PSIRA 2016/17 Annual Report & Quarter 1 performance

Meeting report

Chairperson’s opening remarks

The Chairperson welcomed everyone in the meeting and referred to page 117 of the Annual Report, pointing out that the Accounting Officer had not played a role in putting internal controls in place to prevent various challenges experienced by the Regulator. It was clear that the proposed measures to strengthen internal controls were insufficient. The Committee should be briefed on what was being done by the Board to address this problem. Was there any regular interaction with the Auditor-General and the internal audit committee? It was important to highlight these questions as a baseline to what had to be emphasised in the presentation.

Private Security Industry Regulatory Authority (PSIRA)

Mr Manabela Chauke, Director (CEO): PSIRA, said that the organisation had achieved an unmodified audit opinion, and 85% of the planned targets were achieved. The code of conduct had been reviewed and fines were adjusted from R10 000 up to R1 million. There was a strengthening of relationship between South African Police Service (SAPS), the Department of Labour and the Department of Home Affairs. There had been 231 arrests out of 28 operations. There were 1 348 firearms inspections conducted. The regulator recorded a 5.2% increase in the number of females employed in the industry. The regulator had also managed to record a reduction in audit findings. The revenue had increased by R1.58 million, from R216.4 million to R218.2 million, due to an increase in registration and training income. Expenditure was 11% below the budget due to cost containment measures in the areas of printing, travel and accommodation, and advertising.

Mr Israel Kgamanyane: Director: Law Enforcement, PSIRA, said that 35 646 inspections were conducted, there were 6 001 security business inspections, and 29 645 security officer inspections that were conducted in the 2016/17 financial year. The majority of inspections were conducted in Gauteng (11 952), while the least were conducted in both Free State and Northern Cape (1 047). The bulk of inspections were at small businesses, and infrastructure and capacity inspections. In terms of the number of criminal investigations, there were 2 571 cases that were finalised and 846 where cases were opened. There were 1 061 dockets that were registered under small businesses, and the main issue was usually related to failure to comply with regulations. The regulator obtained 77% against a target of 80% for the finalisation of investigations in respect of non-compliant Security Service Provider (SSPs). There was a 23% increase in the number of complaints received compared to previous year. Additional inspector resources were allocated in the third quarter of the financial year.

Ms Mpho Mofikoe, Deputy Director: Communications and Training, PSIRA, said that the registered active businesses increased by 3.5%, from 8 692 to 8 995, as at 31 March 2017. The registered active (employed) security officers increased by 2%, from 488 666 to 498 435.

In the renewal of certificate project, the areas visited were Empangeni; Bloemfontein; Welkom; EastLondon; Ermelo; Leandra; Rustenburg; Mafikeng; Kuruman; Upington; Kimberley; Giyani; Lephalale; George; Harrismith; Witbank and Newcastle.  

There were 492 602 security officers who were renewed, and 4 068 service providers that were renewed. The employment of females in the private security industry had increased by 5.2% in 2016/17. There were 366 accredited training providers when compared to 378 of the previous financial year. A total of 418 307 course reports had been processed. The regulator had a target of conducting 80 public awareness programmes, but had managed to conduct 123 of the programmes. The over-achievement was due to additional engagements by PSIRA as a result of the higher education protests, as well as partnerships with the Private Security Sector Provident Fund (PSSPF) and the office of the Minister.

Ms Mofikoe said that the total staff composition, excluding interns and employees on fixed term contracts, was 265. There were 14 vacancies – one each in top management and senior management, but the majority were in semi-skilled and unskilled work. There had been 10 resignations, one dismissal, two employees where contracts had expired, one retirement and two employees who were deceased.
 
Ms Mmatlou Sebogodi, Deputy Director: Finance and Administration, PSIRA; said that the regulator had achieved an unmodified audit opinion, with emphasis of matters. There were material impairments in regard to revenue management. PSIRA aimed to address this problem through capacitating the debtors’ collection (legal experts) to strengthen the soft collection process. There were also plans in place to partner with the State Attorney through a Memorandum of Understanding (MoU) to litigate against those who owed PSIRA. There was also a problem in the reliability of information provided, and a misstatement of the training of SSPs currently registered with PSIRA and accredited with the Safety and Security Sector Education and Training Authority (SASSETA) indicator. The technical indicators had been reviewed for the 2017/18 financial year.  


Discussion

Ms D Kohler-Barnard (DA) commented that the regulator had achieved an unqualified audit opinion and this was something that should be commended although there were still concerns. The issue of lack of controls in place was the main challenge that the regulator needed to deal with. The Committee should be briefed on the source of R11 million that had been received by PSIRA, as this was not explained in the presentation. It would be important to hear about the financial viability of the regulator, as the Auditor-General (AG) had mentioned that the regulator was draining the fiscus. There was also an indication that the regulator was struggling to pay its liabilities. Was it realistic to aim for a clean audit in the next financial year? The Committee should be provided with progress on the lawsuits, as it had been mentioned that there were currently 17. It must be commended that the regulator had missed its targets by only 3%, and there had been no irregular and authorised expenditure. However, wasteful and fruitless expenditure remained a concern.

Mr Z Mbhele (DA) said the presentation had shown a breakdown of dockets according to security business size, and the majority were on small security businesses. The regulator had also reported a challenge with the lack of payment of annual fees. The most important question to be asked was whether there was any relationship between the high number of dockets and non-compliance in the payment of annual fees. There was also a problem of vacant positions, especially in law enforcement. The Committee should be provided with progress in regard to the filling of key positions in law enforcement, as it had been promised that the processes would be completed by 10 August 2017. In relation to the ongoing legal challenges, it would be important to ascertain whether these were cases pursued by the regulator, or against the regulator.

Ms M Molebatsi (ANC) asked about the progress that had been made in ensuring that there was a resemblance between the uniforms of the SAPS and private security. What was the reason for the rejection of applications from various applicants?

Ms M Mmola (ANC) said that there was a general weakness in the overall leadership within the regulator, and this was something that needed to be rectified. The Committee should be provided with progress in regard to the signing of formal agreements with South Africa Revenue Service (SARS). It was reported that there were 22 interns within the regulator. The key question was on the duration of the internships and whether there was a possibility of appointing these interns on a permanent basis.

Mr P Mhlongo (EFF) commented that it was critically important to ensure that there was cleaning up of the private security industry considering its history during the dark days of apartheid. It was clear that there was lack of consequence management in place against private security companies. It would be important to clarify if fines were being used as measure of consequence management. The use of high-powered weapons by private security firms should be looked into to ensure that there was compliance with existing laws. There should be monitoring of the private security industry to ensure that there was compliance. Was there any tool in place to monitor the private security industry?

Mr J Maake (ANC) asked for an explanation for the unmodified audit opinion, and whether this was a good or bad thing. There was an indication that the regulator had received a grant of R2.5 million last year, but there had been no grant awarded this year. Why was no grant awarded this year?

PSIRA response

Prof Fikile Mazibuko, Chairperson: PSIRA, responded that there was a governance framework to address some of the challenges that had been highlighted by Members and the Auditor-General, including the introduction of a finance committee. The committee would look at issues of lack of controls and financial policies. The executive committee (EXCO) was looking at compliance and the staff of the regulator. The issues of transformation were looked into before coming to council meetings, working with EXCO. The regulator had met with the Auditor-General twice in the financial year, but the communication was usually done in writing.

Mr Nhlanhla Ngubane, Deputy Chairperson: PSIRA, said that the audit committee engaged with Auditor-General frequently. The regulator was currently reviewing the internal audit committee because of a lack of satisfaction over how it had been conducting its work during the past couple of years. The general feeling was that the internal audit committee needed to be structured better. There was clear indication from engagements with various stakeholders that the industry was not well understood in the country. There were 9 000 businesses in this industry within the country. The private security had played a major role in the #FeesMustFall movement protests that had happened at the various universities. It was clear that people were not aware about how private security companies were supposed to conduct themselves. The issue of the pension fund for security guards was much contested, and the decision was that the issue could not be compromised. The security guards needed to be secure in terms of accessing pension fund. The board was taking full responsibility for the lack of effectiveness of the internal audit committee, and the matter was being addressed.
 
Mr Zwile Zulu, Council Member: PSIRA, said that there was collaboration between the audit committee, the Auditor-General and the internal audit committee. There was usually a mistake when there was no interaction between the three. The board had established the finance committee to deal with key challenges, including developing an action plan on how to approach the challenges. The bFoard had already identified the top 10 risks and monitored all those risks and compliance. The issues that were reported by the Auditor-General were supposed to be referred to this finance committee. The regulator relied on the internal audit committee to deal with the challenge of lack of controls. There were well-experienced people within the board and therefore there was a high possibility of getting a clean audit.

Maj-Gen Cynthia Philison, Council Member: PSIRA, explained that the regulator had established the social and ethics committee, and there would be a monitoring of what would be done by the committee, rather than having to rely on what it would do based on terms of reference. The programme of the committee would be aligned with the government calendar to ensure that there was synchronisation when there was a celebration of events. Fraud and corruption strategies were to be introduced to deal with a number of cases related to fraud and corruption.

Mr Methews Oliphant, Council Member: PSIRA, said that there would be a strategy in place to look at ways to distribute bonuses. There had been a strengthening of the performance management system -- this was a weakness that the management had been able to identify and rectify.

Mr Chauke said that the regulator was not under any financial strain, and any revenue that was being collected was from within the industry and not from the Treasury. This confusion needed to be clarified. The regulator operated on the basis of self-funding. The financial statement of PSIRA was looking good, and showed that the regulator was working well. There were indeed 17 lawsuits instituted, and three of those cases were being litigated by the regulator, while the rest were being litigated against PSIRA by various security companies. There were lawsuits that were litigated by the Department of Labour, focusing on the issue of abuse of employees. PSIRA had also been taken to court for refusing registrations. The cases could be regarded as stale matters and not really serious and therefore would be removed from the litigation list as soon as possible. The recovery of costs in these cases was extremely difficult, as the costs were sometimes based on estimates and not accurate figures. The regulator was currently reviewing all the lawsuits. The majority of dockets involved small businesses. The small businesses in the security industry were struggling with infrastructure, and assistance had to be provided so that they could be competitive and improve on compliance with existing laws and regulations. PSIRA had signed a Memorandum of Understanding (MoU) with the South African Police Service (SAPS) under the previous acting National Commissioner so that there was concurrence in terms of functions.

Ms Mofikoe said that the regulator had appointed nine inspectors in total. There was an annual recruitment plan in place. PSIRA recruited interns for a six-month period, but sometimes increased this to 12 months. Internships were sometimes converted to fixed contracts, but this depended on the demand for labour. Interns still needed to follow due processes and apply for the available posts, but they were given preference.

Ms Sebogodi said that the rejection of applications for registration was sometimes because of incomplete application forms, or missing important information.

Mr Chauke said that there was a regulation in place for uniforms to be used by private security firms, and there was a lot of engagement with SAPS and the Department of Defence regarding the uniforms to be used. The legislation prescribed the uniforms and lights to be used by private security firms. The type of uniforms and insignias was being looked into.

Ms Molebatsi asked whether there was compliance in terms of uniforms to be used by private security companies.

Mr Chauke responded that the law did not allow the regulator to prescribe the uniform to be used by private security firms. The regulator was looking at Black Economic Empowerment (BEE) and Broad-Based Black Economic Empowerment (BB-BEE) projects, but was still conducting a viability study. The priority was to relocate the satellite office. There had been three advertisements to relocate the office, but the procurement process was taking very long. The Treasury had asked the regulator to start the procurement process from scratch.

Ms Kohler Barnard asked about the role of the Department of Public Works (DPW) regarding the relocation of the office.

Mr Chauke responded that PSIRA’s intention was to lease the building for other functions. It was unclear as to how the DPW could provide assistance to the regulator, but this would certainly be appreciated.

The regulator had been investigated and intervened on the issue where private security guards had appeared on a video brandishing a firearm, but this was not an AK47, but a replica. There had been a look at non-compliance within the private security companies, but the focus of the regulator was on the individuals involved from the video, and not the company. The private security guards should be in compliance with the Firearms Control Act.

Mr Mhlongo commented that there seemed to be a breakdown in information between PSIRA and the private security firms, as there were allegations that some of the private security guards were using illegal firearms.

Mr Chauke responded that the private security officials who were involved in the video circulating were competent to carry firearms -- they had a permit to carry them in terms of the Firearms Control Act.

Ms Sebogodi said that there was no budget for a surplus, and the surplus was usually high at the beginning of a financial year. The targets increased every year, but the regulator would be above its target in the current financial year. The unmodified audit opinion was a very good audit opinion and was closer to a clean audit based on the Portfolio of Evidence (POE). The regulator had not been assisted to maintain an unqualified audit opinion. The representation of the POE was better than an unqualified audit opinion. The grant that was provided had been for research, and the regulator had applied for the grant this year, but it was not approved.

PSIRA: Quarter 1 Performance
 
Mr Chauke indicated that 73% of the 21 planned targets had already been achieved for the first quarter of 2017/18 financial year. Total revenue was currently 3% below the budget, annual fees were 3% below budget. The sale of goods was 49% below budget, registration fees were 23% above budget, while course reports income was 26% above budget.

Ms Mmatlou Sebogodi pointed out that expenditure in the first quarter was 5% above budget, staff costs were 9% above budget, and advertising and publications were 21% below budget. The utilisation of consultancy was 73% below budget.

Programme 1 had four key performances indicators, and the implementation of the Performance Management System was not achieved. This was critically important for the realignment and correct findings after the moderation committee feedback. The target was to have an unqualified audit opinion with no significant audit findings (clean audit), and the risk register and internal audit plan had been reviewed in order to accomplish this target. The annual target was to have 80% of the revenue collected, and 43% of the revenue had already been collected. A new business process had been implemented, where there was a dedicated team focused specifically on collections.

Mr Kgamanyane said that programme 2 had achieved five out of seven key performance indicators. The performance represented 71% of achieved targets for quarter 1. The reason for non-performance was due to management prioritising security business inspections and investigations in view of the number of complaints received, and increased operations with stakeholders. The annual target here was to have 5 400 inspections of security businesses to enforce compliance with applicable legislation. The quarter 1 target had been 1 485, and the regulator had achieved 1 494. There was currently a review of the scorecard and job description of assistant inspectors to include conducting security business inspections.

Ms Mofikoe said that programme 3 was comprised of communications, training, research and development. The programme had a combined annual target of 11 key performance indicators (KPIs) and it had successfully achieved seven quarterly targets, which translated to a 64% achievement. There was annual target of 60% new registration certificates rolled out on active security businesses, and the target for the first quarter was 30%. PSIRA had achieved only 14% in the quarter, due to the low numbers of requests for renewals.

Ms Sebogodi said that the actual revenue collected was 3% below budget, which equated to a variance of R4.7 million. However, the authority had managed to contain its expenditures within the collected revenue. The positive variance under the registration and course reports had assisted it to compensate for the shortfall. The biggest revenue source -- annual fees -- had a variance of R3 million. The budget was based on the number of security officers employed, but it had been discovered that some of the security officers were employed by more than two security businesses. The total expenditure to date amounted to R56 million, and the main expenditure variances were from number of areas.

In conclusion, Mr Chauke said that the overall performance of the organisation had improved, and management, with the Council, were confident that all planned targets and variances would be addressed throughout the remaining quarters. The regulator had achieved an unqualified audit opinion and it was two findings away from achieving a clean audit. The financial statements were clean, and the going concern status had been maintained.

Discussion
 
The Chairperson said that the regulator was clearly dealing with legacy issues, and this was making it extremely difficult to achieve a clean audit unless these legacy issues were addressed. It would be important to ascertain if the outsourcing of the internal audit was effective. The look of the internal controls showed that the outsourcing of the internal audit was not being effective. The Committee should be briefed on the progress in regard to the guarantee fund. The financial viability of PSIRA needed to be looked into, as pointed out by the Auditor-General. What was being done to address this issue?

Ms Kohler Barnard asked about the cause of business withdrawals, as this had not been explained in the presentation. What was the progress in regard to the finalisation of the investigations? Why was the regulator shifting the focus from companies to security guards? What was being done to prevent the situation where the investigations into corruption and bribery were being compromised? The regulator had been reactive rather than proactive on a number of issues.

Mr Mbhele commented that the presentation had shown that the Western Cape did not have a full-time prosecutor, and it was unclear as to whether this was the prosecutor dealing with PSIRA and the National Prosecuting Agency (NPA). It had also shown that there had been a low level of renewals received this year. The important question was whether there was a system in place to remind registration on the upcoming date for renewal.

Ms Molebatsi asked the reason why security guards were registered in more than one company, as this was something that needed to be prevented. What was the current relationship with the SASSETA?

Ms Mmola said that the 55% increase in renewals was not good, as there needed to be more of the renewals to generate the revenue. What steps were being taken in respect of the 8 750 cases of non-compliance? What was the cause of the 10 resignations?

Mr Mhlongo expressed concern about the finalisation of the performance management tool. This needed to be prioritized, as this was a baseline for performance. What was being done to finalise the performance management tool? How quickly was the tool likely to be implemented?

Mr Maake asked why the regulator had applied for the grant, as it was supposed to use it own money. To whom had it applied for the grant?

Prof C Msimang (IFP) commented that there were serious issues of under-budgeting within the entity, and this needed to be taken into consideration.

Mr Chauke responded that the regulator needed assistance, since it was a small organisation and therefore required assistance in internal audit.

Ms Sebogodi responded that the board had identified the key challenges within the internal audit and therefore the internal audit strategies had been developed to look at various matters. There was hope that the internal audit would deliver, based on the mandate. The internal audit was regarded as performance assurance.

The Chairperson said that the lack of internal controls would not allow the regulator to deal with the deep root causes of non-compliance. The outsourcing of the expensive internal audit was a concern for the Committee.

Ms Kohler Barnard asked about the timeframe in which the regulator would get its own internal audit and not rely on the outsourcing, as promised previously.

Mr Zulu responded that the debate on whether to outsource or not was a complicated issue, as there were a number of key areas that needed to be looked into. The independence of the audit firm was always more beneficial than having to utilise the internal audit committee. It took a lot of time and money to set up an effective internal audit committee that was able to deal with critical matters.

The Chairperson interjected and said that the audit firm that was outsourced had failed to identify challenges in internal control, and this was the crux of the matter. The reality was that the utilisation of consultancy was not effective, as there had been repetitions of findings from the Auditor-General. The Committee should perhaps peruse the competency of the audit firm, and whether it had all the credentials.

Mr Zulu replied that audit findings got evaluated, and then the evaluated findings got publicised to ensure that there was transparency. It would be costly to the regulator to have a permanent structure of internal audit, and therefore it was cost effective to utilise outsourcing

Mr Mhlongo agreed with the approach of using a consultancy to conduct the audit, but agreed that there should be an evaluation of the firm hired to ensure it had all the credentials.

Mr Chauke replied that the regulator had presented on the guarantee fund to the Minister of Police, but this was still being assessed with all the risks involved. The issues flagged by the Auditor-General were being addressed. The regulator was operating on the basis of self-funding, and therefore everything that was done needed to be planned accordingly without increasing the fees. There were internal prosecutors with the regulator. A regional manager in the Western Cape had been suspended, and there was an acting person in that position at the moment. Steps were being taken to fill the position. The finalisation of the investigation had not been compromised, and therefore the quality of the investigation was not compromised.

Ms Mofikoe said that the regulator was sending SMSs, emails and doing radio shows to provide reminders for the renewal of registrations. The regulator was proactive in this regard, as this was a source of funding. The research grant had been applied from a Canadian company, and the research was looking at a three year project to consider a partnership between the police and private security firms in the Southern African Development Community (SADC) region. The regulator was proactive and played a major role in ensuring that there was a good relationship between PSIRA and SASSETA. The belief and misconception was that PSIRA was tampering with the work of SASSETA. The regulator was now in the process of amending the relationship between the two.

Mr Ngubane said that there were bilateral agreements between the Department of Basic Education (DBE) in terms of working on important issues. There were agreements with SASSETA to resolve the differences. The idea that PSIRA was interfering in the terrain of SASSETA was a perception rather than reality. The public servants needed to know and remember that their role was to serve the interests of the public.

Ms Sebegodi agreed with the concerns of Members on a number issues, and these were being addressed by the regulator. There were still concerns in terms of compliance with the Public Finance Management Act (PFMA) for the payment of invoices within 30 days. The provident fund needed to be managed carefully, as it was contributing to liabilities. There was an assessment being done on the utilisation of consultancies. The traveling and accommodation budget was straightlined, and there was a budget committee to fund critical areas.

Mr Chauke said that the issue of identity fraud responsible for security guards working for more than one company. There was a trend of people selling their certificates to people who would otherwise not be eligible to work for the private security industry. The regulator was investigating these cases to minimise this trend of identify fraud.

Ms Mofikoe said steps were being taken to attract female employees, but measures were still needed to ensure that the industry was conducive to women. The 10 resignations were voluntary, as it had been people looking at greener pastures.

Mr Chauke said that the framework for the implementation of the performance management tool had been delayed.

The meeting was adjourned.