Payment of invoices within 30 days: DWS, DPWI and LP, FS & NC Premier Offices; with Ministers

Meeting report

The Chairperson made a special mention of the presence of the offices of the premiers from the various provinces in the meeting. He stated that it was the final Committee meeting for the term and that a new schedule for upcoming meetings would be shared in due course.

He noted apologies noted from Dr L Schreiber (DA), Mr Z Mbhele (DA), and Ms R Komane (EFF). The Chairperson also noted that the Northern Cape delegation had issued an apology as it was busy with budgets.

He said on 21 September 2022, the Public Service Commission presented a monitoring report on the 30-day payment of invoices to service providers. It was reported that there were 36 000 invoices for the last quarter of the 2021/2022 financial year, and 29 000 in the first quarter of the 2022/2023 financial year, which were not paid within 30 days. 959 invoices were not paid by the departments at the end of June 2022. Further highlighting that the delayed payments had a profound impact on small businesses, and those businesses collapsed due to government’s failure to pay up on time. The Portfolio Committee recommended that Parliament intervene and assist in holding the departments, especially Accounting Officers, accountable for the failure to meet statutory obligations in terms of Section 38 Subsection (1) of the Public Finance Management Act. It was also agreed that all the flagged National Departments and Provinces should be invited to account for the challenges regarding the payment of invoices.

The Chairperson outlined the order of the presentations. He stated that each of the Ministers and Premiers from the provinces would provide opening remarks and which would be followed by the presentations.

Opening remarks from the Minister of Water and Sanitation
Mr Senzo Mchunu, Minister of Water and Sanitation, welcomed the opportunity given to the Department to present its report before the Portfolio Committee. He said that the remarks of the Chairperson had been noted by the Department and were being taken into consideration. He highlighted that all the necessary efforts had been made to comply, but much room remained for improvement.

He said that the inaccurate processing of documents such as claims, which got reported on by officials, was often the leading cause of delays in the 30-day payments. The case was like the processing of licenses.

The Department remained committed to ensuring that payments were made within 30 days.

Report from the Department of Water and Sanitation
Mr Frans Moatshe, Chief Financial Officer, Department of Water and Sanitation, stated that he would be presenting on behalf of the Director-General, Dr Sean Phillips, who was attending another session.

Mr Moatshe provided an overview of the presentation. He highlighted that the Department had had various challenges around financial management and the water trading entity. The Department had developed and was currently implementing a turnaround and financial recovery plan, which would deal with matters of financial management.

In the 2018/2019 financial year, the Auditor-General raised concerns about the material uncertainty relating to the financial sustainability of the Department. The Department had R3 billion worth of reported accruals, and the water trading entity had R3.5 billion, totalling R6.5 billion.

The Department had contractual obligations to pay the amounts that were due concerning the invoices and claims, within 30 days from receipt of an invoice. The Department was also required to submit monthly information to the relevant treasuries by day seven. To ensure compliance, Standard Operating Procedures were developed and the circular on payment of invoices within 30 days was being implemented at the Head Office and Regions.

As an internal control mechanism, all offices were requested to provide weekly and monthly reports for both purchase order payments and sundry payments. Responsibility Managers were expected to acknowledge goods received and services rendered and sign invoices for processing within two working days from the date of receipt. The Department had taken a strict position on implementing consequence management in cases of non-compliance.

The various amounts paid by the Department between April and October for the Main Account would be found in further detail in the presentation. A total of 40 373 invoices were paid; 98.4% were paid within 30 days while 1.6% were paid after 30 days. The report also summarised the 30 days' compliance report between April 2022 and October 2022 Main account. There were 106 invoices older than 30 days that remained unpaid.

The report outlined the long-standing invoices older than 30 days, which were unpaid. The invoices related to the water tanking services for the KwaZulu Natal disaster intervention. Those invoices were returned due to incorrect billing and outstanding information. The corrected invoices would be processed once the validation and reconciliation measures were finalised. It was estimated that the process would be concluded between November and December 2022.

The long-standing invoices relating to the War on Leaks project, which had since been discontinued, were also outlined. The invoices were once again returned due to outstanding information. Due to Rand Water, the invoices were a part of the Department’s Financial Recovery Plan and War on Leaks Exit Plan up to phase two of the projects.

Some of the root causes and interventions the Department took included system-related challenges which related to the unavailability of the system to process the invoices within 30 days. The Department continued to prioritise the processing of ageing invoices. There was a lack of capacity at regional offices, therefore an organisational structure has since been approved and implemented to address capacity challenges. A delay in the verification of the invoices and the disputing of invoices for processing.

The report also highlights the water trading entity’s 30 days compliance. Between April 2022 and October 2022, there was a total number of 54 254 invoices paid. Only 3.93% were paid after 30 days.

In February, the entity experienced an SAP system failure caused by a power supply system failure, which resulted in a faulty server (Oracle SPARC M6–32). One of the other issues was related to the City of Tshwane switching off the electricity in the DWS buildings due to a dispute with the landlord over non-payment of the electricity bill. The DWS engaged the landlord and the Department of Public Works Infrastructure to resolve ongoing power cuts.

The challenges and opportunities faced by the entity included that fraudulent invoicing had necessitated more regroups of reviews of invoices and certification processes. There also remained an opportunity for continuous improvement through constantly strengthening the internal control processes.

Discussion
Ms M Kibi (ANC) expressed her appreciation for the presentation and asked for clarity on whether the Department had the capacity to honour the 30 Days payment agreement to service providers.

The Public Service Commission had highlighted non-compliance with instruction note number 34, compromising transparency in the provision of information which required the departments to submit monthly information to National Treasury (NT) on the seventh day of each month. Could the Department clarify its inability to comply with instruction note 34 of the NT prescripts?

The Department indicated that the Standard Operating Procedures had been developed and seculars on the payment of invoices which were being implemented at the Head Offices. Were the Standard Operating Procedures being followed by all staff members in the Department? What were the consequences of not following the Standard Operating Procedures? She asked for an update on the number of officials facing disciplinary cases due to non-compliance. Was the official involved in the fraudulent invoices known, and what measures were taken to address the matter?

Dr M Gondwe (DA) welcomed the presentation from the Department and addressed the issue of long-standing invoices that were older than 30 days and remained unpaid and related to the water tanking system in the KZN Disaster. She asked how the non-payment of the invoices had impacted the provision of assistance and relief to those affected by the Disaster.

Following the sentiments of Ms Kibi, Dr Gondwe noted that the invoices were returned due to incorrect billing and asked whether any action had been taken against those responsible for the incorrect billing. She highlighted that it was high time that action was taken against the public servants who continued to flout regulations and legal prescripts.

She raised concerns that the presentations do not refer to any consequences being applied, especially where the fault was on the part of the Department in terms of late payment of invoices.

Response from the DWS
Mr Moatshe, answering the question on the departmental capacity to pay invoices, said the Department did have the capacity, except for the identified offices. A diagnosis had been made and the offices identified in the presentation with inadequate capacity were visited. The Department had overall been working on the issues of capacity, and there had been filling of vacancies by the Department as reported to the Portfolio Committee. The Department identified that the Northern Cape vacant post of Head of Finance affected the capacity of the finance unit.

The Committee could be assured that the monthly reporting to National Treasury was continually being adhered to. The Department also ensured that the work being submitted to NT was of good quality. The only challenge experienced was during the downtime of SAP, and even the invoices that were on hand the Department was able to report, unfortunately, the invoices in the system were pending. The Department was able to report all its invoices using backups.

It was only in the instances of the Standard Operating Procedures that the Department noted deviations. The system breakdown for almost two months exacerbated the issue of non-compliance because there was a backlog, and certain offices did not recover speedily compared to others. Consequence management was being undertaken concerning the nature of the transgression. There were instances of letters and verbal warnings being issued in the operational centres and Gauteng.

Regarding the issues of fraudulent cases, disciplinary proceedings were taken by the Department for the responsible officials and some of the officials left. Processes were followed to ensure that those still in the public service were being dealt with accordingly. A recent case was that of the Auditor-General raising a red flag on one of the offices - the responsible office was preparing charges. The process required that before a CFO released payments, there needed to be verification of due processes being followed. When fraudulent cases were picked up, they were immediately reported to the Forensics unit and the report was compiled.

The service provider had rendered services in the KZN, the Department had reached out to the communities, and the Ministry was also involved in the case. During the incident regarding the incorrect billing, during the Panda process, it was discovered that the rates provided to the Department were out of the norm compared to some of the contracts that the service provider had in KZN. When the billing was submitted, it was based on the queried invoices and the matter had to continue until the correct billing was received and the required supporting documents were received.

Opening remarks from the Minister of Public Works and Infrastructure
Ms Patricia De Lille, Minister of Public Works and Infrastructure (DPWI), introduced the team that would be presenting from the DPWI and asked to be released after the introduction.

She stated that the process began after the State of the Nation Address commitment made by the President in 2019, that all departments had to improve the performance of the 30 days payment. She also echoed the sentiments shared by the Chairperson that the impact of non-payment was critical, especially on small and medium-term enterprises. It was in the law and not a performance indicator that it was compulsory to pay within 30 days.

The Department started the process of moving from an old system to a new system, but the new system focused on one entry point for all invoices from the Department's Regional Offices and the National offices. Through the one entry point, the Department was able to see all the invoices that needed to be paid within 30 days.

The Department has adapted to a programme called Reapatala, the programme has been very successful thus far and the current performance has been between 95 and 99%. The performance of the Department was published on all social media platforms. In the current week, the Department reached 98% and the reasons for unpaid invoices were also published.
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The new system had been shared with the other government departments at a national level, and it was continuously being refined to ensure that a hundred percent was reached.

She handed over to the Chief Financial Officer to take the Committee through the presentation.

Report from the Department of Public Works and Infrastructure
Mr Mandla Sithole, Chief Financial Officer, DPWI, indicated that prior to the new system, the Department was using Excel and there was no central point for receiving invoices. With the introduction of the new system, the Department was able to receive daily reports on the invoices that needed to be processed. The previous system was unreliable and there were no controls; deadlines were also being missed. The new system enabled real-time integrated reports from all the regions daily.

Processing invoices was an issue; project managers would receive invoices and put them in cabinet drawers, which were only seen six months later. In 2018, the Department had 11 872 invoices that were unpaid. As a result of the interventions, the Department could now confidently report 97% compliance. The new system also assisted the Department in enforcing accountability.

Some of the challenges post-Reapatala included that due to the nature of the work of the Department, some of the DPWI Managers had to travel about 700km in a single trip to verify the work done. Sometimes the cost of travelling was higher than the cost of the job they had to verify. If there was an emergency in an area during the night, the Department needed to appoint a service provider. The Department did not always have a database of the service providers and they would not be registered in some instances. The onus remained on the service provider to inform the Department when its details changed, in terms of banking details.

The Reapatala system produced several benefits, such as management reporting, and a centralised registry which meant there was a point of entry, enhanced capturing capabilities, and improved payment targets.

A total number of 74602 invoices were received from April to September 2022. There were 97% paid within 30 days and 3% paid after the 30 days agreement. The Department saw an improvement from 90% in September 2021 to 97%  in September 2022.

Discussion
Ms T Mgweba (ANC) welcomed the presentation from the Department.

She stated that the presentation indicated a total of 4877 invoices to the value of R58.8 million that were unpaid and asked whether the Department could not find a way to cap unpaid invoices in one month.

She asked for clarity on why there were so many unpaid invoices within the 30 days agreement when the Department enforced weekly monitoring of payments at national offices. Did the Department have capacity challenges?

Dr Gondwe referred to slide four of the presentation which set out the scenario before introducing the Reapatala initiative. It was indicated that there were challenges with missing invoices. She asked the Department to expand on the statement, because if the invoices were missing, suppliers would be able to supply duplicates upon request.

In May 2018, close to 12 000 unpaid invoices were older than 30 days. How long had the Department taken to clear up the backlog following the introduction of the Reapatala initiative?

She asked for clarity on the number of public servants facing disciplinary action to date.

Responses from the DPWI
Mr Sithole referred to the concerns raised by Ms Kibi on the 4 877 unpaid invoices. He said he was unsure of the amount mentioned by the Committee Member and asked whether she was referring to the 22 invoices that remained unpaid. The invoices that were paid outside of the 30-day agreement were 2 070 and there were 22 unpaid invoices.

In terms of capacity, all government departments faced capacity constraints because the government's wage bill did not allow the departments to increase capacity. That challenge required managers to be creative with such instances. The main challenge was that the Department still had outstanding invoices, due to the verification processes mentioned previously. Project managers also needed to place reliance on client departments. Instead of over-extending themselves, clients could sign off on jobs and scan the documents back to the Department.

Since the introduction of the Reapatala initiative, the Department did not have any issues with missing invoices. The Department put controls in place so that all invoices were received centrally in each office.

Labour Relations worked independently from Finance, and a Labour Relations Act needed to be followed. The Department had referred 118 consequence management to Labour Relations for further action. No public servants were going through disciplinary at the current stage, and the labour relations may not be as tough as they needed to be.

Dr Gondwe followed up and said that she was unsure that the question related to missing invoices was answered.

Mr Sithole reiterated that he had answered the question. He said introducing the new system and the central registration of invoices had eliminated the issue referred to by Dr Gondwe.

Report from the Office of the Premier of the Free State
Ms Sisi Ntombela, Premier, Free State Province, issued an apology as she urgently needed to step out of the meeting. The MEC of Finance, Ms Gadija Brown, stepped in to present on her behalf.

Ms Gadija Brown, MEC for Finance in the Free State, highlighted that two categories were impacting the government, particularly the Free State Province, regarding 30-day payments. Internally it impacted the cash flow and the way projects and programs were completed, as well as the overruns and inflation that came with not paying on time. Externally it affected community businesses and they had to go out on loans with interest rates, which would also affect the GDP and money flow within the province.

The reporting requirements to the Free State Provincial Treasury were statutory on or before day seven of each month. The FSTP reports to National Treasury on or before the day 15 of each month. NT reports to Cabinet.

MEC Brown highlighted the provinces' 30 days of reporting for the 2022/22 financial year, from April 2021 to March 2022. She outlined the performance status in terms of the different months. There was a substantial decrease in April. During May and June, service providers submitted invoices and there had been an increase in those months.

Some of the root causes were alluded to as Non-compliance and cash flow management.

The Chairperson pleaded with the Committee to allow the Director-General who the Northern Cape had sent to present on its behalf.

Report from the Office of the Premier of Limpopo
Mr Seaparo Sekoati, Head of the Provincial Treasury, Limpopo Province, stated that the Limpopo Provincial Treasury would be presenting on behalf of the Premier's office.

Mr Gavin Pratt, Head of the Department, Limpopo Provincial Treasury, took the Committee through the Limpopo province, sharing the status in terms of the 30-day payments.

Mr Pratt indicated the average compliance rate of all the departments. The provincial average compliance rate had improved from 91.1% in April 2020 to 99.83% in September 2022.

There had been a reduction in the number of invoices paid late from 383 In April 2020 to 84 in September 2022. With a high of 953 late invoices being recorded in June, the province strived to eliminate all late payments.

The average value of a late payment of invoices in 2020/21 was R46.7 million, but it had reduced significantly to R10.2 million from April to September 2022. He also outlined the payment compliance per department.

He highlighted the challenges with the late turnaround time, insufficient budget online items, system challenges, incorrect capturing of dates, suppliers changing banking details, and no electronic invoice tracking system.

The Department had created an email address to which suppliers could send late payments. Those emails were managed by the provincial treasury and made follow-ups with the Department to determine reasons for the late payments.

Report from the Office of the Northern Cape Provincial Government
Mr Justice Bekebeke, Director-General, Northern Cape Provincial Government, indicated that he would be presenting on behalf of the Premier and the MEC as they were attending the Adjustment Appropriation Bill meeting.

He outlined the contents of the presentation, highlighting that he would be briefing the Committee on the payment of invoices within 30 days and the challenges and opportunities thereof.

According to instruction note 34 by the departments and the Provincial Treasury, the submission rate was 100%. Most departments managed payments to creditors except for the Department of Health (DOH). It reported 99% of unpaid invoices older than 30 days.

The report indicated that the situation in the period between July 2022 and September 2022 had worsened. The DOH was still experiencing trouble with paying suppliers.

The challenges were related to IT system issues, inadequate budget challenges, inadequate internal capacity, and unresolved invoice discrepancies. The DOH has implemented support interventions to address the issues that it has currently faced.

Discussion
Ms Kibi welcomed all the presentations by the Offices of the Premiers.

She referred to the DG of the Northern Cape Province about the invoices that were older than ten years that the province intended to take out. What would happen to the service providers who had not been paid?

The provincial tally for unpaid invoices was either consistent or cumulative from April to September 2022. Was that related to the same suppliers or different suppliers getting unpaid during that period? What challenges hindered timely supplier payment at the DOH, and what interventions were there to address the issue?

She asked for further clarity on the exact IT issues concerning non-payment.

Could Mr Bekebeke elaborate on the reasons the DOH could not budget properly for its annual needs?

Concerning the Free State Province, she said many invoices older than 40 days in the 2nd quarter remained unpaid. She asked for clarity on the challenges faced by the province in that regard. Why had due diligence and vetting not been done before appointing suppliers to ensure those suppliers were tax compliant?

There was no indication from the Premier of Limpopo on the reasons for their absence from the meeting.

Could clarity be provided on the consequences for the departments that miss the stipulated deadlines of the 30-day payment agreements?

Dr Gondwe referred to the Northern Cape presentation. Concerning slide five, she commented that it was about time that more stringent measures were introduced to hold public servants accountable. The issue of late payments certainly impacted the DOH’s ability to provide services to the communities of the Northern Cape. Had the province implemented any consequence management and what was the number of public servants who were being held accountable? Was there any form of disciplinary action being taken against the public servants who were found to be negligent?

The DOH seemed to be in a dire situation and remained one of the critical departments in the province.

Regarding the Limpopo province, what was the number of public servants facing disciplinary action and how many had been disciplined to date?

Responses from the provinces
Northern Cape
Mr Bekebeke responded on the issue of invoices older than ten years. He said that before the system was cleaned out, investigations were done on whether any services were rendered that justified the amounts. Upon investigation, some of the service providers were deemed non-existent, which led the province to not rule out the possibility of fraud. The province, therefore, worked hand in hand with the Hawks in such cases.

One of the greatest challenges was the non-alignment of the organogram currently in the DOH. The DOH was one of the biggest departments and between the DOH and the Department of Education, 70% of the provincial budget went to those departments. There was a lack of senior managers who were able to take responsibility for their actions. The office of the premier was in the process of assisting the DOH in finalising an organogram that spoke to the mandate of the department.

Free State
MEC Brown stated that the unpaid invoices remained a huge challenge and the invoices were currently under litigation. There had been quite a few prior to the previous HOD in the Department of Health, and there were contracts that had been under investigation, and some remained in the litigation stage.
The departmental unpaid had been under various and strenuous reviews and undertaken due diligence processes.

Regarding the suppliers that were not tax compliant, upon tendering, the province ensured that there were tax compliance requirements and that a specific supplier had to be tax compliant. As SARS dealt with specific suppliers, the office was often flagged when found non-tax compliant. There had been irregularities in that regard.

The Free State development corporation was completely being redefined with new strategies and the province had just submitted its financial statements. There had also been a delay in appointing a CFO and a few individuals within the entity. Therefore, one would find that the collection rates were not in line with the targets set out.

Limpopo
Mr Sekoati explained that as the Head of the Provincial Treasury, he was requested to represent the Premier of Limpopo. He thereafter apologised for the Premier's absence from the meeting.

He continued to provide clarity on the case of public servants being held accountable. He indicated that the province would be looking into the matter, to ensure that the officials who transgressed were held accountable. The officials and the departments had raised several reasons as to why invoices had not been paid within 30 days.

Committee minutes
The Committee Secretariat took the Committee through the minutes from the 9 and 16 November 2022. The Committee adopted both sets of minutes.

The meeting was adjourned.