Department of Transport

Department of Transport Portfolio Committee on Transport Audit on the use of Consultants 19 March 2013 1

Contents • Audit focus areas • Areas of deficiency • Transversal audit findings: • Efficiency • Economy • Effectiveness • Recommendations to the Department • Commitments by the Department • Key findings of the audit • Progress on key findings • Developments in the Department • Other detailed findings and responses 2

Planning and appointment processes Closing and finalising projects Internal capacity at departments Audit focus areas Training and transfer of skills from consultants to employees Extension of contracts Performance management and monitoring of consultants Audit focus areas Period covered: 1 April 2007 to 31 March 2009 3

Areas of deficiency 4

Transversal audit findings Efficiency Optimal relationship between outputs produced by consultants and resources expended by departments Economy Competitive procurement processes and permanent staff capacity where required Effectiveness Were the objectives that informed the appointment of consultants met? 5

Transversal audit findings: Efficiency • Expected services, roles, responsibilities and deliverables relating to milestones, timelines and applicable measures were not clearly specified. • Effective oversight and internal controls were not executed before authorising payments. • There was a lack of proper project management and monitoring of consultancy projects by the department. 6

Transversal audit findings: Economy • Needs assessments were not done before commencing consultancy projects. • Competitive procurement processes were not followed. • Bid documents did not include clear specifications regarding costs and time. • Consultants were appointed where permanent capacity should have been created. 7

Transversal audit findings: Effectiveness • Planning for the provision of financial and other resources necessary for projects and their implementation was not undertaken: • This delayed appointment processes, and • resulted in the late completion of projects. • Skills transfer from consultants to departmental staff was ineffective. • There was a failure to retrospectively analyse projects to determine whether objectives were met and to determine the benefits received 8

Recommendations to the Department • Competitive bidding should be followed for all appointments. • Contracts and payments should be monitored properly to ensure that the work done meets the contractual deliverables and needs. • The periods of consultants’ appointments should be managed and monitored closely. • The department should ensure that the original contractual deliverables have been met before extending a contract. • The planning for the provision of financial and other resources necessary for projects and their implementation should be ensured. 9

Progress on recommendations to the Department • Competitive bidding processes should be followed: • Done – any deviations reported and declared irregular • Contracts and payments should be monitored: • Ongoing process by project managers • The periods of consultants’ appointments should be managed and monitored: • Contract status report distributed monthly • Ensure that the original contractual deliverables have been met before extending a contract: • All extensions considered by Bid Adjudication Committee – deviations reported & declared irregular • Planning for resources necessary for projects ensured: • Procurement plans developed for 2011/12 and 2012/13 in line with Strategic Plans 10

Commitments received from the Department • The Department made various commitments to implement corrective action on the following : • eNaTIS contract (Establishment of a trading entity) • Taxi recapitalisation project (Appointment of a trustee) • The Department will consider execution and finalisation of the following projects: • Stakeholder consultations on the National Airport Development Plan • Capacity for monitoring the implementation of National Transport Master Plan by stakeholders. 11

Progress on commitments from the Department • eNaTIS contract (Establishment of a trading entity) • Approval to create the Trading Entity obtained • Taxi recapitalisation project (Appointment of a trustee) • Employee appointed as observer at Trustee meetings • Monthly reports done on funds generated and spent • Stakeholder consultations on the National Airport Development Plan • Consultations continuing and in process • Capacity for monitoring the implementation of National Transport Master Plan by stakeholders • A Chief Directorate: Macro Sector Planning was created with four planning Directorates, one of which is the Directorate: Master Planning, Implementation and Review 12

Key findings of the audit • Development of eNaTIS – R575 million • Contract expired on 31 May 2007. A transfer management plan was not compiled on the planned transfer of eNaTIS back to the State. The effect is: • The eNaTIS services have not been transferred back to the Department to date. • Internal capacity lacking. The Department committed to establish a trading entity and transfer services by April 2012. • Payments of R575 million were made to the consultant for the period June 2007 to April 2010, which included R305,7 million for software development. • The Department was only obliged to pay for software maintenance after expiry of the contract on 31 May 2007 and not for software development. • The Department extended the contract on 11 May 2010 for 5 years without following a competitive bidding process. • Information systems audit on project governance is currently being performed . 13

Key findings of the audit (Continued) • Taxi recapitalisation project – R639,9 million • Planning for the project • The scrapping allowance and extent of taxis to be scrapped was understatedand not properly considered. • The extra taxis to be scrapped and inflation adjustments resulted in additionalcosts of R2,1 billion, an increase of 29% on the original budget of R7,5 billion. • Proceeds of scrapped taxis not accounted for by the consultant to the Department. • Maritime pollution prevention response and services – R235 million • Contract was extended three times over a period of 21 months at a total cost ofR98,3 million due to ineffective planning by the Department. • Feasibility study done by the South African Maritime Safety Authority in 2008 could not be implemented because of delays in finalising tender processes for the renewal of the maritime pollution prevention response and service contract. 14

Key findings of the audit (Continued) • Events management project – R45,7 million • The scope of the project was changed internally without proper approval and two more events costing R4 million, were added to the scope of theconsultant’s work. • Summons will be issued by the Department to recover R2,9m from theconsultant for incorrectly charging fees. • Management of October Transport Month – R14,3 million • The prescribed minimum advertisement period was not followed. Appointment made only 5 days before the start of the event. The contract with another consultant was cancelled 13 days before the start of the event because of a competitive bidding process not being followed. • The consultant had access to information on the project before bids were invited and this gave the consultant an unfair advantage over other bidders. 15

Key findings of the audit (Continued) • Formulation of National Airports Development Plan – R10,2 million • The project was not completed in time, as additional services were added to the scope of the project. The plan was only finished internally by the Department 13 months after it was submitted to the Department by the consultant. • The plan has not yet been approved for implementation as stakeholder consultations still needs to take place. Funding for stakeholder consultation have not yet been approved. • Formulation of National Transport Master Plan – R56 million • Insufficient positions exist on the staff establishment of the Department for the implementation, monitoring and editing of the National Master Plan. 16

Progress on Key findings • Development of eNaTIS • Two legal opinionsindicate that the extension of the contract for another 5years from 1May 2010 onwards is invalid. • Appointed consultants to assist with negotiations with the service provider to facilitate the transfer of services. Negotiations broke down. • A court order was awarded in favour of the service provider for the Department to pay for services rendered. The expiry date will still have to be negotiated or determined by a court of law. • A legal opinion was obtained and forensic investigators were appointed to investigate the approval of change notes. The expenditure relating to change notes that were irregularly approved was declared as irregular expenditure. The draft forensic report was received on 7 February 2013, and a report recommending disciplinary steps was sent to the Director-General. • Senior Counsel advised that the Department should take steps to have the extension of the contract invalidated by a court and that the Department must then implement the transfer of the contract – decision pending. 17

Progress on Key findings (Continued) • Taxi recapitalisation project • The initial bid price was fixed at R639,928,000 over a period of 7 years. • The Service Level Agreement was corrected. • New scrapping allowances were agreed with National Treasury. Taxis are only scrapped to the extent that funds are available. • Reports on the proceeds and distribution of funds related to the sale of scrap metal are compiled on a monthly basis. • A taxi scrapping allowance as well as the cost of scrapping taxis were secured on the baseline budget of the Department and shall continue until the taxi scrapping initiative is restructured into a land transport subsidy. • The Director: Taxi Recapitalisation was appointed as observer to the Board of Trustees. • A Steering Committee was established to facilitate the review of issues relating to the performance of the contractor and to provide a forum for joint strategic discussion. • Contract being extended for 2 ½ years to implement public transport strategy. 18

Progress on Key findings (Continued) Taxi recapitalisation project (Continued) 19

Progress on Key findings (Continued) • Maritime pollution prevention response and services • The Department concluded a new tender process and the same service provider was appointed, having scored the highest points of new bids received. • The feasibility study was found unaffordable and the Department could not proceed to implement the recommendations that the Department should procure its own tug boat. • Events management project • The amounts were declared as irregular expenditure and the project manager was subjected to a disciplinary hearing and was eventually dismissed. • Legal action was taken by the Department to recover incorrectly charged fees. • In turn the service provider took legal action against the Department to have the fees paid to them. • Two legal opinions were obtained and a settlement agreement was reached between the Department and the service provider in January 2013. 23

Progress on Key findings (Continued) • Management of October Transport Month • The project manager was subjected to a disciplinary hearing and was eventually dismissed. • Formulation of National Airports Development Plan • The Department could not conclude all stakeholder consultations due to a lack of funds. • In the latest strategic plan, the Department planned to finalise internal consultations with public entities in 2011/12 and to finalise broader stakeholder consultations in 2012/13. • Cabinet approval and implementation is planned in 2013/14. 24

Progress on Key findings (Continued) • Formulation of National Transport Master Plan • The Department increased capacity to monitor and implement the National Transport Master Plan (NATMAP). • A Chief Directorate: Macro Sector Planning was created with four planning Directorates, one of which is the Directorate: Master Planning, Implementation and Review. • Implementation of NATMAP will be done by the various authorities and implementing agents in the country. • The role of the Department will be to promote the implementation strategies and to monitor the implementation by implementing agents. 25

Developments in Department as a result of the audit • A Sub-Directorate: Contract Management was created within Supply Chain Management and a Deputy Director: Contract Management was appointed. • A Compliance Unit was created in the Directorate: Internal Control under a Sub-Directorate: Internal Control and Compliance. A Deputy Director must still be appointed. • The Directorate: Risk Management and Internal Control was split into two Directorates to enhance the implementation of internal controls and risk management, as follows: Directorate Risk Management under the Office of the Director-General, and a Directorate Internal Control and Compliance under the Office of the Chief Financial Officer. • The strategic plan was revised according to the relevant guidelines from Treasury. Consultants were appointed to review plans and to ensure that the strategic plan complies with all prescripts. 26

Developments in Department as a result of the audit (Continued) • A Chief Directorate: Strategic Planning and Monitoring was created in the Office of the Director-General to improve on strategic planning and quarterly progress reporting. • Quarterly reports on the achievement of predetermined objectives are tabled at the Audit Committee and Executive Committee meetings. • A Guide For Managing Performance Information and Reporting in the Department and its Entities was developed and approved by the Executive Committee in July 2011. • A new Bid Adjudication Committee (BAC) was created, and new terms of reference (Rules of Procedure) was approved. • A Status Report on all active contracts are circulated monthly, indicating amongst others the start and end dates, the amount of the contract, amounts paid and remaining amount. 27

Developments in Department as a result of the audit (Continued) • A draft policy on the use of consultants was developed, which specifically addresses the matters that were raised in the audit report on the use of consultants. The draft policy must still be approved. • An electronic Contract Management System has been developed and staff was trained on the use of the system, which is able to generate exception reports and reports on the status of each contract. The system is not yet operational as the Novell platform is unstable. • A Contract Management Policy has been approved. It can however not be implemented until the Novell platform is stabilised to facilitate the implementation of the electronic Contract Management System. • Budgets were reprioritised to link to the strategic plan and procurement plans were developed for 2011/12 and 2012/13. 28

Developments in Department as a result of the audit (Continued) • Projects that were planned in the strategic plan and procurement plan were captured on the Basic Accounting System (BAS) to facilitate reporting on expenditure per project. • Expenditure on contracts are recorded in BAS per project to facilitate the monitoring of expenditure on contracts from BAS reports. 29

Other detailed findings and responses Finding: A panel of experts was appointed to assist Municipalities with preparations for the 2010 Soccer World Cup. Contracts were awarded without contract values despite correspondence from the Supply Chain Management unit. Response: The contracts were awarded with no ceiling amounts since the terms of reference had specified time based remuneration. Contracts were subsequently revised to indicate ceiling amounts. A Departmental circular was issued describing how to deal with panels of experts. Finding: A consultant was appointed to develop a policy discussion document. No evidence was provided that internal resources were considered. The policy was not finalised and implemented 17 months after the draft policy was provided to the Department. Response: Departmental staff worked closely with the consultant on content of the policy. The finalisation of the policy discussion document was delayed due to non-availability of critical stakeholders. The discussion document only informed policy development. A policy is only implemented when it has gone through Parliamentary processes. 30

Other detailed findings and responses (Continued) Finding: A consultant was appointed via a closed bidding process. According to the auditors a competitive bidding process should have been followed. Response: The Department disagreed with the finding. The consultant previously developed travel demand projections on a computer model that they developed for the projections. The consultant was re-appointed to update the projections as additional information became available. It would not have been practical or cost effective to appoint another service provider, who would have had to start the work all over. Finding: A consultant was appointed via a closed bidding process to continue work that was previously done over a four year period to implement the Taxi Recapitalisation Process. The Department did not investigate whether it had internal capacity to perform the work. Response: The technical assistance to implement the programme was a once-off project over a number of years for which it was impractical to appoint staff. The consultant was re-appointed to continue the work as a natural continuation of work previously done. 31

Other detailed findings and responses (Continued) Finding: A consultant was appointed as part of a pilot project to design and construct non-motorised infrastructure at a Municipality. The consultant lost experienced staff and had to subcontract another consultant to assist with the project. The project was extended by R311,648 and was completed 28 months after the planned completion date. Advance payments were made to the consultant. Response: The extension of the work was properly approved and was based on additional work that had to be done. The advance payments were made in accordance with the conditions of contract for civil engineering works. The Department conceded that the loss of staff of the consultant delayed the work, and that payments were not withheld due to poor performance. 32

Other detailed findings and responses (Continued) Finding: A consultant was appointed to develop an operational model for acquisition and operation of buses for the 2010 Soccer World Cup. The Department did not conduct a formal assessment to determine whether the service could be rendered in-house. Due to the poor terms of reference, bids received were materially inconsistent. The Department could not substantiate whether all recommendations of the consultant’s report was assessed and implemented. Response: It was impractical to appoint staff to perform the work, and staff did not have the expertise to develop the model. The travel demand projections in the terms of reference was widely available and projected a shortfall of ± 500 buses for the event. Options were needed to explore how the shortfall could be met. The recommendation to procure a top up fleet was chosen and implemented because it fitted perfectly with the transfer of Autopax from Transnet to the Passenger Rail Agency of South Africa. 33

Thank you 34

Department of Transport