Department of Public Works, Construction Industry Development Board (CIDB), Council for Built Environment (CBE): hearings on qualified audits for 2008/09

Public Accounts (SCOPA)

08 March 2010
Chairperson: Mr T Godi (APC)
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Meeting Summary

The Portfolio Committee conducted a hearing on the Annual Report and financial statements for the Department of Works for 2008/09.

Members interrogated particular focus areas of the report including whether the Department had adequate human resources to function optimally. The hearing focused on the Department’s management and accountability for moveable tangible capital assets and minor assets; non compliance with legislation and internal control deficiencies; and the progress of investigations of mismanagement and corruption and other performance management related affairs.

In discussing the Department’s capabilities with respect to human resources, Members expressed concern about the high vacancy rates within the Department as evidenced by several temporary appointments at senior managerial level. The Committee also commented on the high number of contract employees and reliance on consultants. Members were particularly irked by the use of consultants, especially considering that at least one of them had been a former employee of the Department

A number of arithmetical errors were identified by Members in the preparation of tables and figures. A Member took exception to some aspects of the report which he felt amounted to misrepresentation of facts.

The Committee asked why the Department had been unable to provide documentation and evidence to the Auditor General to verify the completeness, rights and obligations, and valuations of the immovable tangible assets amounting to R5.3 billion. Members queried the asset registration processes of the Department and the extent of assets owned by the State outside of South Africa.

The Committee scrutinised the Department’s mismanagement / corruption investigations and performance information and the qualified audit of the Property Management Trading Entity (PMTE). Questions were asked about the inability of the Department to decisively deal with employees who did not comply with governing legislation but were let off with a mere written warning from the Acting Director-General.

In the afternoon, the Council for the Built Environment was questioned why it there had been no progress in clearing the qualified audit it received each year from the Auditor General. There was insufficient control over membership income and a failure to comply with governing legislation, plus it failed to provide performance information.


Meeting report

SCOPA Interrogation of Department of Public Works (DPW) Annual Report & financial statements 2008/09
Mr N.Singh (IFP) began by commenting that a prerequisite for any department to function optimally was the availability of adequate human resources. He said that he was aware that the Department of Public Works (DPW or the Department) had adequate financial resources, but lacked adequate human resources, as shown by the number of people employed in acting capacities, even amongst the delegation that was present. He expressed the hope that these posts would be filled soon with permanent employees. He asked about the vacancy rate in the Department during the period under review, and requested the Department to inform the Committee what was being done to fill them.

Mr Sam Vukela, Acting Director General, Department of Public Works replied that the vacancy rate for the time under review stood at 12.2%. He further said that the Department had a programme to appoint young professionals with the intention of training them to become full professionals. He told the Committee that the trainees were linked to the vacancies so that when they qualified, the posts could be filled.

The Chairperson asked if there was any time frame for the completion of the training programme.

Mr Vukela replied that it was difficult to have time frames because the Department could not retain qualified personnel, thereby rendering it necessary to train young professionals continuously.

Mr Singh said that he was more concerned about the vacancies in the senior management positions in the Department and asked if the Acting Director–General knew how many senior managers had left the Department and were now consultants to the department.

Mr Vukela replied that he did not know of any individuals, except for one former staff member who was now involved in doing consultancy work for the Department.

Mr Singh requested that the Department should provide the Committee with the names of such managers because it seemed to be a trend that employees were resigning, only then to move to doing private consultancy work for their former department and this was particularly apparent with the Department of Public Works. He further asked what was meant by “posts additional to the establishment”.

Mr Vukela replied that posts additional to the establishment related to employees or positions that were created over and above the establishment, to cater for specific needs or tasks. He added that these posts would not be created for the long term objectives of the Department but were created on a temporary or contractual nature. He further said that such posts would be abolished upon the conclusion of their respective tasks.

Mr Singh commented that he believed that 238 was quite a large number to have for contract employees. He expressed regret that there was no report in the previous year to check how many people were serving under the posts additional to the established category. He requested information on the duration of these posts, and whether they were short term, medium term or long term.

Mr M Steele (DA) referred to page 150, point 2.2, of the report, which revealed that the contract level appointments from category 1 to 16 had cost the Department in excess of R16 million to cover some 311 appointments. It said that it appeared that the Department was burdened with contract workers. He asked the Department to provide a convincing explanation as to why those posts could not be made permanent or be regarded as of a short term nature, rather than extended contracts. He asked the Department to provide the justification for such a huge number of contract workers and the utilisation of consultants.

Mr Vukela replied that contract level appointments related to a programme of internships, and young professionals were assigned to projects, to be trained and assisted, so they could be appointed in the establishment. That was the explanation for the increased number of contract workers in the Department. He further added that the Department had a programme of hiring Cuban technical assistants who imparted skills to the young professional employees.

Mr Steele indicated that, according to the report, contract workers were earning more than permanent staff members in the Department and asked for an explanation for this.

Mr Vukela replied that contract employees earned more money than permanent staff, because this was an incentive to retain them. The Department was competing with the private sector for the same young professionals.

The Chairperson asked if reports that there were former employees who had been hired by the Department as consultants were correct.

Mr Vukela replied that so far he only knew of one ex-employee of the Department who became a consultant.

The Chairperson indicated that the report showed that there was nobody, and asked if this then meant that the report was incorrect.

Mr Vukela replied that during the time under review the individual concerned might not have been a consultant in the Department.

The Chairperson further asked the Acting Director General to clarify if he was saying that the Department had no consultant during the year under review, or that the consultant was there, but it was not deemed necessary to report on that.

Mr Vukela replied that during the time under review the Department had no consultants.

The Chairperson asked how much money much was involved in the consultancy and in agents’ contract services.

Ms Cathy Motsitsi, Chief Financial Officer (CFO): Property Management Trading Entity, DPW, replied that there were indeed consultants in the Department, operating under the Contract Works Programme (ECWP) and another unit. However, she added that during the period under review there were no ex-employees who were working as consultants for the Department.

The Chairperson asked her to reconcile that statement with the part of the report that specified that a certain amount was appropriated for consultancy fees.

Ms Motsitsi admitted that this could be one of the many errors that the report contained.

Mr P Pretorius (DA) identified a number of mistakes in the report. He referred to page 163, where he pointed out that the calculations relating to performance related awards were all wrong.

The Chairperson asked the Department to state whether there were any other errors in the report that the DPW had identified on its own.

Ms Motsitsi responded that DPW had identified at least four errors. She could not assure the Committee that there were no other mistakes.

Mr Ainslie submitted that he had warned the Department informally about some of the errors. He felt that this had not been taken seriously enough, if the DPW had, nonetheless, proceeded to present a report containing so many mistakes. This did not assist the Committee in any way for purposes of the hearing.

The Chairperson complained about the various mistakes in the report, and decried that it was this kind of sloppiness that lead to deficiencies in the Department.

Mr S Thobejane (ANC) indicated that some of the aspects of the report amounted to misrepresentation of facts, which was a criminal offence.

Mr Thobejane asked how the Department could use R16 million in consultancy fees and fail to disclose who the consultants were. 

The Chairperson asked the Department to submit a list of all the consultants whom DPW had used within the financial year, and the amounts that they were paid in terms of their contracts.

The Chairperson commented that the former Director-General had received a bonus of R214 000. He asked if there was a clear performance management system in the Department. He asked why the former Director General had been paid bonuses when it was clear that he had underperformed.

Mr Vukela responded that there was a performance management system in place in the Department.

The Chairperson asked who would have assessed the former Director General.
 
Mr Vukela replied that Director Generals were assessed by both the Minister and the Public Service Commission.

Ms Motsitsi replied that the bonus was for the preceding year, and that such financial allocations could only be reported in the subsequent financial year.

Ms M Matladi (UCDP) also asked why the former Director General qualified for a bonus when he did not perform or comply with his contractual obligations. She asked what happened to the budget that was put aside for the vacant positions in the previous financial year.  She asked for the reason why there were so many vacant positions in South Africa. She also asked what the Department was doing about the report that some employees were doing business with the Department.

Ms Motsitsi replied that the budget for vacant posts was used for skills development initiatives like young professionals’ training, interns and the Cuban technical assistance programme.

Ms Motsitsi said that, in regard to the allegations that employees were doing business with the Department, her Department was not privy to investigations, as these were being done by the audit unit. DPW awaited the recommendations of this unit.

Mr Singh commented that the Department was the biggest landlord in the country and owned a vast amount of assets. He was concerned that the Auditor General had reported lack of proper control systems and that at the beginning of the financial year of 2008, National Treasury had granted the Department an exemption. He asked what the nature of the exemption was that had been granted to the Department.

Mr George Themba, Director: Public Works Directorate, National Treasury replied that they did not have the answer right now and asked for indulgence to give the answer later.

Some members of the Committee, notably the Chairperson, complained about the delegation’s lack of preparedness for the meeting.
 
Mr Singh said the report of the Auditor General, with regard to moveable tangible and immoveable tangible assets, indicated that he was unable to satisfy himself as to the existence, completeness and accuracy of asset records for assets amounting to R221.9 million at the year end. He asked the reason why this was so.

Ms Motsitsi replied that the Auditor General did not provide an opinion on those assets, because the Department could not produce a register, owing to a flooding accident that occurred at their main Pretoria offices during the month of June of the year under review. The assets to which the Auditor-General was referring were in the Prestige environment. Assets in Parliamentary villages and Ministerial villages were not accounted for properly in the Department. She added that the Department had undertaken comprehensive asset counts and asset capturing, and to date the Department could record all the assets. She reiterated that the inability to produce lists occurred because of the flooding at the Pretoria offices.

The Chairperson asked if the Department was suggesting that, had it not been for the flooding, the process of asset counting and capturing would have been completed during the year under review.

Ms Motsitsi agreed that this was correct.

Mr Singh asked what the flooding cost the Department, and whether it was merely a destruction of information or a destruction of the yard.
 
Ms Motsitsi replied that after the flooding, the Department had to move the Assets Registers to a storeroom. It rented furniture and had to change to another building. She added that the flood also affected the electricity and the whole relocation exercise caused logistical nightmares for the proper recording of assets and assets capturing.

The Chairperson asked the delegation from the Auditor General’s office if the situation was that complicated.

Mr Frans Joubert, representative of the Office of the Auditor-General, replied that the flooding affected the work, but that there were also other factors that affected the audit report.

Ms Bonita de Wet, representative, Office of the Auditor-General, further added that there was confusion about which assets belonged to the Department and which assets did not.

The Chairperson asked the Departmental delegation if they wished to contest what the Auditor-General had said.

Ms Motsitsi replied that the Department did not agree with the audit report. She noted that it had apparently been agreed between the Auditor-General and the Department that this was the main qualification. The other issues raised by the Auditor-General were not, on their own, material enough to have justified issuing a qualified audit report. The Pretoria office flooding and the problems at the Prestige environment were the main factors.

Mr M Malale (ANC) said that he did not see any reason why the Auditor-General’s Office opinion could be faulted. He noted that page 52, paragraph 7 of the Annual Report clearly noted that “(T)he existence of minor assets……. , as disclosed in note 4.1, purchased during the year under review and amounting to R13.4 million could not be confirmed due to the Asset Register being incomplete”. He said that, even if the books were available, it seemed that the department was capturing assets that did not belong to the Department. The Department seemed to be blaming everything on the Pretoria flooding incident. He further asked why the Department failed to keep an Asset Register.

Ms Motsitsi replied that the figure of R13.4 million recorded in the report indeed represented the minor assets. She said that the Department could not provide the Register for the other assets because of the Pretoria office flooding incident.

Mr Singh asked if the flooding accounted for the failure to deal with all of the assets valued at R221.9 million.

Ms Motsitsi replied that the R221.9 million figure represented the total value of the Department’s assets in theory, and that, in the absence of an Asset Register, the total loss could not be verified.

Ms Matladi asked what system of Asset Register was used by the Department. She asked whether the DPW would prepare the Asset Register when the auditors arrived, or if assets were recorded as they were acquired. She further said that she could not understand why the Register could be incomplete because of the flooding.

Ms Motsitsi replied that the assets were recorded in the Asset Register as and when they were acquired, but in this case the relocation of assets to new offices affected the registration process.

Mr Malale asked what the current situation of the assets registration was.

Ms Motsitsi replied that to date the Department had finished the asset count and capture in Pretoria. The Department had done 90% of the Prestige environment in Pretoria, in terms of count and capturing. She added that the Department had done a 100% count and capture for the offices in Cape Town, and only 60% of the prestige environment in Cape Town. This was because Members of Parliament were making it difficult for the Department’s officials to gain access to the Parliamentary villages.

Various members of the Committee denied that they had impeded access to the houses by Departmental officials.

Mr Singh proceeded to lead the discussion on immovable tangible assets, and referred to paragraph 8 on page 53 of the Annual Report. This read that the Auditor-General had been unable to verify the completeness, rights and obligations, and valuations of the immovable tangible assets amounting to R5.3 billion, due to the following shortcomings:

1) Not all assets owned by the DPW were accounted for in the Asset Register that supported financial statements.
2) Title deeds and stand numbers for some of the assets were not indicated on the Asset Register and therefore the DPW’s rights and obligation in respect of these properties could not be verified.
3)The DPW, in conjunction with the Department of Rural Development and Land Reform and all provincial Department’s custodians, was tasked with leading a government-wide initiative to complete the vesting of ownership of State-owned land. The initiative was still in progress.”

Mr Singh said that the Department had been working on the asset verification exercise from 1994, yet to date it  was still not in a position to tell the Committee what assets were owned by the State, both inside and outside South Africa. He asked what was being done to correct the situation.

Ms Sasa Subban, Acting Deputy Director General: Asset Management, DPW, replied that the asset verification and registration was an ongoing exercise throughout the country.

The Chairperson asked about the current status of foreign assets.

Ms Subban replied that the former Department of Foreign Affairs (DFA) ran such assets on behalf of the Department of Public Works. She emphasised that the Department of Public Works was the overall custodian of these assets, although it devolved issues of management and accountability to the DFA.

Mr M Mbili (ANC) commented that he had thought that Ms Subban would give an overview of why, fifteen years down the line, it was still proving so difficult to have these assets captured and recorded.

Mr Ainslie submitted that he had been in the Public Works Committee in the KwaZulu-Natal Legislature and the issue of the Asset Register had been on the agenda for every single year that he had been a Member of that Committee. It was of great concern to him that the issue of the Asset Register was still on the agenda up to the present. He asked the Department to give the total figure for the assets owned by the State globally.

Ms Subban responded that the DPW officials did not have a total figure, but were working with the former DFA to try and locate and quantify those assets.

Mr Steele agreed with Mr Ainslie’s remarks.

Mr Steele referred to page 100 of the report, under the item dealing with immovable and tangible capital assets. It seemed from those figures that the Department had a problem with disposal. On Table 32, under disposals, there was nothing. On the Second table, being Table A on page 100, under the heading of disposals was indicated “not applicable”. At the bottom of the page, Table B spoke about the so-called archived properties. He queried the meaning of the statement at the bottom of that Table, which created a degree of uncertainty with regard to disposal. He asked for clarity about whether there had been any properties disposed of, and, if so, how many there were.

Ms Subban responded to this question but her response was not audible.

Mr Singh commented that the Committee had to accept that the final responsibility for these assets lay with the Department. The Committee had to have information about the size and location of these overseas assets.

Mr Singh then moved to the question of municipalities, who were collecting substantial amounts of money by way of rates paid by different departments. This was a very important question, because, whilst the main concerns here had to do with assets, there were also concerns about service delivery to poor people. Service delivery was affected because poor people did not have any money. It was possible that there were hundreds of properties owned by the State that could be disposed of, in order to contribute funds to the fiscus.

Mr Ainslie pointed out that the Department had not been able to provide the Auditor-General with evidence regarding transfers and subsidies to entities. He asked why this evidence had not been made available, and where that evidence was, and who was responsible for ensuring that such documentation was available.

Mr Vukela responded that when DPW transferred money to these entities, this was for the purpose of allowing the entities to conduct their operations and to achieve their outputs, as articulated in their strategic plans. The Department did not specifically say to them that it was allocating, for instance, R10 million for a particular outcome. However, DPW had become more circumspect about this matter over the past few years and was now trying to align funds disbursed to the entities with set objectives of what they had to deliver, so that it was possible to monitor those outputs. If the entities did not achieve what they said they were going to do, this would also impact on the money that could be given to them.

Mr Ainslie commented that at this time, there had been no monitoring, that monies had been paid to the entities, and there had been no assurance whatsoever how the money was being used. It was not a question of whether a project was successful or not, if there was no monitoring system by which to determine whether the money was being used for the intended purpose.

Mr Vukela responded that the entities submitted quarterly reports to the Department.

Ms Subban added that the reports were submitted to the Department’s inter-governmental relations section from where they were submitted to the Minister, from the office of the Director-General.

Mr Ainslie asked why these quarterly reports had not been provided to the Auditor-General, and why the Auditor-General had complained that there was no evidence given to him regarding these funds. Someone had been sitting on these documents, and he wanted to know why they had not been submitted.

Mr Vukela responded that he would follow up on the issue, and DPW would deal with the matter internally.

Mr Ainslie remarked that if the Department did not pay attention to these issues, they would be sure to lead to qualifications.

The Chairperson asked the Department to answer why there were no consequences for not providing the Auditor-General with documentation which was required for audits.

Mr Vukela responded that the DPW accepted the comment on this point. DPW would look into investigating such issues. The DPW needed to know what had been provided to the AG and whether it was adequate or not adequate.

The Chairperson responded that it was not a question of debating whether it was adequate or not adequate. The fact of the matter was that the evidence was not there, and there was a need to explain why that was the case. He wanted to know what Mr Vukela, as the Accounting Officer, had resolved to do after discovering that anomaly. He asked why there were no consequences for not following policies and procedures.

Mr Ainslie stated that there had been a number of employees who had not declared their interests to the Executive as required by the Auditor-General. He asked why these employees were not making these declarations.

Mr Pretorius led the Committee on a discussion on mismanagement / corruption investigations and performance information. The Committee expressed dissatisfaction with the progress of investigations of mismanagement and corruption by former employees in the Department. Members were not satisfied that sufficient action was being taken to address the failure by former senior managers to comply with the requirements of the law.

The Committee requested the Department to explain its failure to deal more firmly with employees accused of misconduct.

Mr Vukela admitted that he had no plausible explanation as to why the Department had not taken a tougher stance against officials facing charges of misconduct for their non-compliance with governing legislation.

Mr Mbili expressed dissatisfaction that non-compliance by Department employees with the PFMA for which they were criminally liable had not been firmly dealt with by the Department. It was insufficient that the Acting Director General had written out warning letters to these employees and that no effort had been made to ask them for an explanation for their misconduct.

The Chairperson of the Department’s Audit Committee was also called upon to explain what their role was in identifying such discrepancies and reporting on them.

The Chairperson led the Committee on the Department’s Property Management Trading Entity. He asked the Department what the position was regarding the exempted assets that had not been dealt with in the Annual Report and the implementation of a property management system.

Ms Motsitsi replied that they were working on this in the year under review and they had an action plan that stated exactly how they were going to proceed to turnaround the adverse report. There had been a property management system that had been approved to be implemented in the Department but the Department had not had the correct infrastructure for that to happen. There would have been an adverse report had there not been an exemption from Treasury.

The Chairperson responded that the Department had been granted the exemption on the understanding that they would do certain things and what he wanted to know was where the Department was in terms of its progress with those requirements.

Ms Motsitsi responded that the Department was implementing what they were supposed to have done.

The Chairperson concluded by asking the Department not to allow people to get away with breaking the law as this resulted in their doing other acts of misconduct if they were retained in their posts.

Afternoon session
Hearing on Council for the Built Environment (CBE) qualified audit 2008/09
Ms F Muthambi (ANC) said that there had been no improvement over the years with CBE’s compliance in general. The audit report had been qualified (see page 54 of the Annual Report) as there was insufficient control of membership income. The Auditor-General had found that they were not complying with the CBE governing regulations and the Act itself. She asked the CBE to explain why there was such non-compliance.

Mr Sipho Madonsela, Chairperson: CBE, responded that this was an issue that had challenged them although there had been slight improvement here and there. The CBE was finding it difficult to comply with Regulation 9(5) because it required information that they had to obtain from the professional councils. The CBE had put in place what they had thought were controls where they obtained information from a particular professional council - and they gave that to the Auditor-General. However in the verification process, they would then get different information and that was where the problem was.

The Chairperson asked whether they did any kind of verification when they got such information.
 
Mr Madonsela responded that when they got the information they did a reconciliation together with the relevant professional council. However, when the Auditor-General then asked for information in order to verify what the CBE had, they received different information. This indicated that they did not really have the systems that would enable them to know if the information they received from the professional councils was correct.

The Chairperson disagreed that this was an issue of systems. He said that it meant that a professional council had lied to the CBE or it had lied to the Auditor-General.

Mr Bheki Zulu, CEO: CBE, responded that the explanation that the CBE had been given was the relevant council’s database had not de-registered people after the termination of their membership. It was this that caused a lack of reconciliation with the information that the CBE had.

Mr Singh wondered if the Department was satisfied with the output of the CBE given that 95% of their income was from state coffers.

Ms Muthambi asked further questions on the CBE’s performance information. The Auditor-General had reported that the Annual Report did not provide details on performance information (see page 36 of the Annual Report). This was of concern considering that the CBE’s mandate was clearly set out. 

Mr Madonsela responded that they accepted that this area had been weak and as a result they had last year requested to refine these measurements in order to be objective and they were hoping that in the current year they would be reporting back with progress.

The Chairperson concluded that he was certain that the issues that had been raised, not only by the Auditor-General but also by the Committee, required urgent attention.

Construction Industry Development Board (CIDB) qualified audit 2008/09
[The Committee’s interrogation of the CIDB was not captured by PMG. An attempt will be made to obtain a transcript. Please email info@pmg.org.za for this.]

The meeting was adjourned.



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