STANDING COMMITTEE ON APPROPRIATIONS

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STANDING COMMITTEE ON APPROPRIATIONS
Briefing by Department of Water Affairs on the
management of the Internal Construction Unit.

• Presentation byZandile Mathe
• Deputy Director General NWRI11 February 2014

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CONTENTS

• Purpose
• Background
• Progress

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PURPOSE
Briefing by Department of Water Affairs on the
management of the Internal Construction Unit.
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Background
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Overview branch structure
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Construction Management Unit
Construction Management The purpose of the
Construction management is to construct new
water resources infrastructure and rehabilitate
existing infrastructure to meet social water
needs and to facilitate economic growth and
development.
DIRECTORATE PURPOSE
Construction Support Is responsible for the construction of new water resources infrastructure . They also supply administrative, Human Resources, Financial Human Relations support and Safety and Security for the 5 Construction Units
Construction Equipment They manufacture and refurbish mechanical equipment. It also ensures the procurement, operation, maintenance, rebuilding and disposal of construction equipment
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Progress
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Governance

• Challenges

• Progress

• Construction unit would execute and project
  managed the same project. This affected the
  segregation of duties between construction
  management unit and Infrastructure development
  unit.
• Construction units were guaranteed internal
  construction jobs without competing with the
  external service providers. This affected the
  total project costs as costs were not benchmarked
  with the market.

• The construction unit is now employed as a
  contractor by the Infrastructure development unit
  and the independent project managers are
  appointed from infrastructure development unit.
• Construction unit gets requested to submit the
  proposal to execute the project before the job
  can be awarded to them. The approval to award is
  based on price, quality and ability to deliver.

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Governance

• Challenges

• Progress

• The progress on the projects were not easily
  available to Top Management. This is due to the
  fact that there were no proper reporting
  structure.
• There was no proper project methodology in place.
  This impacted on projects monitoring as Gantt
  charts and project plans were not easily
  available.

• The appointed project managers are expected to
  report the progress on projects on monthly basis
  or as when required.
• The project methodology is now enforced. The
  project plans and Gantt charts are prepared and
  projects progress are monitored on the regular
  basis.

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Financial Management

• Challenges

• Progress

• The budget for new infrastructure, Dam Safety
  Rehabilitation Programme (DSRP) and Water
  Services resided within the control of the
  construction units. This model resulted in the
  allocation of budget being done without
  consulting financial expects.
• The total projects costing were done without
  looking at the activities on bill of quantities
  as the bill of quantities were not easily
  available. This resulted in under/over costing of
  the projects.

• The allocation of budget is managed from the
  office of the Chief Financial Officer (CFO) and
  the budget reside with the infrastructure unit
  instead of construction unit. Construction unit
  is paid based on the work done.
• The projects are now being costed at an activity
  level based on the bill of quantities.

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Financial ManagementCont

• Challenges

• Progress

• The costing unit did not exit within Water
  Trading Entity.
• The actual project cost were overstated due to
  the fact that construction unit was making profit
  on the internal projects.
• The was no separation between operational
  expenditure and capital expenditure.

• The Water Trading Entity is in the process of
  appointing quantity surveyors to assist in
  project costing.
• The internal profit made by construction is
  identified and adjustment are made to ensure that
  there is compliance with accounting standard.
• The internal order system was implemented as a
  temporary measure to separate operational
  expenditure and capital expenditure

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System

• Challenges

• Progress

• There was no system in place to cater for the
  project costing on the ERP system. The monthly
  projects cost are available after 4-6 weeks due
  to delays in projects cost allocation.
• There was no system of managing the flee that
  construction unit has.
• There was no proper project management system in
  place.

• WTE is in the process upgrading the current ERP
  system to include the following modules that will
  cater for construction environment
• Project system (PS)
• Fleet management (FM)
• Portfolio and Project Management (PPM)
• Plant Maintenance (PM)
• The implementation of the above modules will
  ensure that project cost are real time.

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Audit Opinion

• Challenges

• Progress

• In 2011/12 the construction unit obtained a
  disclaimer opinion. The issues raised were as
  follows
• No policy in place to manage abnormal costs.
• Lack of proper costing system in place.
• Lack of segregation of duties.
• Construction making internal profit.
• Discrepancies on accounting and costing
  depreciation.
• Inability to separate operating and capital
  expenditure.

• In 2012/13 the construction unit was unqualified
  with matters of emphasis. The following were put
  in place
• Abnormal cost policy.
• Internal profit were eliminated.
• The accounting depreciation policy was aligned to
  the construction costing policies.
• Internal order project was implemented to
  account for capital expenditure.

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THANK YOU