SCOPE

1. AIM:PRESENTATION TO THE STANDING COMMITTEE ON APPROPRIATIONS ON 30 DAY PAYMENT OF INVOICES17 SEPTEMBER 2013

2. SCOPE • BACKGROUND • CURRENT CHALLENGES • ACTION PLAN TO ADDRESS THE ISSUE • CONCLUSION

3. BACKGROUND LEGISLATIVE REQUIREMENTS REGARDING PAYMENTS WITHIN 30 DAYS Section 38(1)(f) of the PFMA, 1999 requires Accounting Officers of departments to settle contractual obligations and pay all money owing, including intergovernmental claims, within the agreed or prescribed period. TRs 8.2.3 issued in terms of Section 76 of the PFMA, requires AOs to ensure that all payments to creditors are settled within 30 days from receipt of an invoice or, in the case of a civil claim, from the date of settlement or court judgement. The requirement to pay suppliers within 30 days is therefore the prescribed period referred to in Section 38(1)(f).

4. CURRENT CHALLENGES • Vacancies within the Supply Chain Management/Procurement Centres/Offices. • Legacy ICT Systems. • Receipt Vouchers. • Incomplete Supplier Details. • Dispute With Suppliers. • Administrative process before payments are made. • Availability of Funds after Delivery. • Lack of Knowledgeable Personnel. • Medical Payments.

6. ACTION PLAN • Vacancies within the Supply Chain Management/Procurement Centres/Offices. The DOD is currently facing a situation where skilled personnel has left the organisation or the Procurement environment creating vacancies and staffing of less qualified officials. Due to the vacancies, officials (mostly in uniform), are promoted according to policy. These officials do however not have sufficient experience to understand the gravity of the task at hand. Proposed Changes: a. Identification and staffing of qualified personnel at procurement centres. b. Develop retention plan. c. Review current processes within existing structures to realise efficiencies.

7. ACTION PLAN 2. Archaic and outdated Information Communication Systems. The current ICT system in use in the DOD does not support an integrated SCM approach creating time delays in the finalisation of payments. These systems are: OSIS (Navy and Air Force), CALMIS (Army) AIMS (Medical Services) and DIMS (Depots and Armscor). These systems are not linked to the current FMS system used for payments of suppliers. Proposed Changes a. The registration of invoices have already been addressed where it is now registered on FMS by the entity that receives the invoice from the supplier. b. The development and implementation of an invoice tracking system is underway to assist in determining the possible delays in processing payment to suppliers. The DOD has developed specific actions plans aimed at creating pockets of excellence. The target is to ensure total compliance by financial year end 2014. c. Development and implementation of exception reports to identify areas in administrative process where payments are

8. ACTION PLAN 3. Receipt vouchers: Due to large volumes, the time spent on processing vouchers is delaying payment (DOD in average from Jan 13 to Aug 13 paid 23000 invoices per month). The vouchers are an internal control to ensure that the asset register is properly maintained. Proposed Changes: a. The solution is to ensure that we maintain a permanent knowledge base of personnel. This can be achieved by permanent placements as well as proper training. b. The long paper intensive process will be resolved with the introduction with the interim integrated procurement system as proposed by National Treasury. (Time frame –medium term.) c. Streamline procurement processes in the DOD

9. ACTION PLAN 4. Incomplete banking details and SARS tax compliance certificate details submitted by suppliers. Supplier who engage into business with the DOD, especially the smaller types, do not submit the correct details regarding tax certificates and banking details as required. This first needs to be attended to before a payment may be made. The aforementioned suppliers do not communicate changes on banking details as required. Proposed Changes a. Requesting submission of Tax certificate and banking details with price quotations. b. Non-processing of orders to supplier before all information is certified as correct.

10. ACTION PLAN 5. Dispute with Suppliers. Currently invoices subjected to disputes with suppliers form part of the 30 days payment statistics. Proposed Changes. a. A register of invoices in dispute to be maintained and such invoices to be excluded from returns submitted to National Treasury. b. National Treasury concurs with the abovementioned practice.

11. ACTION PLAN 6. Administrative process before payments are made. In accordance with National Treasury Prescripts and Departmental policies, all items or services procured are accounted for before any payment is made to the supplier thereof. Considering the number of orders processed, time and distance involved in finalising accounting documentation, delays are created due to incomplete certification of invoices, lack of signatures, and incomplete receipt vouchers that do not balance with the invoices submitted by the suppliers. Proposed Changes. a. Confirmation of correctness of items or services rendered with original order before an invoice is accepted. b. Prompt certification and registration of invoices. c. Prompt and accurate finalisation of receipt vouchers. d. Identification of non-performers and implementation of disciplinary actions. e. Redesigning of procurement approach in the DOD to lessen number of orders processed

12. ACTION PLAN • Availability of Funds after Delivery. Price variations between order and invoice contributes to inadequate funds being available to process the payment. Process to obtain additional funds takes long and contributes to the delay. Proposed Changes. a. Improve mechanisms to avail additional funding. b. Educate members in confirming funds and authority before placing orders.

13. ACTION PLAN 8.Lack of a Continuous Knowledge Base. The DOD has the legacy where The Finance and Logistic processes and personnel are not part of one SCM process and do not share a common view of SCM. In addition there is a high turnover of personnel due to the nature of the organisation and eg continuous promotion, rotation and natural attrition of personnel. Proposed Changes: a. Retain permanent skills base of procurement personnel to ensure continuity and promote efficiency. b. Introduce proper handing and taking over to ensure continuity. c. Mentoring and coaching programmes to be implemented. d. Redesigning and integrate departmental Procurement and Finance training courses across disciplines to implement sound SCM principles. .

14. ACTION PLAN 9. Medical Payments. Current systems and controls in SAMHS not effective as required. Proposed Solution: a. Become an integral part of supplier invoice registration, tracking and payment system. b. Training of staff involved in processing of medical practitioner payments.

15. CONCLUSION • It is expected that the amount of late payments within the DOD will be significantly reduced if all actions within the plan are implemented without any set backs. • The new system enhancement is already in implemented and will enable the DOD to visibly track an invoice within the Supply Chain and Finance environment and will identify area where the biggest causes of delays are found. Comprehensive training for this purpose is underway. • The biggest problem currently as can be seen from the Perato chart is within the Medical Payments environment. All stakeholders involved have committed themselves to ensure that a workable solution is found without delay to implement effective processes and controls to remedy the situation in this environment. • Where there has been disputes between Suppliers and the DOD, the dispute will first be resolved prior to registering invoices onto the system.

16. CONCLUSION • Meetings with Bank Management and Codification have been initiated to ensure that all banking information of Suppliers is updated regularly to ensure that payments are not processed without proper banking information. • Chief of Logistics of the DOD has informed that an interim procurement system is in the process of being purchased that will allow for integration between Supplier Chain and Finance systems to inter alia provide the visibility and controls necessary for electronic tracking purposes. This will also to a certain degree allow for a less paper intensive process in the processing of payments.