Department on the Quartely Expenditure Report: July-September & October- December 2010

Meeting report

Department of Human Settlements Expenditure Reports: presentation
Ms Funani Matlatsi, Chief Director, Department of Human Settlements, presented the Departmental expenditure reports for 30 September 2010 and 31 December 2010. The expenditure as at September 2010 was at 48%. This was the Departmental total for all programmes.

The administration programme amounted to 38% total spent from an allocated amount of R176 175 000. Of the expenditure units, property management was the highest with a percentage, with 103% spent. The main reason for this spending trend was due to a lack in accommodation. This had an impact on corporate services in the Department. Ms Matlatsi said that the Department encountered problems with finding suitable office space for the Departmental offices.

Ms Matlatsi said that changes in spending occurred towards December 2010 because the Department had put plans in place to deal with this issue. Spending increased from 38% to 52% in one quarter. This was still not enough as the Department had failed in its turnaround strategy. Ms Matlatsi said that the Department will definitely make some changes by 01 April 2011.

With regards to the policy, research and monitoring programme, only 28% was spent from an allocated amount of R45 907 000. The majority of the money spent was for personal costs, goods and services. In this programme the Department experienced more of a shortage in the filling of vacancies. Ms Matlatsi said that this amount was low because of a minimal amount spent on the Chief Directorate: Research, which only amounted to 18% of the total expenditure for this programme.  She admitted that research was low but said that this need was addressed as this area increased to 40% in December. The gap was filled by contracting service providers to carry out the needed research. Overall, spending increased from 28% in September to 51% in December.

Programme 3 which outlined housing, planning and delivery support was the main programme which supported the grant, and at September 2010 was at 23% spending in relation to the budget of R206 820 000. As far as spending was concerned a noticeable difference occurred in December 2010 whereby it increased from 23% to 48%.

The next programme was the housing development finance model and most of the allocated budget went towards the human settlement development grants. At that point an amount of R7 509 491 was transferred to the provinces as well as an amount of R133 800 000 was transferred to the housing disaster relief grant. The total amount spent of the budget of R60 369 000 was 35% at September. At that time, there was 0% expenditure towards the rural households’ infrastructure development. The provinces budget for 2010/2011 was sitting at R15 026 763 000 and at that time, R7 509 491 000 was transferred to provinces and as 30 September provinces had spent 37% of this amount. By end December 2010 spending had increased to 68%.

Ms Matlatsi noted that usually towards the end of September each year the Department made an analysis to determine whether the entire allocated amount would be spent. This was when the Department requested from the provinces a review on whether the benchmarked amount would be spent. If not, each province should have come up with its own action plan to improve the spending. Most provinces responded by indicating challenges such as slow procurement and the delays of receiving and processing invoices which affected the rate of spending.

Each province was now embarking on a campaign likened to a road show to recoup those outstanding invoices from contractors. Another major problem was land availability and land release issues. The problems reported made the Department realise that the challenges faced by provinces were similar. The provinces with the most challenges were the Western Cape, North West, Mpumalanga and Kwazulu-Natal. Ms Matlatsi commended the Northern Cape and Limpopo provinces for its spending performance as they had improved compared to the previous year.

Programme 5 showed the figures of spending in relation to strategic relations and governance. Spending was minimal at only 16% ending September and this was due to problems with service level agreements. Hence minimal spending occurred with regards to business information management but this was addressed towards December as the Department changed its service providers.

Ms Matlatsi highlighted that towards the end of September 2010, the Department realised that they would not be able to reach the 50% benchmark set out to reach. Therefore it decided to give the provinces liberty to spending. The Minister held a telephone conference with all provincial Members of the Executive Council (MECs) to discuss these recovery plans. An instruction was sent out to all the provinces and this was done with the prerequisite that each province needed to submit a recovery plan to improve spending. Where there was major problems, provinces were requested not to go ahead with recovery plans. In KwaZulu-Natal, R200 million was taken away due to under-spending, and therefore this province could not spend any re-allocated money as no money was transferred to it. In total, Departmental spending was up from 48% at the end of September to 75% at the end of December 2011.

Discussion
Mr A Steyn (DA) thanked the Department for its comprehensive presentation. However, he thought that the Department should not have presented both quarters in one meeting as each quarter needed its own focus separately. He wanted to see delivery figures showed against targets set and not just the total for each area. He commented that he was concerned about the issue of relocating funds to other provinces because this was unfair to provinces having money taken away from them. He wanted clarity on transfers between the second and third quarters.

Mr Thabane Zulu, Director-General, Department of Human Settlements, said that the issue of transfers were not an easy decision made by the Department. A telephone conference was held with the Minister and all provincial MECs and there it was decided that the re-allocation of funds needed to happen if the Department wanted to avoid a roll-over situation at all costs. The outcomes of that meeting were that all provinces needed to submit a recovery plan if they wanted more money transferred to them or no funds taken from them. The transfers were based on the response from provinces regarding this request.  

Mr K Sithole (IFP) wanted to know why R200 million was taken from the province of KwaZulu-Natal and how much of that money was re-allocated.

Mr Zulu said that the reason why the money was surrendered was as a result of under-spending. However, due to the recent floods in the area, the entire amount was given back to the province to help with disaster relief efforts and rebuilding of houses.

Ms M Borman (ANC) said that some figures seemed very low, even in December 2010. She wanted to know why some commitments from service providers and contractors were not coming through. She commented that although assurance has been given by the Department, she believed that the entire budget would not be spent.

Mr Zulu said that the major problem in this area was the rate at which the Department was receiving invoices. He agreed that the rate of receipt was slow but the Department was planning on following up with these service providers and contractors before the end of February 2011 to keep spending amounts up to date.

Ms M Njobe (COPE) noted the improvement on spending in the Eastern Cape, especially since this province was always under-spending. She said that the problem lay with spending at provincial level as the national Department was spending well enough. She wanted to know with regards to the presentation why the gap between total expenditure and total commitments was so big.

Mr Zulu said that one of the reasons why the figures were so huge still was because the Department had been awaiting invoices in addition to the fact that many of the service providers were being used on an annual basis. Therefore those amounts would only be reflected in financial reports by the end of the financial year. He admitted that this influenced the accuracy of expenditure but said that this was one of the major issues the Department would be changing from 01 April 2011.

Ms A Mashishi (ANC) wanted to know more about the special investigations unit set up by the Department and whether this unit was established to investigate the misappropriation of funds.

Mr Zulu explained that the special investigations unit was set up to eradicate cases of fraud and corruption in the Department. This unit was working effectively as it had almost completely rid the Department of corruption. It was initially set up to investigate cases where funds were not accurately placed resulting in the over-expenditure of allocated amounts in certain units of the Department.

Mr R Bhoola (MF) noted that the overlap between the two quarters was important and he could see some improvement in spending. With regards to the special investigations he wanted to know how the money recovered was analysed and added to the available budget again.

Mr Zulu said that once the investigations were completed, analysis was done by the financial section and the funds were then recovered. After this process was done, the available funds was put back into the available budget and re-allocated to be spent on other programmes in the Departmental structure.

Ms N Mnisi (ANC) said that she applauded the Department for its work. She said that it was a good initiative to relocate the money unspent to other provinces instead of that money going back to National Treasury. With regards to programme 4, which contained the Rural Households Infrastructure Development, she noted that R1 million was allocated but none of that money was spent. She wanted to know whether this figure was accurate or if the Department was still awaiting invoices at that time.

Ms Matlatsi said that this unit only became mostly operational after September 2010 due to constraints in the required capacity to oversee the functionality of this unit. She noted that at December 2010, the spending in this unit was up to 10% from 0%. 

Mr M Mdakane (ANC) commented that the Department was making a minimal contribution to skills development in the country. This was not good as the budget allowed for more jobs to be created. He expressed the need for more vacancies to be filled, as temporary or permanent positions.

Mr Steyn (DA) agreed and said that bursaries were one solution to the shortage in capacity that the Department was experiencing. He wanted more clarity however on the re-direction of money and said that it should be based on the actual performance of the provinces

Mr Zulu responded that indeed the re-allocation of funds was dependant on the performance of provinces, and the Department only transferred funds to those provinces that came forth with a suitable and accurate action plan to improving service delivery.

Ms Matlatsi added that with regards to the current vacancies, a decision was made by the Department to have another look at all vacancies and decide which needed to be removed. Although there was a capacity shortage with regards to staff, the Department realised that many of the posts available were a duplication of roles and responsibilities. Therefore the Department decided to fill vacancies which were most needed to improve capacity and most of this would be done by the end of the financial year.

Mr Bhoola suggested that the Department should have emphasised the importance of aligning spending to a programme and to a particular issue by improving planning in municipalities because some areas did need improvement in KwaZulu Natal. He said that sanitation remained a major problem in the province and the money surrendered by the province could have been used towards sanitation and water.

Submission to the Portfolio Committee on Human Settlements, Rural Interventions: Individual Rural Housing Subsidy Voucher Programme
The Department of Human Settlements gave a submission to the Committee on rural interventions planned, namely the Individual Rural Housing Subsidy Voucher Programme. Mr Martin Mphisa, Deputy Director-General, Department of Human Settlements, gave the presentation. The programme was approved by the Ministers and Members of Executive Council (MINMEC) during its meeting held on 21 August 2009. Subsequently the Department, in collaboration with the Rural Housing Loan Fund (RHLF) members identified the risks associated with the implementation of the Programme and the RHLF developed strategies to mitigate the possible effects of these risks. During the previous presentation of the programme to the Portfolio Committee, the Committee requested the Department to investigate possible pilot projects that could be embarked upon to test the programme.

Mr Mphisa explained that the programme was developed as an alternative subsidy option to augment housing choice in rural areas where project-based housing delivery was not planned for the foreseeable future. It represented an owner-build scenario. Eligible beneficiaries who enjoyed functional tenure rights on community-owned land, which rights were protected in terms of the provisions of the Interim Protection of Land Rights Act, may have applied for individual subsidies. The subsidy, once approved, would have been issued in the form of a voucher that could have been used to access building materials, off-grid basic services and labour cost where required.

Mr Mphisa noted that a publicly funded subsidy voucher system was naturally exposed to a number of very significant risks. These could broadly be summarised in three risk groups. These were firstly possible funding misappropriation such as funding not reaching beneficiary households or being allocated to ineligible households. Secondly, there were possible inadequate housing outcomes such as transport losses, material compromised by inadequate storage, inferior workmanship, incomplete dwellings, unsuitable building sites and resulting structural damage. Lastly, inadequate or inefficient administrative processes and lack of coordination among implementation agents could have led to delays and frustration of beneficiary expectations.

Mitigation strategies had been developed by the RHLF. Generally, the risk of misappropriation of funds would be mitigated by RHLF through the proposed payment of accredited building material merchants directly instead of releasing funds upfront to financial agents for this purpose. Safeguards against inadequate housing outcomes included the provision of National Home Builders Registration Council (NHBRC) approved standard building designs with fully specified bills of quantities that must be obtained within the voucher quantum and the system of regular building site inspections and progress payments. The issue of potential failure or inefficiency of administrative processes was addressed by using RHLF’s tested retail lender and building materials merchant network as the initial front-end infrastructure serving the voucher applicants.

However, the single most important risk mitigation element was to implement the voucher scheme in a phased approach, starting with a limited pilot programme in a small number of eligible rural communities. Mr Mphisa noted that starting small was critical because many details of the programme processes and resource requirements were not knowable and should have been discovered and tested during a low-volume and low risk pilot. The specifics often depended on the actual beneficiary response, technical feasibility, and the willingness and ability of stakeholders to collaborate. The pilot phase also allowed the Department to gradually build its own organisational capacity and ensure readiness of the voucher intermediaries.

In addition, the pilot phase could have been largely accommodated with existing resources, which avoided premature theoretical debates about long-term budget requirements for the voucher scheme on a nationwide scale. With regard to progress on the pilot project initiative, in response to the request by the committee, the Department in collaboration with the RHLF and the Eastern Cape investigated the possibility for testing the implementation of the programme on a pilot basis.

Mr Mphisa explained that the Eastern Cape had accepted the request to pilot the programme in selected areas in the province and had decided to budget for this purpose in respect of the new financial year. The programme was presented to municipalities on 31 January 2011. The province had selected three possible municipalities where pilot implementation was most feasible. The selected areas had a potential to yield approximately 500 individual subsidy allocations.

The Department was currently assisting the province to develop a framework for a strategy for the pilot implementation initiative. A follow-up meeting with the municipalities was planned for 07 and 08 February 2011. The most important aspect at this stage was to undertake an awareness campaign in the selected areas, to provide the prospective beneficiaries the opportunities to consider their options and tender their willingness to participate in the programme and apply for individual subsidies. It was also important to survey the selected areas for prospective participating material suppliers and to complete the accreditation processes.

Once the scoping information was available the pilot phase strategy could be developed and it would be submitted for consideration. According to plan, a possible pilot implementation phase could be launched near the end of 2011.

Discussion
Ms Borman commented that with regards to the rural voucher scheme programme, the processes that needed to be followed sometimes delayed the implementation of programmes, as this project was started in 2009 already. She wanted to know whether the voucher scheme was really a priority in the Department or whether this was a failed attempt at creating something new to increase service delivery.

Mr Maphisa assured Members that this was a priority for the Department as regular meetings were held with the province. The problem with implementation since 2009 was that talks needed to be held to facilitate the implementation programme by means of inputs from the local municipalities. He said that the Department focused on using already existing implementation plans that were previously successful as well as established and reliable service providers to supply building materials and other goods and services.

Mr Steyn said that he was concerned with the presentation on the voucher scheme programme as it merely outlined the many challenges that the Department could possibly have faced indicating to him that this initiative might fail. He said that the awareness campaigns were admirable but suggested that these subsidies should be given to individuals who had already applied for housing subsidies previously and who were awaiting responses from the Department.

Mr Sithole highlighted that the Eastern Cape had many mud houses and mud schools. He indicated that the Department should have tried to eradicate real suffering by starting to identify families and assist them. The Department should be playing a bigger role as the resources were available. He also noted a lot of “women-handling” families and said that poverty was still a big issue in the province.
 
The Chairperson suggested that the Department should include much monitoring in its implementation of the programme, as this was an effective way of ensuring that the pilot project succeeded. She said that the Department needed a more hands-on approach, allowing provinces the freedom to consult with the national Department on a regular basis. 

Mr Zulu agreed that a more systematic hands-on approach was needed. He said that he would prefer to live in a rural area himself, as life expectancy in those areas was higher than in urban areas. It was important for him to develop these areas as more people-centred. The Department would have reviewed a strategy of implementation. He highlighted the involvement of the Department of Rural Development and Land Reform whose input was greatly needed as the Department of Human Settlements was planning to implement what it suggested as well. Formal meetings would be held which could align these two Departments in what needed to be done.

The meeting was adjourned.