulatory Bodies (ERBs) during the AENE and could not be implemented on time.

Improvement of spending Year on Year

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KPIs

Total Number of KPIs 38

KPI’s with targets exceeded 11

KPI’s with targets met 26

KPI’s with targets under-achieved 1

Overall Performance for 2013/14

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R’000

Budget 771 466

Expenditure 771 395

Under spending 71

Post numbers funded 166

Post numbers (APP target) 146

Staff employed 139

KPIs

Total Number of KPIs 5

KPIs with targets Exceeded 1

KPI’s with targets met 3

KPI’s with targets under-achieved 1

Performance for the 2013/14 - Programme 1

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R’000

Budget 91 342

Expenditure 91 301

Under spending 41

Funded Post numbers 77

Staff employed 73

KPIs

Total Number of KPIs 11

KPIs with targets Exceeded 3

KPI’s with targets met 8

KPI’s with targets under-achieved 0

Performance for the 2013/14 - Programme 2

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R’000

Budget 23 891

Expenditure 23 886

Under spending 5

Funded Post numbers 24

Staff employed 18

KPIs

Total Number of KPIs 14

KPIs with targets Exceeded 6

KPI’s with targets met 8

KPI’s with targets under-achieved 0

Performance for the 2013/14 – Programme 3

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R’000

Budget 644 515

Expenditure 644 511

Under spending 4

Funded Post numbers 49

Staff employed 31

KPIs

Total Number of KPIs 8

KPIs with targets Exceeded 1

KPI’s with targets met 7

KPI’s with targets under-achieved 0

Performance for the 2013/14 – Programme 4

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R’000

Budget 11 718

Expenditure 11 697

Under spending 21

Funded Post numbers 16

Staff employed 14

Transfers to Entities

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Description

2013/14 2012/13

R'000 R'000

Industrial Development Corporation 108 000 109 000

Industrial Development Corporation: Sefa 245 979 171 330

Competition Commission 176 888 157 211

Competition Tribunal 16 945 15 798

International Trade Administration 79 770 74 403

Total 627 582 527 742

1. The additional R15 million transferred to sefa for the budget shortfall of the 2014/15 ECSP allocation is included in the above figure.

Revenue Performance

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Description

2013/14 2012/13

R'000 R'000

Sales of goods and services other than capital assets 23 21

Fines, penalties and forfeits 1 037 454 617 344

Interest, dividends and rent on land 50 229 50 106

Transactions in financial assets and liabilities 9 836 1 191 Total 1 097 542 668 662

Revenue collection increased from R669 m to R1.1b and this was largely due to the increase in fines and penalties imposed by the Competition Commission.

1. Fines, penalties & forfeits are imposed by the Competition Commission and confirmed by the Competition Tribunal.

2. Interest is earned from the Commercial bank 3. Dividends are received from Industrial Development Corporation

Employment and vacancies by programme as at 31st March 2014

Note: additional comments on this table on the Annual Report ( page 77, table 3.2.1 )

Employment and vacancies by programme as at 31st March 2014

Note: additional comments on this table on the Annual Report ( page 77, table 3.2.1 )

Human Resource Management

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Programme Number of posts on approved establishment

Number of posts filled

Vacancy rate against approved establishment

Number of employees additional to the establishment

Vacancy rate against APP target

Administration 77 73 5.48% 3

Economic Policy Development

24 18 33.33% 0

Economic Planning Coordination

49 31 58.06% 0

Economic Development and Social Dialogue

16 14 14.29% 0

Total166 136 22.06% 3 5.04%

• EDD’s mandate requires relatively little routine administration and requires high-level professionals and managers to analyse economic developments, propose sustainable and practical responses, to work constructively with stakeholders inside and outside the state, and to oversee and support major regulatory and development finance institutions.

• EDD’s approved post establishment is funded over the MTEF to 166 posts. Parliament endorsed the APP for 2013/4 with a target for staffing of 146 – set to allow the Department time to source high-quality staff each year and to progressively achieve its full approved post establishment over a three-year period.

• As at the end of March 2014, the staff complement of the department was at 139 officials, which was 4.8% short of the departmental annual target of 146 at the end of the 2013/14 financial year. In the Adjusted ENE, Finance did a straight-line projection based on historical spending for the first 5 months of the year and projected for the remainder of the 7 months not on a number of posts given that a restructuring process was being considered.

• Achieving the 146 target faced challenges. – Caution was exercised in filling senior posts, given the department’s need for some

restructuring. – Decision to only fill high priority posts in the last quarter in order to achieve savings

so as to improve funding for sefa. – The shortage of skills in the market impacted on the filling of posts. The line

functions of the department are dominated by very high-level professionals and managers with relatively scarce skills such as economics and spatial planning that cannot be filled overnight. Department has been engaged in a process of identifying the right people for the job.

Ensuring Appropriate Human Resources

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• To help deal with these challenges, EDD utilised staff provided by other agencies for the PICC work. – Currently, about 70 people across the government assist the EDD in overseeing and

supporting the build programme. This approach has mobilised expertise from all spheres of the state. It is a very helpful arrangement, but it is not sustainable. In future, the EDD will have to bear some of the staff requirements on its own budget structure.

– The EDD was also able to secure short-term secondments of staff from the Independent Development Trust (IDT) and sefa for special projects, and from other departments for activities requiring specific skills. Although the Department only filled 139 of the targeted posts, it was able to realise its mandate effectively in each of its core areas of work.

• Since the staffing model relies on both short-term contract employees and secondments as well as permanent positions, the turnover rate is unusual compared to departments that are able to rely more on permanent staff.

• Going forward, the EDD will focus on filling the remaining managerial and professional positions. Senior expert positions that are advertised will be subject to a simultaneous headhunting process. There will be care taken to create a balance between recruiting and appointing quality staff.

• EDD made considerable progress in terms of organisational development over the past year. This lays the basis for EDD to fulfil its increased responsibilities under the new MTSF adopted by the in-coming fifth Administration.

Ensuring Appropriate Human Resources cont’d

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The department has been doing well on the Management Performance Assessment Tool, with scores showing an upward trend from the 2011/12 assessment period to the 2013/14 assessment period. This is a demonstration of departmental governance structures, policies and system s that have been put into place to make sure that the department achieves its strategic objective goals.

The department has been doing well on the Management Performance Assessment Tool, with scores showing an upward trend from the 2011/12 assessment period to the 2013/14 assessment period. This is a demonstration of departmental governance structures, policies and system s that have been put into place to make sure that the department achieves its strategic objective goals.

Management Performance Assessment Tool

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KPA 2011/12 2012/13 2013/14

1. Strategic Management 2,7 3,0 3,0

2. Governance and Accountability 2,2 1,6 2,5

3. Employees, Systems and Processes 1,7 1,8 2,2

4. Financial Management 2,3 3,0 2,1

Average scores 2,2 2,4 2,6

Financial Management: a disposal committee had not been appointed and not paying some invoices within 30 days. The disposal committee has since been established and consequence management for non compliance.

Auditor–General Report

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Audit Outcome The department obtained an unqualified audit report One emphasis of matter relating to the incorrect accounting of

departmental revenue, according to Par 7 of the Modified Cash Standards, which requires that revenue collected by the Competition Commission but paid to the National Revenue Fund through EDD not to be disclosed by the Department as it does not directly relate to EDD’s operations.

The department obtained approval from National Treasury (Office of the Accountant General (OAG)) to depart from par 7 of the Modified Cash Standard.

OAG has also promised to review the standard as this contradicts the MTEF/ENE process that requires revenue collected by entities to be projected by the Departments

Outcomes of Auditor–General Report

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The management report issued by the Auditor-General for the 2013/14 financial year reflected 41 findings compared to 70 findings in the 2012/13 financial year, of which 16 were repeat findings from the 2012/13 financial year:46% (i.e. 19)of the findings relate to Human Resources Management27% (i.e. 11) of these findings relate to Financial Accounting (7) and Supply Chain Management (4) The remainder 27% (i.e 11) relate to Planning (3), Information Technology (2), Management Accounting (1), and Internal Audit (1), Financial Accounting and Management (1), Financial Accounting and Human Resources (2), OCFO and Financial Accounting (1).

Outcomes of Auditor–General Report

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Area of responsibilityNo. of

Findings%

Matters Affecting the Audit

%

Internal Audit 1 2% 0% Management Accounting 1 2%   0% Financial and Management Accounts 1 2%   0%

OCFO and Financial Accounting 1 2% 1 33.3%

Information Technology 2 5%

Planning 3 7%   0% Financial Accounts & Human Resources 3 7%

Supply Chain Management 4 10%

Financial Accounting 7 17% 2 66.7%

Human Resources Management 19 44%

Totals 41 100% 3 100%

• The area with the high number of findings is Human Resources Management with 19 findings and 10 repeat findings from 2012/13 financial year.

• The turn over of leadership in Corporate Management and HRM has impacted negatively on business continuity in addressing audit findings, while middle management staff have neglected to drive the correction. This will be investigated.

• The Heatmap Process will pay special attention to the repeat audit findings

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Outcomes of Auditor–General Report

FINDING NO OF REPEATS

Status of implementation of previous year(s) recommendation

Employee verification not performed 2 Not addressedHR Oversight report 1 Not addressedLeave balances misstated 2 Not addressedLeave not captured on time 3 In progressOvertime not approved in advance 2 Not addressedOvertime allowance incorrectly calculated 1 Not addressedHigh vacancy rate 3 In progressVacant SMS posts not advertised 3 In progressNo job descriptions for new appointments 3 Not addressedPerformance agreements for the 2013/14 period signed after 31 May 2013

2 Not addressed

SMS members without performance agreement 2 Not addressed

Auditor–General Report

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• Material misstatements in the annual financial statements (AFS)o Areas:

• Disclosure notes (3 areas)• Receivables: error in capturing a sub note in the word version of

the AFS• Accruals: a claim received from the Department of Justice for a

service rendered in March 2014 not recognised in the AFS• Asset disclosure note: Inconsistencies in the layout of the asset

comparative disclosure noteo Remedies

• EDD already compiles monthly disclosure notes with the detailed working file and relevant supporting documents

• Legal services is now required to ensure that all services sourced via the Dept. of Justice are recorded with SCM as commitments/accruals

• The current method is being implemented as directed in the guide, the OAG has been contacted to provide a consistent template.

• Increased from R61 thousand to R592 thousand• Root causes

– Consultant appointed without a tax clearance certificate– Consultant engaged with a certified copy of the tax clearance certificate– Consultant engaged in periods where tax clearance was not provided– Verification of officials details using a service provider whose term had lapsed– Engaging a service provider without following SCM processes– Overtime worked without prior approval– Overtime paid in exceeds 30% monthly basic salary– Acting allowance paid beyond the permitted timeframe

• Controls implemented– Only original tax clearance certificates are accepted from potential service providers– Tax clearance certificates are verified before payments are effected– All procurement is initiated at SCM– SMS members acting longer than 6 months will not be paid– Transactions will not be processed for overtime not pre approved.

Irregular expenditure

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A consolidated ‘heatmap’ to rectify the audit findings has been compiled, which reflects responsible persons and timeframes to rectify each finding

In the Heatmap process, specific attention is given to the priority areas of the AG findings such as performance information but most importantly to repeat findings around human resource management matters

‘Heatmap’ mitigation plans are being monitored every second Friday at the progress meetings, attended by the process owners & chaired by the CFO. Internal Audit attends these meetings and will audit the corrective measures that have been implemented as part of the audit coverage plan

Progress reports on the implementation of corrective measures are presented to the Audit Committee, Executive Authority, DG and EXCO.

Commitments on addressing Audit Issues

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• The new APP and the identification of clear outputs for delivery in 2014/15 will build on this and lead to a more focused use of resources of the Department to impact on economic development.

• Improved quality control over quarterly reporting and submission of evidence in support of quarterly reporting has been put in place

• Alignment of budget programme structure with the revised strategic outcomes has been effected and will be visible in the 2015 ENE, Strategic Plan and Annual Performance Plan (APP)

• Review of the organisational structure is at an advanced stage

• EDD is in the process of implementing a human resource management turn-around strategy as well as addressing the audit findings

• On going work on monitoring controls – heatmap

Conclusion

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THANK YOU

SIYABONGA