Third Party Funds
Reforms and
Enhancements
A Departmental Reporting Initiative
 In response to commitments made to parliament
and oversight authorities the Department
requested Scopa an opportunity to brief the
committee and
 provide a progress report on developments and
interventions in the management of Third Party
funds
 Reflect on the service delivery innovations
2
THE Executive Authority Guidance
• Clean financial outcomes for all accounts under the control of the
Minister of Justice and Constitutional Development – November 2009
• Executive Authority guidance and continuous engagement with Auditor
General
• Confirmation of expected outcome by the Minister in the Strategic Plan
and Annual Performance Plan – Clean audit by 2012/13
• The Departmental Response – Clearing of all qualifications on all
accounts and funds administered by the Department except TPF
Revenue
3
THE AG VIEW … 18 months ago
• No financial statements were prepared for the Third Party Fund as no
reliable financial information exists, for revenue to be determined.
• The potential claims against the fund as a result of fraud, theft and loss to
the Department are not complete.
• The money collected on behalf of the State and not yet paid to the
Department could not be ascertained.
4
SCOPA GUIDANCE AND DIRECTION
1st Report of SCOPA adopted by the National Assembly on February 2011;
• A proper financial system is developed or that the current features of the Justice
Deposit Administration System (JDAS) are enhanced with the required controls to
ensure complete, accurate and reliable financial information and reporting.
• The vacancies at court level are filled with adequately skilled officials.
• All fraud, cash shortages and losses are investigated timeously.
• Disciplinary measures are taken against every official that does not comply with
the policies and procedures or who was charged or found guilty of misconduct
These expected outcomes were confirmed during SCOPA visits during 2011 at
Courts and National Office.
5
Transaction
Volumes
Inadequate
Service
Delivery
Disclaimed
financial
statements
The
TPF
Challenge
Internal control
and operational
oversight shortcomings
477
JDAS
Databases
Weak Financial
administrative
systems
Expected
Shortages
Absence
of a
regulatory
framework
Unreferenced
deposits
No
Historical
Financial
Reporting
Theft
And
corruption
Vote
Qualification
Cash
Collections/
Payments
6
The TPF Portfolio
• Manage maintenance beneficiary monies (local and foreign),
• Collect fines on behalf of government institutions (national, provincial,
local and other authorities),
• The safe-keeping of bail monies on behalf of depositors,
• The safe-keeping of payments into court, and
• The collection of debts on behalf of government institutions through
the State Attorney and deeds transfers on behalf of government.
7
Administrative arrangements
These transactions are recorded on JDAS4 or SAS which are mainly
administration systems with the main objective of delivering a service to the public.
As JDAS and SAS are case management systems it does not have sufficient
financial capabilities and internal controls to allow for proper accounting principles
in accordance with the Public Finance Management Act (PFMA) on TPF.
The administration part of the systems allow for capturing of case details of
parties, court orders, etcetera while the current financial part of the systems allows
for the recording of receipts, payments and provide for reports on these receipts
and payments, although no reliable consolidated reporting functionality is available
on JDAS or SAS.
8
The TPF landscape
5,9 million receipt transactions (2010/11)
5,8 million payment transactions, (2010/11)
On average 250 000 maintenance payments to beneficiaries
per month
Banking arrangements : 496 bank accounts at 4 major banking
institutions
Data management : 477 JDAS + 11 SAS databases
Audit disclaimer of opinion on TPF
Department not been able to produce complete accurate and
auditable financial statements since 1994/1995
Qualification of the vote because of TPF
Detected and undetected Fraud ????
9
The Third Party Funds Portfolio: Receipts
Module
Maintenance
2010
2011
1,681,087,876
1,774,765,283
Bail
326,109,875
349,443,717
Fines
398,127,028
377,539,712
7,398,739
5,445,513
542,772,991
175,840,046
Deeds
46,571,749
128,670,533
Litigation
96,022,523
58,424,954
248,407
273,962
Payments into Court
Unclassified Money
Commission
Total
3,098,339,188 2,870,403,720
10
The Third Party Funds Portfolio:
Receipts – Proportional Allocations per Module
Bail
349,443,717
12%
Fines
377,539,712 Payments
into Court
13%
5,445,513
0%
Unclassified Money
175,840,046
6%
Deeds
128,670,533
5%
Maintenance
1,774,765,283
62%
Litigation
Commission 58,424,954
273,962
2%
0%
The Challenge : Unclassified Receipts
11
The Third Party Funds Portfolio: Regional Receipts
Province
2008
2009
2010
2011
200,361,769
365,760,719
400,937,782
350,312,326
409,026,788
75,784,196
163,462,629
187,187,987
210,375,068
220,656,713
Gauteng
144,172,606
557,915,985
527,958,174
451,466,488
462,192,649
KwaZulu-Natal
196,585,486
396,649,663
429,047,412
460,802,478
488,061,159
Limpopo
270,193,782
384,906,162
361,497,758
375,086,436
387,161,657
Mpumalanga
143,636,388
224,721,696
228,008,426
234,606,030
241,005,439
North West
248,126,305
246,438,663
256,011,717
262,625,908
291,597,868
Northern Cape
57,239,115
67,311,844
72,895,436
78,338,550
88,918,304
Western Cape
128,351,621
286,895,665
273,912,818
288,520,577
303,025,527
Eastern Cape
Free State
2012
12
The Third Party Funds Portfolio:
Receipts – Proportional allocation per Region
Northern Cape
88,918,304
3%
North West
291,597,868
10%
Western Cape
303,025,527
11%
Eastern Cape
409,026,788
14%
Free State
220,656,713
8%
Mpumalanga
241,005,439
8%
Limpopo
387,161,657
13%
Gauteng
462,192,649
16%
KwaZulu-Natal
488,061,159
17%
13
The Third Party Funds Portfolio: Payments
Module
Maintenance
2010
2011
1,687,140,651
1,775,076,540
Bail
289,074,180
311,249,640
Fines
205,421,212
219,319,455
Payments into Court
10,295,781
7,351,926
Unclassified Money
233,873,432
167,446,451
Deeds
43,344,838
129,279,260
Litigation
80,916,327
44,615,385
218,607,112
225,408,969
Payments into Vote Account
Total
2,768,673,533 2,879,747,626
14
The Third Party Funds Portfolio:
Payments into National Revenue Fund
2010
Maintenance
Bail
Fines
Unclassified Money
Commission
Total
2011
231,407
176,474
20,765,106
25,504,673
184,268,134
189,322,118
13,094,058
10,131,742
248,407
273,962
218,607,112
225,408,969
15
The Third Party Funds
Statement of Financial Position – Balance Sheet
2010
2011
ASSETS
Current Assets
Receivables
Cash and Cash equivalents
79 623 755
79 904 762
659 380 913
618 322 368
739 004 668 698 227 130
LIABILITIES
Current Liabilities
Third Party fund payables
739 004 668 698 227 130
739 004 668 698 227 130
See concluded financial statements
16
Department ready to submit 2011/12 financial statements
The Third Party Funds Portfolio:
Cumulative Shortages
Dishonoured Cheques
Maintenance Debtor
Shortage
Total
2010
2011
12,580,550
12,512,769
3,340,178
3,986,740
63,703,027
63,405,253
79,623,755
79,904,762
17
Banking Arrangements: Spread and Costs (2010/11)
• Nedbank
• (5)
• FNB
• (187)
• ABSA
• (130)
Charges
R198k
Interest
R113
Charges
R12,4m
Interest
R12,3m
Charges
R8,1m
Interest
R8,5m
Charges
R6,9m
Interest
R6,3m
• Standard
Bank
• (174)
18
We are not alone – International (HM) Experience
The courts service risks losing around £1.4 billion in uncollected fines and other
financial penalties by not being able to properly account for them, according to the
National Audit Office, which laid part of the blame with the beleaguered £444
million Libra system.
In a report to parliament, NAO auditor general Amyas Morse said HM Courts
Service has been "unable to provide proper accounting records supporting
fines, confiscation orders and penalties". This meant he "could not give an audit
opinion on whether transactions and balances were complete, proper and
appropriately raised".
Morse said: "Because of limitations in the underlying systems, HM Courts
Service has not been able to provide me with proper accounting records
relating to the collection of fines, confiscation orders and penalties. I have
therefore disclaimed my audit opinion on its accounts
December 2011
”
19
Service delivery enhancement through
decentralized EFT payment channel
 Launched in Worcester – August 2010
 Reduced turn around time – payment with 24/48 hours after identification has
been concluded
 Management oversight and control

Full audit trial
 Segregation of duties
 Actual number of courts rolled-out : 135
 Number of beneficiaries paid through this system; 102,737 paid in June 2012
(18 months ago these individuals received their money via Pretoria (CEFTU)
20
EFT Payments – Maintenance: Data – June 2012
Decentralised - Courts
Region
Amount
Centralised - National Office
Beneficiaries Paid
Amount
Beneficiaries Paid
EC
10,537,288
17,073
10,758,685
17,246
FS
958,982
1,463
9,086,209
16,448
GP
7,101,320
10,192
8,857,302
12,896
KZN
10,065,107
15,295
9,935,462
15,597
LIM
4,482,919
6,362
20,868,016
33,126
MPU
3,712,998
6,044
6,865,193
10,954
NC
1,610,248
2,607
417,390
612
NW
17,432,905
26,320
187,315
328
WC
9,604,992
17,381
3,099,912
6,994
65,506,759
102,737
70,075,484
114,201
TOTAL
AVERAGE
R 637.62
613.62
217 000 beneficiaries are receiving money direct in bank
accounts compared to 185 000 in 2010
3,099,912
417,390
6,865,193
20,868,016
9,935,462
8,857,302
80%
9,086,209
90%
10,758,685
100%
187,315
EFT Payments – Proportional Utilization of Decentralized EFT
1,610,248
50%
EC
FS
KZN
LIM
3,712,998
GP
0%
4,482,919
10,065,107
10%
7,101,320
20%
958,982
30%
10,537,288
40%
9,604,992
60%
17,432,905
70%
MPU
NC
NW
WC
Over 99% of payments in the North West is directly in
22
beneficiary bank accounts
EFT Decentralization – 2012 Priority Courts
Region
Court
3337
LIM
Mokerong
R 760,215.15
1345
R 1,574,380.59
2072
MPU
Ntsikazi
R 678,915.29
1330
R 1,433,082.52
2065
KZN
Durban
R 944,257.40
1301
New Brighton
R 867,773.78
1908
FS
Thaba Nchu
R 770,320.83
1250
LIM
Vuwani
R 941,832.41
1687
FS
Kroonstad
R 711,767.75
1237
EC
Ngqeleni
R 257,480.83
1646
FS
Bethlehem
R 665,478.93
1211
LIM
Seshego
R 1,240,246.50
1642
LIM
Thabamoopo
R 809,813.21
1157
LIM
Mankweng
R 906,817.51
1510
LIM
Mhala
R 692,319.65
1134
LIM
Malamulele
R 786,382.72
1448
KZN
Umbumbulu
R 663,411.64
1112
GP
Tembisa
R 837,188.22
1422
LIM
Mutale
R 522,876.00
1095
FS
Botshabelo
R 721,951.80
1385
GP
Mamelodi
R 644,990.82
1087
Region
Court
Payments
EC
Mthatha
R 2,207,743.34
GP
Pretoria
LIM
Giyani
EC
Beneficiaries
Payments
Beneficiaries
23
The TPF Roadmap for Enhanced Management of TPF
…. Effecting the Change
Business
Case
Step 1.
Baseline
Financial
Reporting
Step 2.
Capacitation
Step 3
Business
Process
Review
Legislative
Review
Step 4.
Step 5
24
Targeted outputs and defined outcomes
Business case
Accountability
Baseline Financial Reporting
Capacitation
Transparency
Business Process Review
Legislative Review
Sound
decisionmaking
Creditable
accounting
and
financial
performance
information
Trained
personnel
and additional
appointments
Enhanced
operational
efficiency
Effective
Governance
Enhanced
delivery
of
TPF
Services
New Service
Channels
25
1. The Business Case
 Conclusion of Compressive Business Case
• Option 1:Maintenance of the status-quo
• Option 2: Outsourcing through a PPP
• Option 3: Enhanced Public Sector Managed TPF
 Selection: Option3 – Based on affordability and
Employment consideration
 Communication of selection to stakeholders ( Executive
Authority, Parliamentary Committees and NT)
Considerations: Value for Money, Affordability and Risk26
2. Baseline Financial Reporting
 Finalised a reporting framework for TPF
 Annual Financial Statements 2009/10 -2010/11
- 474 Courts
- 12 Corporate Accounts
- 11 State Attorney Offices (Accounts)
- 27 Million Transactions
- Consolidation
- Submission to AG for Audit
 Interim Financial Statements – 2011/12
- All Accounts as above as at 30 November 2011
- Submission for Internal Review – 31 March 2012
 Annual Financial Statements – 2011/12
- 30 June 2012
27
3. Capacitation
 Personnel training
- Comprehensive training manuals developed
- Level 1 Training:
41 Senior Financial Practitioners and Senior Managers
- Level 2 Training:
116 Area Court Managers, Directors: Court Operations,
National and Regional TPF staff and Financial
Operations Managers trained by SAIPA accredited
accountants
 Personnel Appointments
- Funding secured for 45 finance practitioners at middle
management and technical level
- 25 contract appointments concluded whilst remainder
advertised (focus on regional consolidation and validation)
- 2 database administrators and 8 quality assurance and
technical personnel appointed on six months contracts
28
4. Business Process and Systems Review
 Revised and Standardized Business Process
- Concluded a review linking audit trails, daily reconciliations
and operational performance
- TPF processes standardized and process mapped
- Financial operations managers and Area Court managers
orientated on the standardized operating procedures
Next Steps: Training all court managers and checking
officers on standardized operating procedures
 New Payment Channel
- Introduced decentralized EFT payment system at courts with
reduced cycle times
- Full audit trial and segregation of duty (key requirement)
-Reduction of payment time from10 days to within 24 and 48
hours after beneficiary has been identified
29
4. Business Process and Systems Review..
Continued
 Lean management implementation
Adoption of lean management as a strategy to improve operational
performance of DoJ&CD services (especially in relation to cash hall activities in
maintenance section
Piloted at identified court at regional level for implementation
1.
2.
3.
4.
5.
Understand what is of value to the end customer
Identify the process steps that create value & remove those that are waste
Make the work flow through the necessary value-creating steps
Design and provide what the customer wants only when they want it
Institutionalize sustained process improvement to strive for perfection
30
5. Legislative Review
 Possible Legislative amendments to be considered
-
Amendments to Maintenance Act in relation to
direct beneficiary payments
- Amendment of Criminal Procedure Act to redirect local
authority admission of guilt fines to Municipalities
- Investigate options to amend legislation for refunding of bail
(Electronic refund of bail)
- Legislation Governing TPF
31
Next Steps
• Accounting Officer Regional Workshops – Formal engagements and periodic
follow up with regional heads and court managers (Targeting attitude and
behavioral changes).
• Conclusion and submission of 2012 financial statements.
• Building and continuation of National Treasury and AG support.
• Investigation of shortages – and initiation of disciplinary action now that that
detail and quantum has been identified.
• Engagement of fiscus – writing off and funding.
32
Next Steps
• Further roll out of decentralized EFT payment systems
• Lean management pilot conclusion and further roll out
• Engagement with magistracy to promote direct maintenance payments
• Stakeholder engagement – SALGA and Local authorities (admission of guilt
fines)
• Finalise systems review and initiate new system development
• Finalise legislative framework – Governance for TPF
• Performance management – TPF qualification equals no performance bonus
33
Thank You
34