Third Party Funds Reforms and Enhancements

1. Third Party Funds Reforms and Enhancements

2. A Departmental Reporting Initiative In response to commitments made to parliament and oversight authorities the Department requested Scopa an opportunity to brief the committee and provide a progress report on developments and interventions in the management of Third Party funds Reflect on the service delivery innovations

3. THE Executive Authority Guidance • Clean financial outcomes for all accounts under the control of the Minister of Justice and Constitutional Development – November 2009 • Executive Authority guidance and continuous engagement with Auditor General • Confirmation of expected outcome by the Minister in the Strategic Plan and Annual Performance Plan – Clean audit by 2012/13 • The Departmental Response – Clearing of all qualifications on all accounts and funds administered by the Department except TPF Revenue

4. THE AG VIEW … 18 months ago • No financial statements were prepared for the Third Party Fund as no reliable financial information exists, for revenue to be determined. • The potential claims against the fund as a result of fraud, theft and loss to the Department are not complete. • The money collected on behalf of the State and not yet paid to the Department could not be ascertained.

5. SCOPA GUIDANCE AND DIRECTION • 1st Report of SCOPA adopted by the National Assembly on February 2011; • A proper financial system is developed or that the current features of the Justice Deposit Administration System (JDAS) are enhanced with the required controls to ensure complete, accurate and reliable financial information and reporting. • The vacancies at court level are filled with adequately skilled officials. • All fraud, cash shortages and losses are investigated timeously. • Disciplinary measures are taken against every official that does not comply with the policies and procedures or who was charged or found guilty of misconduct • These expected outcomes were confirmed during SCOPA visits during 2011 at Courts and National Office.

6. The TPF Challenge Unreferenced deposits Transaction Volumes 477 JDAS Databases Theft And corruption Expected Shortages Cash Collections/ Payments

7. The TPF Portfolio • Manage maintenance beneficiary monies (local and foreign), • Collect fines on behalf of government institutions (national, provincial, local and other authorities), • The safe-keeping of bail monies on behalf of depositors, • The safe-keeping of payments into court, and • The collection of debts on behalf of government institutions through the State Attorney and deeds transfers on behalf of government.

8. Administrative arrangements • These transactions are recorded on JDAS4 or SAS which are mainly administration systems with the main objective of delivering a service to the public. • As JDAS and SAS are case management systems it does not have sufficient financial capabilities and internal controls to allow for proper accounting principles in accordance with the Public Finance Management Act (PFMA) on TPF. • The administration part of the systems allow for capturing of case details of parties, court orders, etcetera while the current financial part of the systems allows for the recording of receipts, payments and provide for reports on these receipts and payments, although no reliable consolidated reporting functionality is available on JDAS or SAS.

9. The TPF landscape

10. The Third Party Funds Portfolio: Receipts

11. The Third Party Funds Portfolio: Receipts – Proportional Allocations per Module The Challenge : Unclassified Receipts

12. The Third Party Funds Portfolio: Regional Receipts

13. The Third Party Funds Portfolio: Receipts – Proportional allocation per Region

14. The Third Party Funds Portfolio: Payments

15. The Third Party Funds Portfolio: Payments into National Revenue Fund

16. The Third Party FundsStatement of Financial Position – Balance Sheet See concluded financial statements Department ready to submit 2011/12 financial statements

17. The Third Party Funds Portfolio: Cumulative Shortages

18. Banking Arrangements: Spread and Costs (2010/11)

19. We are not alone – International (HM) Experience The courts service risks losing around £1.4 billion in uncollected fines and other financial penalties by not being able to properly account for them, according to the National Audit Office, which laid part of the blame with the beleaguered £444 million Libra system. In a report to parliament, NAO auditor general Amyas Morse said HM Courts Service has been "unable to provide proper accounting records supporting fines, confiscation orders and penalties". This meant he "could not give an audit opinion on whether transactions and balances were complete, proper and appropriately raised". Morse said: "Because of limitations in the underlying systems, HM Courts Service has not been able to provide me with proper accounting records relating to the collection of fines, confiscation orders and penalties. I have therefore disclaimed my audit opinion on its accounts December 2011 ”

20. Service delivery enhancement through decentralized EFT payment channel Launched in Worcester – August 2010 Reduced turn around time – payment with 24/48 hours after identification has been concluded Management oversight and control Full audit trial Segregation of duties Actual number of courts rolled-out : 135 Number of beneficiaries paid through this system; 102,737 paid in June 2012 (18 months ago these individuals received their money via Pretoria (CEFTU)

21. EFT Payments – Maintenance: Data – June 2012

22. EFT Payments – Proportional Utilization of Decentralized EFT Over 99% of payments in the North West is directly in beneficiary bank accounts

23. EFT Decentralization – 2012 Priority Courts

24. The TPF Roadmap for Enhanced Management of TPF …. Effecting the Change Baseline Financial Reporting Business Case Business Process Review Legislative Review Capacitation

25. Targeted outputs and defined outcomes • Accountability • Transparency • Enhanced delivery • of • TPF • Services

26. Conclusion of Compressive Business Case • Option 1:Maintenance of the status-quo • Option 2: Outsourcing through a PPP • Option 3: Enhanced Public Sector Managed TPF • Selection: Option3 – Based on affordability and Employment consideration • Communication of selection to stakeholders ( Executive Authority, Parliamentary Committees and NT) Considerations: Value for Money, Affordability and Risk

27. Finalised a reporting framework for TPF • Annual Financial Statements 2009/10 -2010/11 • - 474 Courts • - 12 Corporate Accounts • - 11 State Attorney Offices (Accounts) • - 27 Million Transactions • - Consolidation • - Submission to AG for Audit • Interim Financial Statements – 2011/12 • - All Accounts as above as at 30 November 2011 • - Submission for Internal Review – 31 March 2012 • Annual Financial Statements – 2011/12 • - 30 June 2012

28. Personnel training • - Comprehensive training manuals developed • - Level 1 Training: • 41 Senior Financial Practitioners and Senior Managers • - Level 2 Training: • 116 Area Court Managers, Directors: Court Operations, National and Regional TPF staff and Financial Operations Managers trained by SAIPA accredited accountants • Personnel Appointments • - Funding secured for 45 finance practitioners at middle • management and technical level • - 25 contract appointments concluded whilst remainder • advertised (focus on regional consolidation and validation) • - 2 database administrators and 8 quality assurance and • technical personnel appointed on six months contracts

29. Revised and Standardized Business Process • - Concluded a review linking audit trails, daily reconciliations • and operational performance • - TPF processes standardized and process mapped • - Financial operations managers and Area Court managers • orientated on the standardized operating procedures • Next Steps: Training all court managers and checking • officers on standardized operating procedures • New Payment Channel • - Introduced decentralized EFT payment system at courts with • reduced cycle times • - Full audit trial and segregation of duty (key requirement) • -Reduction of payment time from10 days to within 24 and 48 • hours after beneficiary has been identified 4. Business Process and Systems Review

30. Lean management implementation • Adoption of lean management as a strategy to improve operational performance of DoJ&CD services (especially in relation to cash hall activities in maintenance section • Piloted at identified court at regional level for implementation • Understand what is of value to the end customer • 2. Identify the process steps that create value & remove those that are waste • 3. Make the work flow through the necessary value-creating steps • 4. Design and provide what the customer wants only when they want it • 5. Institutionalize sustained process improvement to strive for perfection 4. Business Process and Systems Review.. Continued

31. Possible Legislative amendments to be considered • - Amendments to Maintenance Act in relation to • direct beneficiary payments • Amendment of Criminal Procedure Act to redirect local authority admission of guilt fines to Municipalities • Investigate options to amend legislation for refunding of bail (Electronic refund of bail) • Legislation Governing TPF 5. Legislative Review

32. Next Steps • Accounting Officer Regional Workshops – Formal engagements and periodic follow up with regional heads and court managers (Targeting attitude and behavioral changes). • Conclusion and submission of 2012 financial statements. • Building and continuation of National Treasury and AG support. • Investigation of shortages – and initiation of disciplinary action now that that detail and quantum has been identified. • Engagement of fiscus – writing off and funding.

33. Next Steps • Further roll out of decentralized EFT payment systems • Lean management pilot conclusion and further roll out • Engagement with magistracy to promote direct maintenance payments • Stakeholder engagement – SALGA and Local authorities (admission of guilt fines) • Finalise systems review and initiate new system development • Finalise legislative framework – Governance for TPF • Performance management – TPF qualification equals no performance bonus

34. Thank You