PRESENTATION TO PARLIAMENTARY PORTFOLIO COMMITTEE ON HIGHER EDUCATION AND TRAINING

1. PRESENTATION TO PARLIAMENTARY PORTFOLIO COMMITTEE ON HIGHER EDUCATION AND TRAINING 26 FEBRUARY 2014

2. AGENDA • Introduction • Strategic overview • Vision, mission, values • 2012/13 financial performance • 2012/13 annual report • Auditor General’s report • 2012/13 non-financial performance • Learning programmes, ETQA • Human Resources • Information and communications technology • Project progress • IT initiatives • Conclusion

3. INTRODUCTION • The SETA received a disclaimer audit opinion for the financial year 2011/2012. • The SETA failed to table it’s annual report by end of August 2012 for same financial year. • The SETA also failed to submit for approval by the Executive Authority a draft Strategic Plan and Annual Performance Plan for 2012/2013 by end of August as required. • The Auditor-General warned (in a letter dated February 2013) that if no intervention was made, another disclaimer was imminent. • The SETA was placed under Administration the 20th of March 2013, following these and many other serious governannce and management failures. • This means that during the year under review the SETA was under the stewardship of the previous board and management. • The Administrator and his team were only at the helm during the period of audit, and oversaw the process of compiling the annual report.

4. STRATEGIC OVERVIEW

5. STRATEGIC OVERVIEW OF LGSETA • The Local Government Sector Education and Training Authority (LGSETA) was established in terms of the Skills Development Act of 1998, in March 2000 and its license of operation was further extended for a five year period in March 2005 and will lapse on 31 March 2010. Renewal or extension of the SETA license of operation will be determined by the Minister of Higher Education and Training in terms of the provisions of the Skills Development Act of 1998. • In 2009 responsibility for all SETAs was moved from the Department of Labour to the newly established Department of Higher Education and Training. The LGSETA was recertified by the Minister for the National Skills Development Strategy lll period (2011-2016). The LGSETA has aligned its contributions to the implementation of National Skills Development Strategy lll (NSDS lll) primarily to support the achievement of OUTCOME 9 of the Cabinet Programme of Action, which aims to improve the effectiveness and efficiency of skills development system within the local government sector. The strategic outcome of the SETA will therefore produce a skilled and capable local government workforce.

6. STRATEGIC OVERVIEW OF LGSETA continued • VISION • The foremost SETA producing an extraordinarily, skilled and capable local government sector • MISSION • To promote and co-ordinate skills development initiatives and strategic sectoral training interventions, to enhance efficiency and effectiveness of the local government sector through: • Conducting sectoral skills planning and research. • Developing and implementing quality learning programmes and relevant occupational qualifications. • Monitoring and evaluating the performance of training initiatives. • Communicating and marketing skills development and career advancement; opportunities. • The approval and disbursement of skills development grants.

7. STRATEGIC OVERVIEW OF LGSETA continued • VALUES • Ubuntu • We embrace the principle of humanness as ingrained in our African culture. • We adopt the 8 service delivery principles of “Batho Pele”. • Transparency • We commit ourselves to be clear in the pursuit of our mandate and ensure that all our activities, strategies, policies and decisions are communicated to our stakeholders. • Sustainability. • We take cognisance of the effect of global climate change. We thus commit ourselves to conserve the environment for sustainable development. • Professionalism • We commit to impartiality, fairness, competence and shall exercise diligence in the execution of our duties. • Integrity • We are committed to preserving the good image of the LGSETA by upholding good ethical standards through: • Avoiding conflict of interest in what we do. • Safeguarding LGSETA assets. • Delivering value for money. • Avoiding self-enrichment.

8. TERMS OF REFERENCE OF ADMINISTRATOR • Take over the role of the Acounting Authority as provided for in the PFMA. • Ensure that the LGSETA complies with areas of concern of the Auditor General (AG), and avert another disclaimer. • Ensure the implementation of NSDS3 within the context of local government and proper management of funds. • If necessary, establish chambers. • Review the terms and conditions of employment of the CEO, CFO and other employees of the SETA • Review the general governance policies. • Suspend, institute disciplinary proceedings, or replace where necessary any official, for reasons as contemplated in terms of relevant legislation. • Consult widely with stakeholders in the sector in order to adopt a standard constitution, and facilitate the appointment of the new board. • Although we are here presenting work and performance of the year before administration, we will also account for what has been achieved since the SETA was placed under Administration, in line with the ToR.

9. 2012 / 2013 FINANCIAL PERFORMANCE

10. FINANCIAL PERFORMANCE OVERVIEW SKILLS DEVELOPMENT INCOME: SUCCESSIVE YEAR ANALYSIS Levy income generated continues to rise with the increase in employment statistics of employers. Investment Income however, reported a steady decrease in comparison to earlier financial years.

11. FINANCIAL PERFORMANCE OVERVIEW continued DISTRIBUTION OF LEVY INCOME – 2012/2013

12. FINANCIAL PERFORMANCE OVERVIEW continued LEVY INCOME: PROVINCIAL ANALYSIS Levy income reported an overall 8% increase from 2011/2012 to 2012/2013 levy. The usually highest participating region, Gauteng, reported decreased margins compared to other smaller provinces, namely, Western Cape, North West, KwaZulu-Natal and the Eastern Cape.

13. FINANCIAL PERFORMANCE OVERVIEWcontinued • MANDATORY GRANTS DISBURSED: PROVINCIAL ANALYSIS • Mandatory Grant participation reported an overall 1% decrease from the 2012 to 2013 levy years. • Numbers still remained high with Gauteng, Western Cape and KwaZulu-Natal reporting the highest statistics.

14. FINANCIAL PERFORMANCE OVERVIEW continued DISTRIBUTION OF BUDGET VS. EXPENSE DISCRETIONARY GRANTS Discretionary Grant projects were at a minimum in 2012/2013. Many projects that were intended for engagement did not materialise as SCM processes were hampered in advertising tenders.

15. DISTRIBUTION OF BUDGET VS. EXPENSEMANDATORY GRANTS FINANCIAL PERFORMANCE OVERVIEW continued Mandatory Grant disbursement under performed to budget by R19.9 million in 2012/2013 in comparison to 2011/2012 where disbursements exceeded budget. However the total disbursed in 2012/2013 exceeded that of 2011/2013, this is due to higher SDL being paid by employers thus an increase in employment statistics.

16. FINANCIAL PERFORMANCE OVERVIEW continued DISTRIBUTION OF BUDGET VS. EXPENSEADMINISTRATION The Administration Programme performed at R3 million less to budget in 2011/2012 but reported a R9 million under performance target in 2012/2013. This was due to vacant position not being filled in 2012/2013.

17. FINANCIAL PERFORMANCE OVERVIEW continued SURPLUS FUNDS 2010/2011 realised a deficit, whereas 2011/2012 and 2012/2013 realised surplus funds which were swept to the discretionary fund reserve of R728 thousand and R62,154 million respectively.

18. FINANCIAL PERFORMANCE OVERVIEW continued ACCUMULATED RESERVES Accumulated reserves has risen by R49 million since 2009/2010. This is mainly due to a minimum of Discretionary Grants projects being rolled out in the fiscal year 2012/2013. Committed funds at year end were R153 million. An application to retain the reserves was instituted in 2013/2014, this application was granted.

19. REMUNERATION OF ACCOUNTING AUTHORITY MEMBERS

20. FINANCIAL PERFORMANCE: AUDITOR GENERAL REPORT • In the 2012/2013 financial year, LGSETA received a qualified audit opinion. The basis of opinion was: • Discretionary Grants Reserve Commitments: The Auditor General (AG) found no proper records and reconciliation were maintained for Discretionary Grant Reserve Commitments and that the Accounting Authority did not approve commitments relating to 2012/2013 and prior years. • Finance has reworked the Commitment Schedule and corrected it accordingly. • Minutes of the approval of prior year projects have been ratified by the administrator, and current year projects have been approved. • System enhancements, system delegations, monthly reviews and approvals will be done to further ensure this item is not repeated in the current and following years. • Irregular Expenditure: The Auditor General found irregular expenditure was not properly recorded and thus uncertainty arose whether all irregular expenditure had been disclosed in the Annual Financial Statements. • A new procedure has been implemented to monitor and report on irregular expenditure. Prior year’s irregular expenditure will be restated and a process is underway to report and condone prior year irregular expenditure.

21. EMPHASIS OF MATTER Other matters of emphasis were: Restatement of figures in the annual financial statements; Finalisation of review of schedule of opening balances, has been done and opening balances has been restated. Predetermined performance objectives were found to be inconsistent, not specific, not verifiable, not well defined and unreliable. This has been noted and has been addressed in the 2014/15 Strategic plan and APP.

22. ADDITIONAL MATTERS Compliance with Laws and Regulations: Annual Financial Statements, Performance Report and Annual Report were not prepared in accordance to section 55(1)(b) of the PFMA. Material misstatements were recorded in the Annual Financial Statements. Some of these misstatements were corrected, misstatements not corrected at year end were on commitments which resulted in the qualified opinion. An adequate year end plan to submit financial statements with no material misstatements in place.

23. ADDITIONAL MATTERS continued Non compliance to Treasury Regulation 27.2.1, the Accounting Authority did not approve a risk management strategy which was included in the fraud prevention plan. This was also not communicated to employees to ensure that all emerging risks of the entity were identified. Full implementation of corrective processes as per risk assessment is underway. Procurement Contract and Management, non compliance to Treasury Regulations prescribing 3 price quotations, a competitive bidding process, adherence to the PPPF, expansion of contracts above 15% of the original contract value, as well as non compliance with the Income Tax Act by not withholding and paying over 25% to SARS. The Supply Chain Management Policy has been finalised and implemented and complies with the relevant legislation. There were no preventative steps to prevent irregular expenditure and fruitless and wasteful expenditure as required by the PFMA. Approval processes are in place to prevent irregular expenditure and fruitless and wasteful expenditure as required by the PFMA.

24. INTERNAL CONTROLS Leadership: Internal controls were not designed an implemented effectively to ensure the leadership function carried out its duties with honesty, ethical business practices and in the best interest of the entity. Financial and performance management: Improvements in financial and performance management were not fully realised. The review and monitoring controls were not effective in preventing and detecting misstatements in the financial statements and supporting information disclosures in the financial statements Internal control processes have been reviewed and improved to comply with the requirements of the finding.

25. GOVERNANCE Management did not implement appropriate risk management activities to ensure that regular risk assessments, including consideration of IT and fraud prevention. Management has completed a risk assessment process and the internal audit plan has been developed based on the risk assessment. The Accounting Authority, other governance structures and internal audit did not appropriately address identified internal control deficiencies and non-compliance with laws and regulations reported in the prior year and during the interim audit. The internal audit function was not functional through out the year. An adequate risk based internal audit plan is currently being implemented. Certain sections have already been completed and audit reports submitted to management.

26. 2012/2013 NON-FINANCIALPERFORMANCE ETQA, Learning Programmes, SSP

27. Programme 1: ETQA

28. Programme 1: ETQA continued

29. Programme 2: Learning programmes

30. Programme 2: Learning programmes CONTINUED

31. Programme 2: Learning programmes CONTINUED

32. LEARNING PROGRAMMES • Performance against SLA target with The table below illustrates targets for 2012/13 as well as performance against targets

33. Programme 3: Sector Skills Planning

34. Programme 3: Sector Skills Planning CONTINUED

35. 2012/2013 NON-FINANCIAL PERFORMANCE HUMAN RESOURCES

36. BACKGROUND • When Administrator assumed his new role, he commissioned a formal diagnostic exercise and the findings confirmed the following: • Risk exposure due to non-compliance with the South African regulatory environment and related stipulations. • Human capacity challenges in terms of a shortage of resources in critical areas. • Misalignment of operational structure to the organisational mandate. • A perceived lack of critical institutional infrastructure systems, policies and processes. • Existence of a crippling silo mentality exacerbated by lack of credible managements systems to integrate an organisation with a national footprint such as the LGSETA is. • An inherent leadership vacuum. • A persistent organisational culture that does not foster good organisational values.

38. PERSONNEL COSTS PER PROGRAMME

39. PERSONNEL COSTS BY SALARY BAND

40. EMPLOYMENT AND VACANCIES The current organisational structure is outdated and misaligned to the organisational mandate. Since 2010, the organisation has been going through a reorganisation process which had still not been finalised as at the end of the year in review. As a result, there was a moratorium placed on all recruitment until November 2012 when the Board directed that limited duration contractors should be appointed to create capacity. Contractors were appointed outside of the approved structure.  

41. EMPLOYMENT CHANGES The list includes all staff movement including positions that were additional to the establishment but excluded the interns*

42. EMPLOYEE RELATIONS 2012/13

43. EMPLOYEE RELATIONS 2013/14

44. EMPLOYEE RELATIONS: ONGOING DISCIPLINARY MATTERS • Disciplinary action initiated against the CEO – Resigned amid proceedings. • Total of four (4) staff members: • 1 Provincial Manager • 1 Supply Chain Officer • 1 Communications Officer • 1 Communications Administrator

45. HUMAN RESOURCES TURNAROUND STRATEGY: PRIORITY FOCUS AREAS

46. HUMAN RESOURCES INITIATIVES • Approved LGSETA organisational structure. • Migration from old to new establishment. • LGSETA approved, adopted business process analysis and redesign. • LGSETA approved job profiles. • Development of organisational policies and procedures. • Creating capacity within LGSETA • Establishment of PM Unit Appointment of Executive Support Team for Administrator

47. INFORMATION & COMMUNICATION TECHNOLOGY

48. ICT Strategic Goal • In the 2012/2013 financial year, LGSETA committed to ensuring a sound and prudent financial and information management systems. • This goal aimed to achieve the following: • To meet legal and best practice management of finance and the organisation’s information and data. • To ensure that the organisation has a reliable and credible financial and information management system to achieve it mandate. • To maintain LG SETA’s visibility within the Local Government and all related sectors. • To implementation an information systems that is cutting edge to enable a LGSETA that is prudent in producing a skilled and capable local government sector.

49. ICT Governance • In the 2012/2013 financial year, LGSETA received a qualified audit opinion. The basis of opinion was: • Financial and Performance Management: The Auditor General found that designed ICT controls were not implemented to ensure that the financial and performance report was supported by accurate, complete and reliable information. • Governance : The Auditor General found that appropriate ICT risk management activities were not conducted and that an ICT Risk Strategy that is aligned to the organisation Risk Strategy was not developed and ICT Risk not monitored. • Implementation of the DPSA CGICT Policy Framework Phase I • Deliverables of CGICT Policy Framework are: • Risk Management Policy • ICT Internal Audit Plan • Information Plan and ICT Security Policy • Business Continuity Plan (BCP) • Change Management Plan

50. ICT Additional Matters Other matters of emphasis were: An IT strategic plan was not designed to support the strategic objectives of the organisation; A new ICT strategic plan is under development. Unapproved Information and Technology Governance Framework LGSETA has adopted the DPSA CGICT Policy framework.