Integrated Financial Management System (IFMS) Background and Status

1. Integrated Financial Management System (IFMS)Background and Status

2. Key Programme Stakeholders • DPSA • Policy Ownership • Human Resource Management • Manage Corporate Reference Data for Human Resource Management • SITA • Execution of SITA’s mandatory services e.g. • Hosting services; and • Technical maintenance and support over the system life cycle • Provide Technical advisory services • National Treasury • Project Sponsor • Policy Ownership • Financial Management including Payroll • Supply Chain Management • Accounting Standards • Manage Corporate Reference Data for SCM, FIN • Manage transverse legacy systems Internal and External Assurance Providers

3. Established Governance Structure

4. Original vs. Revised Solution Architecture

5. IFMS 1 – Hybrid Solution

6. Timeline of Events – IFMS 1 FMS: Financial Management System URS: User Requirements Specifications TCF: Technical Committee for Finance

7. Timeline of Events – IFMS 1 AM: Asset Management HRM: Human Resource Management BI: Business Intelligence FIN: Finance

8. Key Challenges Experienced with IFMS 1 Phase I was completed as planned, however significant project delays were experienced in phases II and III, due to a number of challenges, including: • All stakeholders facing institutional challenges (including SITA not being able to capacitate itself with suitable software development resources) • It also became clear that integration of the various disparate systems would pose a formidable obstacle to the successful and cost effective implementation of the project • Technological constraints in hardware and development environment. • Audits of PMM and AM highlighted areas to be addressed such as aligning the system functionality to the URS requirements and developing a system access policy. Furthermore, though AM was implemented in NT and Limpopo Lead Sites, it was not used due to change management challenges.

9. Assessing the Status and Feasibility of IFMS 1 • Three project reviews were commissioned: • World Bank and Ernst & Young commissioned by NT • Gartner commissioned by SITA • The following table provides an indication of the dates when the reviews were completed and a brief overview of the recommendations

10. Assessing the Status and Feasibility of IFMS 1 • One of the elements that were considered during the reviews was the IFMS solution architecture. In this regard, all the reviews essentially came to the same conclusion, namely that the current hybrid solution architecture should be replaced by a solution architecture that consists exclusively of COTS modules. • It was specifically noted that on-going maintenance costs of the hybrid system would be prohibitive compared to those of a COTS-based solution. The development and maintenance of bespoke modules for the IFMS require large numbers of highly skilled technical professionals, who would have to be retained throughout the project life-cycle. • In the case of implementation of a COTS solution, module integration and on-going updates are less of an issue, and unit costs and skills requirements are less onerous.

11. Adoption of a Changed Solution Architecture The IFMS Steering Committee adopted the recommendation to acquire a single COTS solution for IFMS where customization changes to the system are kept to an absolute minimum (a so-called “vanilla” COTS), on 28 August 2013. When considering the revised approach to IFMS, it was envisaged that: • Neither the intention nor the intended outcomes of the IFMS project would be compromised. • All indications are that neither the project budget nor the implementation timeframes will be negatively affected in any material way. • Project maintenance, integration and upgrade costs will be reduced over the project life-cycle. • The capacity constraints will be addressed by the adoption of a single COTS solution Cabinet endorsed the proposed change to the Solution Architecture during November 2013.

12. IFMS 1 Costs

13. IFMS 1 Budget

14. Cost elements submitted to Cabinet

15. Cabinet: 2013 The Cabinet – • noted the status of the IFMS project; • noted the steps taken to promote governance and risk management, with particular reference to the introduction of a Programme Management Office (PMO) for this purpose; • noted that the IFMS Steering Committee would oversee the procurement process in line with the revised Project approach; • noted the revised implementation time frames of the IFMS; • noted a request that the Minister of Finance considers closer collaboration with Universities with a view to strengthening South Africa’s innovation capacity, especially with regard to software security development and the IFMS; and • approved the revised approach and solution architecture of the IFMS.

16. Impact - Cabinet: 2013 • Work on previous IFMS solution was paused soon after Cabinet decision • Decision taken in consultation with IFMS Steering Committee to maintain current IFMS functionality at lead sites, until deployment of new modules. • Engagements with service providers on the “old IFMS” to finalize existing agreements commenced. • A process was initiated by the IFMS PMO to gather information on Public Service policies and procedures as well as information on the current IFMS blue prints. This information would be used to identify any policy or procedure that will have to be adapted for a “vanilla” COTS solution, and/or where the system has to be changed to accommodate the policy and procedure. • Close-out of IFMS 1 governance structures

17. Position on Fruitless and Wasteful Expenditure • When incurring expenditure on IFMS 1 prior to the change in direction, it was done with the intention of completion the project as determined by Cabinet; • All development was halted as soon as Cabinet approved the change in solution in November 2013; • Still using IFMS 1 solutions that were developed to completion (NT & DPSA); • Was estimated at the time that the solution could still be delivered within the original estimated budget (no additional significant costs would be incurred in delivering a COTS ERP solution); • All developed artefacts / hardware procured under IFMS 1 was assessed for re-use or re-deployment elsewhere;

18. Contractual Arrangements under IFMS 1As at November 2013

19. IFMS 2 – COTS Solution

20. Procurement of Software Licenses • The original RFP 1182 was published in March 2014 inviting service providers to bid for the provision of a COTS ERP solution, and its implementation at lead sites, with maintenance and support thereof for 12 months; • An objection was raised by a prospective service provider against some elements of the process such as response times, identified lead sites and partner restrictions; • Legal council was sought and it was concluded that the RFP should be cancelled and started afresh; • RFP 1282 for the procurement of software licenses was published during November 2014. Contract concluded in April 2016; • Have received request for information under the Promotion of Access to Information Act, 2000 by unsuccessful bidder; • All information has been submitted for consideration;

21. Software Licenses • Software licenses have been procured from Oracle Corporation (South Africa) Pty Ltd for entire public service; • Enterprise Perpetual licenses  no further capital investment, only annual maintenance and support fee payable;

22. Cost Summary2013/2014 – 2016/2017

23. Implementation approach and timelines Phase 1 - Completed with contractual agreement with Oracle (software only) Phase 2 - Focuses on the development of the Generic Template (GT), and its implementation in Pilot and Lead sites: 2A: Design and Template Development  18 Months, ending Nov 2018 • Planning, scope, objectives and approach; • Securing architecture and design services, • Procurement of implementation services and hosting infrastructure; • Develop Generic Template solution baseline; • Policy owners and assigned business representatives to participate in GT design phases to be as inclusive as possible. 2B: Pilot Site Implementation  12 Months, ending Nov 2019 • Refine and implement GT at Pilot Sites (DPSA and NT); • Establish the Centre of Excellence (CoE) including capacitation for support, maintenance, training, etc. 2C: Lead Site Implementation  18 Months, ending June 2021 • Further Refinement of GT at Lead Sites (Eastern Cape and Western Cape).

24. Implementation approach and timelines Phase 3 – National Roll-out • Planning for Phase 3 will be done at a later stage - dependent on strategy and resourcing. Standard departments (Generic Template) • Standardised roll-out of generic template to departments. Additional requirements to be considered through a formal change process. Differentiated departments (E.g. DOD, SAPS, Education and Health) • The implementation and hosting approach for the differentiated departments to be clarified. • Generic Template will be expanded to accommodate the differentiated departments’ legislative requirements, culminating into a revision of the Generic Template. • Generic Template will be locked down and formal change management processes will be put in place.

25. Implementation approach and timelines

26. SCOPE OF THE IFMS PAYMENTS REVIEW • Review, Objectives, Scope and Approach

27. SCOPE EXCLUSIONS • The review did not include the following: • Detailed contract reviews of service provider contracts (review limited to aspects relating to payments); • Supply chain processes relating to the appointment of services providers; • Quality assurance of deliverables associated with the payments made to service providers for the period under review; • Payment to service providers within 30 days to ensure compliance to the Public Finance Management Act (PFMA); and • IFMS payments prior to 1 April 2014 and after 31 August 2015.

28. OVERALL AUDIT OPINION • The Overall Audit opinion was as follows:

29. SUMMARY OF FINDINGS • Number of Findings • The Report had a total of 54 Findings • 49 of the Findings had a Catastrophic Risk Rating • 5 of the Findings had a High Risk Rating

30. Summary of Key Findings General

31. Summary of Key Findings General (Continued)

32. Summary of Key Findings (Bitz Technologies)

33. Summary of Key Findings (Bitz Technologies)

34. Summary of Key Findings (KPMG)

35. Summary of Key Findings (APEX)

36. Summary of Key Findings (Pilog and AGSA)

37. ACTIVITIES POST THE AUDIT • Process followed: • On 2 March 2016 Internal Audit presented their final report to the Audit Committee after having discussed and obtained management comments from management • On 18 March the Audit Committee presented the results of the review to the DG. • On 29 March 2016 the Audit Committee through its Chairperson formally wrote a letter to the DG reiterating their concerns after discussing the report with him and formally requesting appointment of an Independent Forensic Investigators under the control and direction of the Audit Committee. • The letter of the Audit Committee also requested that an independent quality and value for money assessment of all IFMS related payments be done. • The Audit Committee further requested that management implement all of the Internal Audit Recommendations. • The Audit Committee also committed to holding Special session with the IFMS Team to obtain feedback on progress on the project at least quarterly. Several of these have since been held.

38. APPOINMENT OF FORENSIC INVESTIGATION FIRM • Process followed: • The Audit Committee had requested the DG to formally respond to their letter by 14 April 2016. • The DG formally responded and agreed to the commissioning of a Forensic Investigation on 10 April 2016. • Through the Office of the DDG Corporate Services SCM was requested to initiate the process to appoint a Forensic firm. • The invitation to Bid RFQ16-2016 was then issued with a closing date of 24 May 2016 at 11am. • Initially the bid was advertised on an 80/20 principle which was later changed to 90/10 and bidders were asked to resubmit their bids which caused a bit of a delay. • The Bid Evaluation Committee eventually sat on 4 August 2016 with the Chair of the Audit Committee sitting in as an observer. • 6 Bids were received and Delloites were recommended as the successful service provider. • An SLA was signed with Delloites for them to commence work on 1 October 2016.

39. SPECIAL AUDIT COMMITTEES AND ACTIONS BY MANAGEMENT • Process followed: • On 12 July 2016 the Audit Committee convened a Special Audit Committee meeting with the IFMS team to discuss Progress on the project. • It is at this meeting where management also tabled their updated management comments and progress they had made in implementing the Internal Audit Findings. • Management had in their revised comments accepted majority of the Internal Audit findings and had already began implementing all of the IA recommendation as reported. • The next Special IFMS Audit Committee meetings were held on 28 September 2016 and 21 November 2016 where continued progress on how the Internal Audit Recommendations were being implemented continued to be shared.

40. SPECIAL AUDIT COMMITTEES AND ACTIONS BY MANAGEMENT • Process followed continued: • The Forensic Investigation was initiated / commenced however challenges were experienced with the Service Providers performance, integrity and Professionalism and the Audit Committee has decided to terminate the contractual obligation the Department has with them and have requested that a different Service Provider be appointed to continue with the investigation. • The process to appoint a new service provider is currently underway. • The DG requested a suspension of all IFMS PMO payments on the 07th August 2017. • Re-organisation of the management of the IFMS project.

41. ANY QUESTIONS…?