Annual Reports for the 2009/10 Financial Year of the Housing Development Agency, National Housing Finance Corporation, National Urban Reconstruction and Housing Agency & Department of Human Settlements

Meeting report

Housing Development Agency (HDA) 2009/10 Annual Report
Mr Taffy Adler, Chief Executive Officer, HDA, briefed the Committee on the annual report of the HDA for the 2009/10 fiscal year (see attached document).  The two unfinalised matters arising from the constitutional obligations of the HDA were the regulations and the written mandate. The mandate had been discussed with the National Assembly and the Minister of Human Settlements, which had resulted in some changes being made to it. The mandate would be finalised in the near future. The HDA had made the mistake of assuming that the Priority Housing Development Area (PHDA) and NOR regulations could be done simultaneously but the PHDA proved to be more complicated than envisaged.

The objectives of the HDA were to identify, acquire and develop State, communal and private land for the creation of sustainable human settlements; to provide project management services for housing developments; to coordinate and monitor the planning and budgeting of all infrastructure requirements for housing developments and to monitor the provision of the infrastructure required for housing developments. The coordination of planning and monitoring was proving to be difficult for an agency like the HDA to do because of the number of Government departments involved. Progress was being made with the national inventory of land.

With regard to governance, the Board met on a regular basis and the sub-committees were functional. All policies and procedures required had been completed. A clean audit on statutory compliance was received from the Auditor-General. A qualification for saving money was made by the Auditor-General as the HDA had a 5 year, as opposed to a 3 year lease on their photocopiers. This situation had been remedied since the audit. The HDA achieved a Financial and Programme Reporting Compliance and had filled 83% of staffing posts.  The HDA currently had 3 offices and was experiencing a demand for additional offices to be established.

With regard to land acquisition, the Servcon properties would be the first major land acquisition by the HDA. The acquisition had not yet taken place due to internal concerns over the closure of Servcon. The final decision was pending and discussions were being held with the Department of Human Settlements, Servcon and the National Treasury. Land in the Western Cape had been part of a discussion on Phase 2 of the N2 Gateway Project. The HDA had identified Government-owned land worth R1.5 billion. During the previous quarter, 72 hectares were acquired in Bela Bela, 105 hectares in the Free State and applications for 28,000 hectares of land from various Government Departments were in progress. Significant progress was anticipated by 2011.

Progress had been made with the completion of the N2 Gateway Project, which was now much more stable. After the handover of Zanemvula to the HAD, project contracts for 13,000 units have been signed. The HDA was assisting the Northern Cape with the housing backlog and the challenges with the upgrading of housing in the province.

Total expenditure for 2009/10 amounted R43 million.  A net surplus of R19 million was declared.  With the exception of the qualification concerning the photocopier leases, the HDA had received a clean audit report from the Auditor-General.

Discussion
Ms G Borman (ANC) found the presentation to be clear and concise. Throughout the report, it would appear that the HDA was waiting for political approval and signatures.  She asked if the delays were genuine hold-ups or merely caused by the process that had to be followed. She noted that two Board members had attended very few meetings and asked why these persons were on the Board if they were unable to attend the Board meetings. She acknowledged that progress had been made with the N2 Gateway Project but wondered if all the backlogs and problem areas had been addressed.

Mr Adler acknowledged that the attendance record of two Board members was a matter for concern.  The matter had been discussed with the Chairperson of the HDA Board and was being addressed. There was a relationship between the attendance of Board meetings and the remuneration of Board meetings.  Members were not paid if they failed to attend Board meetings.

Mr A Figlan (DA) referred to the N2 Gateway Project and said that it appeared to be a good job on paper but this was not the case on the ground. He was concerned that many people had occupied the housing units in the development without permission. He felt that there was no control over the area. To his knowledge, the Boy’s Town Project had not taken place and he wanted to know how much land was transferred to the HDA by the provinces.

Ms Odette Crofton, General Manager, Projects and Programmes, HDA, replied that there were 6 different sites in the N2 Gateway Project. The sites handed over by Thubelisha had been completed and the project was transferred to the Western Cape Province. A contract with the City of Cape Town for the management of the Joe Slovo Flats had to be finalised. The HDA had implemented emergency measures over the sites but was unable to take action until the sites were legally transferred.

With regard to the Boy’s Town Project, Ms Crofton advised that the contracting process had been concluded and the ground works and clearing of the site was under way. With regard to the backlogs in problem areas and the rectification of units in the N2 Gateway, she said that the allocation of beneficiaries had been agreed between the Province and the City. The challenge was that additional people were settling in the area and demanding houses. A portion of the repairs and rectification required was included in the handover by Thubelisha to the City. Measures had been put into place to address the rectification issues.

Mr Adler explained that there were 74 agreements concerning the N2 Gateway Project that the HDA had to work through.  The process was frustrated by a range of issues raised by the communities involved.  The process had taken longer than desired but the HDA believed that the concerns of the communities had to be addressed and that this was the right course of action to pursue. The responsible authority for the N2 Gateway Project was the Western Cape Province. The pace of the changes was gathering momentum and he expected that major progress would be discernable by the early part of 2011. The main stumbling block was the resolution of the contractual problems.  He pointed out that only 720 out of a total of 22, 000 units in the Joe Slovo Flats were problematic.

Mr A Steyn (DA) asked when the need for additional offices was identified. With regard to the Servcon delays, he questioned why the HDA was engaged in discussion with Servcon as he understood that the company was no longer in existence. The HDA’s first priority was to identify suitable State-owned land and to utilise all suitable State-owned land in the first instance. With regard to the regulations, the Committee and made it clear that the drafting of the regulations had to be done in consultation with the Committee.  A copy of the draft regulations was required by the Committee. He asked why a member of staff was identified as ‘unknown’ in the annual report. He noted that an amount of R2.5 million was spent on recruiting fees. This was a matter for concern when employees left after a short period of time.  It should not be made easy for employees to simply opt out of their contracts and leave the Agency when they had signed an employment contract with them.

Mr Adler explained that the reference to an ‘unknown’ person in the annual report appeared because one member of staff had refused to disclose his/her race group.

Mr Joseph Leshabane, General Manager, Land Acquisition Management, HDA, advised that the reference to the Servcon property portfolio was made in the context of the previous financial year. The HDA had identified State-owned land in all the provinces. An initial 28,000 ha were identified and the HDA had applied for this land to be released for housing purposes. A further 8,000 ha was identified since. The process of releasing the land to the HAD could take some time. The HDA expected to receive approximately 80% of the requested land. While the release of State-owned land was a priority, the land might not be in suitable locations and it was necessary to augment the available land for housing purposes with privately-owned land.  Factors such as access to infrastructural amenities and transportation had to be taken into account.

Mr M Mdakane (ANC) asked how much of the 28,000 ha applied for was suitable for human settlement.  He asked what the HDA’s strategy was in engaging the private sector.

Mr Adler explained that the provision of roads, sewerage and electricity services were required in addition to land. The HDA did not have control over these services and it was very difficult for the HDA to act as the central coordinator.  The HDA could ensure that housing projects were not built in places where these essential services were lacking or would not be provided.

Ms M Njobe (COPE) asked whether it was necessary to provide such crowded dwelling spaces for people.

Mr Adler replied that densification was currently the subject of much debate.  However, densification was the reality on the 21^st century.

Ms Borman was concerned over the withdrawal of the LRA with the Western Cape reported in Table 2 of the annual report.  Another problem was the case of a developer who had spent R350 million and was now in financial trouble as a result. She asked who was going to control the mix of beneficiaries for the Konubia project.

Mr Adler replied that the land issue in the agreement with the Western Cape was being resolved through discussions on the second phase of the N2 Gateway Project. The Province was happy to resolve the issue in this manner.  The mixture of beneficiaries in Konubia would be determined by the City and the Province, as was normally the case. The developer referred to by Ms Borman had initiated a project but fell into dire financial straits and approached the HDA to take over the project. The HDA had declined to do so.

The Chairperson asked if the HDA could provide a list of the provinces who had delayed the signing of written agreements.

Mr Adler replied that agreements with the Free State, Limpopo, Northern Cape and the Eastern Cape provinces had been signed. The agreement with the Western Cape was almost completed.  The agreements with the remaining provinces were under discussion.

The Chairperson was impressed with the progress made by the HDA, which was established only a short period of time.  She assured the Agency of the support of the Committee.

National Housing Finance Corporation (NHFC) 2009/10 Annual Report
Mr Samson Moraba, CEO, NHFC, said that the historical performance of the NHFC was a key issue.  The economic environment during 2009/10 was very difficult and the economic downturn and resultant job losses negatively affected people who had received finance from the NHFC. The low interest rate, whilst good for the consumer, was bad for the entity. The Boitekong Project won the Southern African Housing Foundation Project of the Year Award in 2009 and another NHFC project received the same accolade in 2010.

The volume of total business had decreased but the value of incremental loans had increased. In the Projects, Commercial and Retail divisions, loans to a value of R455 million, R90 million and R226 million respectively were approved. Strategic partnerships with the Cape Town Community Housing Company (CTCHC), the Trust for Urban Housing Finance (TUHF) and the Housing Investment Partnership (HIP) were successful. TUHF had a book of R1 billion and the model was working well as it was not subsidised. HIP had leveraged funding from the Old Mutual and had invested 25% of the capital.

Mr S Ntasulaba, Chief Financial Officer, NHFC, reported that key assets had grown by 27% and equity had grown by 3%. The key income was interest on advances. The operating profit before tax was R73.161 million, which was significantly below budget.  Other income was 352% above budget and operating expenses were 34% below budget.

Mr Moraba said that the NHFC was aligned to the King III process of corporate governance, the new Companies Act and the Public Finance Management Act (PFMA). The NHFC had formally established an Enterprise Risk Management Function and adopted an Enterprise Risk Management Framework. The NHFC had received unqualified audit reports in the previous 15 years. The NHFC had reframed its strategic thrusts and revised its business plan in response to the human settlement imperative of Government.

Discussion
Mr Steyn asked what the NHFC’s shareholding in CTCHC was.  He asked how many of the 1,480 jobs created were sustainable. There appeared to have been little progress made with the National Treasury with regard to the provision of funding to acquire privately-owned land. He asked if there were discussions between the NHFC and HDA in this regard. He asked what was done to address the risks identified in the risk assessment reported on page 40 of the annual report. There appeared to be different figures for housing opportunities, as the number given in the presentation was 11,000 but the annual report stated 33,000.

Mr Moraba replied that the City of Cape Town had owned 50% of the CTCHC and the NHFC owned R50%. In 2008 the City offered to sell its shares for very little and the NHFC decided to buy the shares. The business model of the CTCHC was reviewed and it was currently a wholly-owned subsidiary of the NHFC.

Mr Leshabane replied that the jobs created had been in the project side of the business and were a combination of permanent and temporary jobs. The number of permanent jobs was much lower than the number of temporary jobs and most were in the administrative side of the projects. Most companies subcontracted to a large extent, which meant that most of the jobs created were on the contractual side.  The NHFC was in discussion with the HDA, but the HDA had expected that the priority would be the acquisition of State-owned land and would that funding for acquiring private purchases would not be necessary. The HDA expected to receive an amount of R2 billion from the National Treasury. The NHFC had indicated that funding could be made available if required in the future.

Mr Leshabane advised that the impairments identified were significantly higher at 65% and were due to only three clients. As much as the market had been difficult, more than 60% of impairments were due to a single client. 43% of the non-performing book related to Government-linked programmes. Gauteng had reneged on its agreement with the HDA and had been identified as a high risk area.

Mr Ntsaluba replied that the NHFC had instituted enterprise-wide risk management in the sector. Executive risk management was supplied by the governance structure. There were management committees in place, such as the Audit and Risk Committee and the Enterprise Risk Committee. The HDA had rated and identified the key risk areas. Mitigation actions were included in the business plan to ensure that the objectives were in line with those of the shareholder. The business of the NHFC inherently had a credit risk. One of the mitigation measures in place in the CTCHC was a new business model. Financial risk was dealt with by the Credit and Treasury Committee.

Ms Dlakude said that land owned by chiefs was State-owned and she asked what the Agency was doing about this category of land.  The focus seemed to be on land in urban areas.

Mr Leshabane was unable to respond to Ms Dlakude’s question.

Ms Borman asked what was meant by ‘mobilising finance on a sustainable basis’.

Mr Leshabane replied that the intention was to use other sources of funding besides commercial banks.  Agreements had been signed with the French Development Agency and the European Development Bank.

Mr Figlan asked for clarity on the term ‘rental stock’ and asked if there was a scheme allowing rent-to-buy.

Mr Leshabane replied that a rent-to-buy model had been developed.  Most of the business done by the CTCHC used this model.

Mr K Sithole (IFP) referred to page 40 of the annual report, where mention was made about ineffective leadership.  He asked what was being done to address this problem.

The Chairperson asked what the difference was between CTCHC housing and social housing.  It would appear that the social housing option had totally rejected the notion of rent-to-buy.

Mr Moraba replied that the CTCHC specialised in a unique option of instalment sale, which meant that the beneficiary signed an ownership agreement when he moved into the unit. Social housing meant that the unit was rented and ownership was not transferred to the beneficiary. Guidelines on the different models were available.

Mr Mdakane said that the NHFC had 12 years of experience.  The mandate was to broaden the scope of affordable housing. He asked what the total contribution of the NHFC was to eliminate homelessness since 1998. The NHFC had a specific task to perform and the Committee had to determine if the NHFC was the appropriate structure to provide housing to the low to middle income market and if it was really different from commercial banks. He was less concerned with organisational structure and was more interested in whether or not the NHFC was achieving its mandate.

Mr Moraba replied that the development impact of the NHFC could be substantiated by using various indicators.  As a financing institution, the amount of disbursements was used a measure but was by no means the only way to measure impact. Since 1998, the NHFC was the first entity to focus on providing social housing.  Part of the mandate was to develop solutions for housing options other than ownership. The NHFC was the sole provider of funding for social housing between 1998 and 2002.  Financial institutions in the private sector had looked into the social housing sector and had seen that it was a viable sector to invest in as a result of the efforts of the NHFC. To date, more than 50 social housing institutions have received funding from the NHFC. The NHFC had provided the capacity for the social housing sector to develop. Funding for people in the rural areas was provided in conjunction with the Rural Housing Loan Fund. The NHFC had helped to establish institutions which had broadened access and had provided funding to people in the lower income markets. The banks were not operating in this sector of the market and it was necessary to create a new mechanism to encourage the banks to return to this sector of the housing market. The housing backlog could not be eliminated without the assistance of the scale and structures available to the banks.  The challenges faced by the NHFC would remain and unless funding was made available on a large scale, the housing backlog could not be dealt with.

Ms Dlakude asked if the NHFC focused mainly on the urban areas and what assistance was available to people living in the rural areas of the country.

Mr Moraba replied that the NHFC was a national entity and operated in every part of the country.  The RHLF focused on the lower spectrum of the market, which included the rural areas. Mining companies were developing certain rural areas, which resulted in an increased demand for housing. The NHBRC would continue to provide funding for people in that target market.

The Chairperson asked if the NHFC had interacted with the Department on the involvement of the banks in the sector. She asked what support was provided to cooperatives and if the Department had intervened in the Gauteng problem.

Mr Moraba replied that the NHFC was working with the Department to engage with banks and was at an advanced stage in the negotiations. The NHFC had funded four cooperatives in the Johannesburg inner city, of which two were in the process of being liquidated. The same degree of success had not been experienced with cooperatives as was the case with other housing projects.

The Chairperson said that the cooperatives were high on the ruling party’s agenda and they could not be neglected.  The Committee required a report on housing cooperatives.

Mr Morris Mngomezulu, Acting Chief Director, Department of Human Settlements, said that the Department had assisted Servcon and NURCHA in the past and would assist the NHFC if approached with a request to intervene in contractual issues.  No request had been received from the NHFC but the Department was willing to provide assistance.

The Chairperson said that the issues raised by Mr Mdakane were a real concern for the Committee and needed to be considered in full.

National Urban Reconstruction and Housing Agency (NURCHA) 2009/10 Annual Report
Mr Morgan Pillay, Managing Director, NURCHA, presented the annual report to the Committee.  He said that the year under review had been characterised by poor economic trading conditions and a slow growth in business. Contracts signed had reduced by 14%, the number of houses built had improved by 7%, the value of loans had increased by 26% and infrastructure projects completed had increased by 71%. NURCHA had mobilised private sector funding of R135 million, however there was a high financing cost. Another persistent problem was non-payment by Government departments. Government recapitalisation of R250 million had not occurred.  The geographic footprint and coverage of NURCHA had improved. Alignment with intermediaries had strengthened and the shareholding of 30% was finalised. NURCHA had received a clean audit report and achieved high levels of compliance.

Mr Sindisa Nxusani, Director: Finance, NURCHA, said that income from operations had decreased by 12% and administrative expenses had increased by 11%. A net deficit of R18.8 million was declared. The economic situation had forced the Agency to operate at a loss. The amount of bank loans to finance projects had increased as the Agency was running out of funds. Even with a capacity of R95 million, the number of programmes was restricted. The outlook for NURCHA was not positive as the Agency was running out of funds.

The reasons for the poor performance included the failure of employers to allocate tenders, late payments by employers (especially State organs), budgetary constraints by these employer Departments, a reliance on final accounts and retention moneys to settle debt and the general state of the economy.  Commercial banks were not willing to grant loans to end users.  There was a continued depletion of NURCHA’s own funds that could be used to leverage loans from private financial enterprises.

Mr Pillay said that the key strategic issue was the need to raise additional funding from the State.  The non-payment by Government departments was hampering growth. NURCHA needed to increase the regional footprint and capacity. Technical assistance was necessary to foster integrated human settlement planning.

Discussion
The Chairperson thanked NURCHA for the presentation.  She said that NURCHA was close to her heart as the development of the capacity of contractors was important. The Committee had previously asked why the capacity building institutions were so scattered and requested the Department to consider this issue. NURCHA had been trying very hard and it was high time that the Department intervened.

Mr Sithole asked when NURCHA had acquired capital from the Department. If NURCHA was using its own funds for projects then the Department had to be questioned. He noted that NURCHA made no mention of disabled people and child-headed families in the reported statistics.

The Chairperson explained that the employment statistics referred to contractors and NURCHA only had to report on the number of disabled persons employed by the Agency.

Ms A Mashishi (ANC) noted that the annual empowerment statistics reflected a low percentage of women.  NURCHA had to consider the issue of empowering women to a greater extent. She asked what the reason was for the failure of employers to award tenders.

Mr Figlan asked for details of which provinces were not paying NURCHA and what the reasons were for the non-occurrence of the recapitalisation funding of R250 million from Government.

Mr Pillay explained that NURCHA had no control over the awarding of tenders and was unable to provide the Committee with more details of the empowerment statistics. NURCHA was working with the Department on establishing a national small contractor’s programme intended to empower women contractors. The Agency was developing a defined set of rules to take the contractors from ‘emerging’ to ‘emerged’ status.  The failure Government Departments to award tenders was partially due to the shift away from providing housing to the development of integrated human settlements. Another problem was the ongoing lack of available funding for the Department, which had a negative impact on NURCHA.

Mr Mngomezulu explained that NURCHA was a joint venture between the Soros Foundation of America (SFA) and the South African Government.  The agreement was that the Government would match every dollar provided by the SFA.  As a result of the economic situation in the USA, the funding from SFA had ceased.  The Department had requested the recapitalisation funds from Treasury to recapitalise the HDA, NHFC, RHLF and NURCHA. The National Treasury considered that Eskom was a higher priority and only provided funding for the RHLF. The other agencies were not considered to be priorities. The Department could again approach the National Treasury for recapitalisation funding for the next financial period.

Mr Steyn was concerned over the high risk environment that NURCHA operated in. It would appear that NURCHA was paying more to access funds than other entities. He remarked that without recapitalisation, NURCHA was not a going concern. He asked in which company a 30% stake was purchased and for what reason. He asked what the causes were for the drop in turnover and the increase in administrative costs. He observed that the provision for bad debts had increased by 40%.  He asked why the NURCHA Board of Directors was larger than the boards of other agencies.  He noted that two Board members had been indicted as they were not independent.  He felt that the two members should not be on the Board at all. He asked the only source of income was derived from interest and if a large portion of the bridging finance went to contractors working on Government contracts.  He wondered if NURCHA recouped the money from the contractor as the development progressed.

Mr Pillay confirmed that income was limited to interest and that Mr Steyn’s surmise on the recovery of bridging finance to contractors was correct.  The 30% shareholding referred to in the presentation was in two intermediaries that NURCHA had worked with and was done so that the Agency could exercise a degree of control over these companies. NURCHA was a hybrid development institution and two directors were nominated by the SCDEF.  These directors were therefore not considered to be independent. The size of the provision for bad debts was related to the problems experienced with payments. NURCHA was confident that the debts could be recouped. The size of the Board was determined by Government and the SFA. In the short term, there was no problem with NURCHA being a going concern, but the Agency could not continue to operate at a loss indefinitely.

Mr Viwe Gqwetha, Director: Operations, NURCHA, said that the project sites in the portfolio were in KwaZulu Natal and Gauteng. Further details were available if required.  NURCHA attempted to raise capital in the private sector.  The Agency provided bridging finance to contractors and passed on the cost of the finance to the contractor.  The cost of financing had increased and coupled with the slow payment by Government departments, had created a serious problem for the Agency and had resulted in an increase in losses.  He was of the opinion that NURCHA had sufficient capacity to continue to operate as a going concern. The Agency had concluded financing agreements with First National Bank and hoped that Government would provide adequate funding.

Mr Mngomezulu said that capitalisation was meant to expand the impact of the business and that NURCHA had enough funding available to carry on with day to day operations. The recapitalisation would be a bonus and allow the Agency to expand. He hoped that the Department would be successful in obtaining the necessary funding for NURCHA from the National Treasury.

Ms Borman said that the issue of non-payment by Government departments had to be taken seriously.  Not only large contractors suffered as a result but many small contractors were forced out of business because of non-payment by Government entities.

Mr Gqwetha replied that the total amount overdue during the previous month was R135 million.  50% of the overdue amount was from Government departments. The loan book amounted to R450 million.

Ms Dlakude asked for more information on the financing provided to small and emerging contractors, in particular contractors based in the rural areas.

Mr Pillay replied that NURCHA had a presence in rural areas, but the volume of transactions in these areas was low. NURCHA was dependant upon the employer putting out a contract.

Department of Human Settlements (DHS) 2009/10 Annual Report
Mr Thabane Zulu, Director-General, DHS, said that the executive summary of the annual report presented to the Committee covered the key areas and focussed on the achievements, challenges and the financial performance of the Department.

Mr Neville Chaney, Chief Operations Officer, DHS, gave an outline of the strategic pillars of the Department, i.e. mandated outcomes, coordination and alignment of human settlement developments, urbanisation and spatial management, key service delivery priorities, shelter development governance, shelter development reforms, transformation and institutional realignment.

A conceptual document on the implications of the name change of the Department from Housing to Human Settlements was developed during the period under review. A Beneficiary Occupancy Audit in seven of the nine provinces was completed. The Department had undertaken three Impact Evaluation Studies to determine the impact of various housing programmes on the lives of beneficiaries. The programmes of the Department included the Rural Housing Programme, the Social and Rental Housing Programme and the Upgrading of Informal Settlements.  The Department conducted monitoring at the project level to verify and confirm delivery as reported by the provincial Departments of Human Settlements. The Department initiated a process to develop a Human Settlement Index for South Africa in collaboration with the UN Habitat program.

The Department had entered into agreements with platinum mining companies for the possible roll out of housing projects in Limpopo and North West provinces, with Intersite for the joint development of land in and around railway stations and with the Development Bank of South Africa (DBSA) for technical support on priority and blocked projects. The Department had negotiated the signing of the agreement with the Department of Public Works (DPW) that gave the DHS the first right of refusal on any land being considered for disposal by the DPW.

The National Upgrading Support Programme was established to provide support to municipalities for the in situ upgrading of informal settlements. A project process guide was developed for implementers of housing projects that would also serve as a project management and monitoring tool for project managers. The newly-established HDA became operational during 2009/10. The Department had finalised the development of an individual housing subsidy voucher scheme for persons who enjoyed functional tenure rights to the land they occupied in collaboration with the RHLF.

A process to develop standard and uniform business processes, based on documented housing delivery processes, was initiated. The municipal accreditation programme had been activated by the assessment of the six Metropolitan Municipalities and four District Councils. In the international arena, South Africa was given a voice in the debate on human settlements through the African Ministerial Conference on Housing and Urban Development and the World Urban Forum.

A strategic risk assessment exercise was undertaken during November 2009 and January 2010 which incorporated information technology (IT), fraud and strategic risk assessment, which allowed the Department to identify, evaluate and allocate responsibility for managing and controlling the risks inherent to the Department.  The composition of the Risk Management Committee was reviewed in line with the National Treasury framework to include the branch heads as members of the committee. An independent non- executive member was appointed as Chairperson of the Risk Management Committee. The Department had executed work in accordance with the approved operational internal audit plan and audits had found that the Department had adequate systems of internal control, risk management and governance processes in place.  However, these systems were found not always to be effective.

The Department had monitored the cases being investigated by the Special Investigating Unit (SIU) in terms of the Presidential Proclamation R.7/2007. The Sectional Titles Schemes Management Bill and the Community Schemes Ombud Service Bill were approved by Cabinet for public comment and a number of inputs on the Bills were received from individuals and organisations. The draft Rental Housing Regulations were finalised to support the effective and efficient administration of the Rental Housing Act. The draft Social Housing Regulations were finalised to support the application of the Social Housing Act. The draft Legal Compliance Manual and Policy was finalised and the process of identifying a suitable software service provider to assist with legal compliance was initiated. The new National Housing Code, which aligned housing policy and programmes with the Comprehensive Plan for the Development of Sustainable Human Settlements (“Breaking New Ground”), was approved by MINMEC and the Minister in February 2009.The Farm Residents Housing Assistance Programme was approved by MINMEC and incorporated into the new National Housing Code.

The policy framework for the housing programme for persons with special housing needs was completed but still had to be deliberated upon with the Department of Social Development because the placement of children with caregivers and the appointment of care-givers fell within the ambit of that Department. The Draft Framework for the Inclusionary Housing Policy was reviewed during the financial year, in view of the changes in the market and the impact that the envisaged programme might have on the already fragile middle- to higher-income segments of the housing market. The FLISP programme was revisited during 2009 with a view to refining the programme and to promote implementation. Comprehensive changes to the programme were formulated and tabled for consideration but the draft proposals for the revised programme were rejected owing to the substantial financial implications. Regional workshops on the National Housing Code were held with all provinces, municipalities, housing institutions and the South African Local Government Association (SALGA).

Mr Nyameko Mbengo, Acting Chief Financial Officer, DHS, presented the annual financial statements for the 2009/10 fiscal year.  The Department had spent R13.37 billion of the total budget of R13.605 billion, which was inclusive of transfers and subsidies. Excluding transfers and subsidies, the total Departmental expenditure was 68% of the operational budget. Reasons for under-spending included the implementation of cost-saving measures related to travel and subsistence, advertising and related expenditure deemed not necessary, late invoicing by the State Information Technology Agency (SITA) and the SIU. Under-spending was attributed to the delay in the printing of the National Housing Code and the delay in securing additional office space, which resulted in the budget provided for leasing, the refurbishment of offices, the moving of staff and the acquisition of furniture not being utilised. An amount of R34.9 million could not be transferred to the Social Housing Regulatory Authority as the process of establishing the institution could not be finalised by the financial year end. The unavailability of office space resulted in the non-filling of vacancies and under-spending on staff.

Mr Chaney said that the challenges faced by the Department included the lack of services, land availability and market dynamics, the relegation of the poor to the urban periphery and subsidy constraints. Natural and macro-economic variables included the mushrooming of informal settlements; disasters such as floods and fires; skills and capacity constraints (particularly engineers and project managers) and inflationary pressures on the cost of building materials. Beneficiary management challenges included the poor quality of houses, blocked projects, the management of waiting lists, the transfer of title deeds and fraud and corruption in housing delivery. Socio-economic challenges were the rapid urbanisation and migration of rural people to urban environments, population growth, household formation and diminishing size of households, the proliferation of informal settlements, the lack of access to basic services, unbalanced property markets and unsustainable development choices. Challenges in terms of urbanisation included the “dual residence” of certain households (i.e. households that maintained a rural base while sojourning in urban areas), which was a deeply entrenched feature of many households. Urbanisation was irreversible and growing. Residents in informal settlements were largely address-less, which was another shackle that contributed to the exclusion of these residents from the economy. Another challenge was the “shifting targets” in the delivery of services.

The Department’s Remedial Action Plan for 2010/11 included an Annual Performance Plan with a review and revision of the process session to ensure that the comments made by the Auditor-General were addressed. Departmental strategic planning and monitoring workshops would continue to be held on a quarterly basis. The issuing of exception letters by the Strategic Management Unit would ensure that corrective measures were taken by management. Branch Managers would conduct performance review sessions and submit reports to the Director-General on a quarterly basis. There would be compulsory training on strategic planning and performance monitoring as well as the codification of strategic and performance plans for purposes of verification. A revised Departmental planning and programme performance monitoring policy, in line with the framework on strategic plans and annual performance plans issued by the National Treasury, was completed in August 2010. The modification of planning and reporting templates in line with the framework for strategic and annual performance plans was completed in October 2010. A compliance monitoring committee was implemented.

An electronic performance monitoring system would be introduced as part of the turn-around strategy. An action plan was compiled, based on the management letter of the Auditor-General and was being monitored by the Audit Committee. The exceptions related to systems and the integrity of information were being addressed and a Chief Information Officer would be appointed. Quarterly meetings between the Auditor-General, the Director-General and the Minister were held to monitor and oversee that the audit action plan was implemented.

Discussion
The Chairperson was under the impression that the Committee would be briefed on the performance output achieved in the context of the strategic plans set for 2009/10. The Department had highlighted performance areas and targets but did not report on the actual outputs achieved. It was important that the Department spent 100% of its budget but the Committee also needed to see that value for expenditure were achieved. The Department needed to report on this aspect as well. The presentation had to relate to the performance of the previous year.

Ms Borman referred to the funds provided to the provinces and asked if all the money was disbursed in good time, to allow the provincial Departments to execute their housing programmes on time. She referred to page 182 of the annual report and noted a large reduction in expenditure on advertising, consultants and travel.  However, expenditure on venues and subsistence had increased. She did not understand why there had been a reduction in expenditure on training and staff development. With regard to staff vacancies, the Department had been restructured since 2004 and she expected that the turnaround strategy would have resulted in more changes. She asked how well-staffed the Department was. She asked what progress had been made with the project to accredit municipalities. Her questions related to the comments made by the Chairperson and the Committee needed to know if the Department was in a position to cope with the housing backlog.

Mr Steyn observed that there was an anomaly in the statement made that money was saved by not filling vacancies and the subsequent claim that the Department was challenged by the lack of funds to fill the vacant posts. He wondered why the Department had budgeted for the filling of vacancies that could not be filled.  He was concerned over the irregular expenditure mentioned in the report of the Auditor-General and the R72 million exposure of the Department. This indicated that proper procedures were not being followed.  There appeared to be a lack of information on actual performance and what the Department had achieved. On page 197 of the annual report, it was stated that grants for three provinces were unconfirmed. This issue needed to be addressed. Some of the challenges raised were recurrent and there did not seem to be concrete plan on how these issues were going to be addressed.

Mr Sithole said that the Minister of Human Settlements had said that there were 2,700 informal settlements in the country.  The Department had stated that these settlements were mushrooming. He asked to what extent the settlements were growing and what mechanism the Department had in place to formalise these settlements. He asked what measures were in place to capacitate people without any skills.

Mr Mdakane congratulated the Department for receiving an unqualified audit report and acknowledged that much progress had been made. He agreed with the view that the challenges mentioned seemed to be the same as in the past, with little information provided on how the Department planned to address these problems. Unless solutions were found, the same challenges would be faced in the following year.  He noted that the Department had spent a total of R13 billion and asked what the impact of this money had been on resolving the problems of the people on the ground. He understood that the DHS transferred money to the provinces, but ultimately the money was given to the national Department for the purpose of resolving the housing problems of the people. If the DHS was not making a dent in addressing the housing backlog it was difficult to justify giving the Department more money when there was no visible impact.

Mr Mdakane said that it was not that important for the Committee to hear about how many contactors were hired, but rather what changes had occurred in the lives of the beneficiaries. In his view the Department had not dealt with this aspect in the presentation. The ultimate goal was to see changes in the lives of people but it was critical that value for money was received.

Ms Njobe referred to page 192 of the annual report.  Paragraph 24.2 dealt with irregular expenditure and she wanted to know how such expenditure occurred. The transfers to provinces were detailed on page 196 of the report and she commended the Department on the extent of the funding made available to the provincial authorities. The provinces had no excuses for failing to deliver.  She asked if the Department monitored that 100% of the funds spent had been used effectively and that value for money had been provided.  Most of the funding was in the hands of the provinces and the Committee was concerned over whether or not value was created on the ground. The Minister had said that the housing programme should be completed by 2030 but she felt that the magnitude of the task was underestimated.  She doubted that the target would be reached in twenty years because so much remained to be done even after all that was done in the previous 16 years.

The Chairperson said that poor performance would not be condoned. The Constitution gave the Department concurrent functions and the Department shared responsibility with the provinces. The Department was responsible for monitoring the performance of the provincial Departments. The Inter-Governmental Relations Act provided guidance. Post-1994, the Government had focused on policy and legislative development but the focus had shifted to oversight after 2002. It was important for Parliament to link service delivery on the ground to the money spent. The Constitution allowed the Minister to intervene in the provinces, if necessary.

The Chairperson acknowledged that the Department did not have a Director-General in the previous year but felt that the plans should have been followed regardless. She suggested that the Department provided the Committee with a detailed report on the actual achievements before the formal adoption of the annual report scheduled for Tuesday, 19 October 2010.  She commended the Department for achieving an unqualified audit report.

Mr Zulu thanked the Members for the constructive comments. He said that the information on the achievement of targets and plans was available and would be provided to the Committee.  A summary was provided in the presentation.  Most of the issues concerning areas where the targets were not reached had been reported by the Auditor-General and the Department had put remedial plans in place. The Auditor-General had made it very clear that if the Department did not address the issues raised in his report, the Department risked receiving a qualified audit in the following year.

Ms Borman asked whether the summary referred to by Mr Zulu was related to the five programmes listed in the annual report.

Mr Zulu replied in the affirmative.  The Department had an action plan for all the issues raised and was meeting with the Auditor-General on a monthly basis.  Further details could be provided. Most of the performance achievements were at the operational level of the provincial authorities. The Department needed a multi-pronged operational and ground-level approach. He understood that the Members of the Committee needed to know what was happening on the ground.

The Chairperson asked if there were any legislative constraints that prevented the Department from monitoring the performance of the provincial Departments.

Mr Zulu replied that the major issue was the powers and functions of the national and the provincial authorities. The interventions of the Department were mostly supportive in nature and no strong punitive actions were taken. The provincial performance systems operated independently from the national Department. There was a degree of misalignment between the provincial and national levels.  MINMEC had indicated that the national performance targets had to be linked to the provincial performance targets. He had requested information from the provincial Heads of Departments (HODs) but his letters were not responded to and he did not have the authority to demand the information.

The Chairperson commented that new service delivery agreements had to be signed.  The National Planning Commission (NPC) also had a role to play. She asked why it was so difficult to get information from the provincial authorities.

Mr Zulu replied that all the MEC’s needed to sign service delivery agreements with the Minister at a national level and ensure that provincial targets were aligned with the national targets. Once the agreements were signed, the process became institutionalised.

The Chairperson asked what progress was made with the signing of the agreements. The Department needed to look ahead as well as evaluate past challenges and identify what could be attended to immediately.

Mr Zulu replied that the Minister had signed all the agreements and couriered the documents to the provinces for the perusal and signature of the MEC’s.  He was happy to make his own performance agreement available and suggested that similar agreements were signed with the Heads of Department.

Mr Chaney said that the format of the presentation submitted to the Committee was in accordance with the format recommended by the National Treasury.  The current Parliament had introduced a new focus on the provision of value for money and he acknowledged that the Department had to include this aspect in the reports to the Committee.  The actual housing delivery targets were set at the provincial level.  The Committee expected the Department to be more active in the operations at the provincial level and he predicted that the provinces would soon complain that the national Department and the Director-General were interfering in provincial functions.  The Department had experienced difficulty in obtaining the project lists from the provinces.

The Chairperson replied that the Committee would deal with any complaints received from the provinces.  The Department had to take the necessary action.  The President had set the tone concerning the issue of service delivery and everyone else had to follow suit.

Mr Mdakane said that the Department had to comply with the National Treasury regulations and guidelines.  The Committee required additional reports on the value for money delivered.  It was necessary for the Committee to discuss the key strategic areas with the Minister and the Director-General and agree on the indicators that could be used to measure performance.

Ms Njobe said that an immediate response from the Department was not required.  The Committee had challenged the Department.  Other Departments had similar problems and there was a need for a broader discussion on the matter.

The Chairperson referred to the comment of the Auditor-General concerning late payments and the R72 million exposure issue.  She realised that Mr Zulu had only been in the post for five months and might not have been able to deal with all the inherited problems.  However, the Committee needed clarity on these points.  She asked for more details on the disaster funds given to KwaZulu Natal.

Mr Zulu requested an opportunity to prepare a detailed presentation on the matters raised by the Auditor-General and the response of the Department. Only five months remained of the current financial year and the Department was implementing some radical action plans.  He would like the key performance areas to be defined in a more tangible manner and to be more service delivery-orientated, as opposed to compliance-orientated. He agreed that the Department could not claim a cost-saving if it failed to carry out its responsibilities.

Mr Chaney explained that the R72 million exposure arose when the Department was cited as a party in a legal dispute. The national Department would always be cited as a party in disputes concerning housing. The Department was aware of the situation and the exposure would reduce in the next financial year.

Financial and Fiscal Commission (FFC) comment on DHS 2009/10 Annual Report
Mr Conrad van Gass, Program Manager, Budget Analysis, FFC, presented the comments and recommendations of the FFC for the DHS. The FFC was of the opinion that housing delivery had to be done in an efficient, integrated and sustainable manner. This required solving institutional bottle necks in the system.

The Commission recommended that suitably capacitated municipalities be accredited for direct receipt of housing subsidies and were given responsibility for low-income housing delivery. This recommendation was reiterated for the period 2009/10 to 1012/13.  Government had indicated that it would review the powers and functions of provinces and the Local Government authorities. An accreditation panel was established by the DHS in 2009 and tasked with assessing municipalities. To date, six metropolitan and four other municipalities have been assessed. This process needed to be speeded up.

The second recommendation was that policy and norm changes were accompanied by financial assessments of the implications on unit costs and annual delivery of dwellings. This recommendation was accepted by Government. The DHS did not report on delivery output by programme or province in 2009/10. Earlier in 2010, it was reported that 40,000 RDP houses would have to be replaced as a result of poor quality, which would cost 10% of the DHS budget.

The third recommendation suggested greater coordination of the Integrated Housing and Human Settlement (IHHS) capital grant with the Municipal Infrastructure grant and the Local Equitable Share grants for basic services to low income households. The Department was required to report on this aspect and how it would be affected in the framework for the IHHS grant, published with the Division of Revenue Act.

The final recommendation was that housing delivery backlogs were identified and addressed in obtaining planning approval from Local Government, the Department of Environmental Affairs, the Department of Transport; as well as insufficient project management capacity and delays in the registration of projects.

Discussion
The Members of the Committee agreed with the recommendations made by the FFC.

The Chairperson said that the FFC was on the right track concerning issues around the funding model. She thanked the FFC for the presentation.

The meeting was adjourned.