National Treasury requirements for payments to service providers; Cooperative Housing, Whistle-Blowing policy, Development Finance Institutions' merger: Department's updates

Human Settlements, Water and Sanitation

21 June 2011
Chairperson: Ms B Dambuza (ANC)
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Meeting Summary

The Accountant General briefed the Committee on the requirements around payments to service providers, and in particular the issue of pre-payments to contractors. Section 7 of the Public Finance Management Act (PFMA) required National Treasury to prescribe a framework for cash management and this was done by way of the Treasury Regulations. Section 38 of the PFMA obliged Accounting Officers of State departments to ensure that a department (or entity) set up and maintained, effective, efficient and transparent systems of financial and risk management and internal control, and the Accounting Officer would be responsible for effective, efficient, economical and transparent use of the resources of the entity, and must take appropriate and effective steps to manage all working capital efficiently and economically. This involved not only collecting monies due, but also making payments when due, and ensuring that there was sufficient cash available to meet obligations, so that invoices were paid within 30 days of presentation. This would generally mean that pre-payments should not be made. However, in certain instances, Treasury Regulations allowed pre-payments, when this was arranged and recorded in a prior contract. However, it was stressed that it remained the responsibility of the Accounting Officer to ensure that this was not done if the risk of non-performance after payment was high, and if the goods or services were not provided, the Accounting Officer could be regarded as having made unauthorised, wasteful or fruitless expenditure, and be liable to be sanctioned, if he or she could not take immediate remedial action to ensure that the State did not suffer loss. It was stressed that Chapter 10 of the PFMA made it a criminal offence if an Accounting Officer, wilfully or negligently, failed to carry out his or her responsibilities. Ultimately, it would be up to Parliament to ensure that the provisions of the PFMA were followed, if the Executive failed to do so. Members questioned whether Accounting Officers generally were aware of their obligations, pointing out that it was frequently found that unauthorised payments had been made, and felt that sound financial management principles must be filtered down to all spheres. They asked about the position of Small, Medium and Micro Enterprises, who needed to be encouraged by being given work, yet who were often cash-strapped and could not proceed unless paid up front. The patterns of fiscal dumping in March of each year were also noted.
 
The Department of Human Settlements (DHS) then gave a progress report on Cooperative Housing initiatives. The definition of a housing cooperative was given, and it was noted that members of a cooperative could, by pooling their resources, obtain better and more affordable housing as a group than they could as individuals, and would also be able to build a community, have a say in the management of their housing, and promote a culture of democracy. It was noted that housing assistance could be provided to housing cooperatives through the Social Housing Programme housing subsidies. However, in order to access the capital grants, the cooperative must be accredited by the Social Housing Regulatory Agency, after which it could also be assisted with training and start-up facilities. At present, this only applied in Restructuring Zones proclaimed by municipalities, but outside of these, cooperatives could still apply for Institutional Housing Subsidies. Members could assist in constructing houses, and technical and financial support was available though the Peoples Housing Programme. The criteria for funding were outlined, and it was noted that Cooperative Housing Technical Service Organisations played an important role in offering assistance on selection of land, project design, supervision of construction, education and training to the members, boards of directors and committee members on their respective responsibilities. They would also secure the short and long-term project financing, and undertake project operations and management. A unique South African model had been identified and criteria had been developed. The Gauteng Housing Secondary Cooperative was being used as a pilot. Draft Guidelines were presently being finalised and would shortly be published. It was a requirement that cooperative housing under this ambit must remain for rental and could not be sold, without penalties, within the first 15 years. Members raised a number of questions in relation to the position of cooperatives and the Social Housing Regulatory Authority, as previous discussions with the latter body had given the impression that it would not in fact be dealing with cooperatives. The Department explained that cooperatives would in fact be involved at other levels in the sector also. Members asked the department for some practical examples of how this would work, questioned how the 15-year period would be monitored, what the beneficiaries would gain and how they would be encouraged to invest in rental property, and why yet another regulatory body was to be established. The Department noted that this was one way to ensure that rentals remained an important part of the housing sector. The Committee appreciated the progress made, but felt that further interaction was necessary to achieve more clarity.

The Department then gave another presentation outlining the Whistle Blowing Policy adopted by the National Department of Human Settlements, as part of its campaign to counteract fraud and corruption in the housing sector, which could be found at many stages of the housing process. This policy had been approved in 2007, but was subject to annual review, in recognition of the fact that fraud was constantly changing and needed to be addressed in a variety of ways. Employees at operational level were most likely to be the first to detect irregularities but may be reluctant to report them unless their disclosure was fully protected, and they were assured that such disclosure would not negatively affect their chances of promotion or their jobs, and educated as to their civic duties. This would require ongoing educational campaigns. The various principles around the policy were outlined. It was also recognised that the information must be acted upon, that sanctions must be imposed against those engaged in corrupt practices, including criminal steps, ad that the Department must try to recover money lost. The Whistle Blowing Policy was linked to the Department’s general Fraud Prevention Plan, and was in line with other legislation. Matters could be reported to the National Hotline or the Department’s own toll free line. The implementation strategy was set out. Members questioned whether the Department would have identified the housing subsidy irregularities without the Auditor-General’s report, and asked about the involvement of the Special Investigating Unit. A number of Members raised the question of shoddy workmanship and the continued awarding of contracts to those known for their poor work. They asked specifically what protection was provided to whistleblowers and whether the position differed in the case of external reporting. Concerns were expressed that the policy did not appear to provide for other avenues of reporting, such as direct reporting to senior managers, nor specified how many cases had been detected as a result of this policy. They were also worried that the same policies did not apply to all Departmental agencies, and asked about time frames. It was agreed that the Department would provide the full policy, followed by a further briefing addressing all issues. 

Meeting report

National Treasury briefing on policy around advance payments to service providers
The Chairperson noted that National Treasury would brief the Committee on the regulations governing advance payments to service providers, to assist the Committee’s oversight into the manner in which public funds were used and whether the correct legislative processes were being followed. Most departments followed National Treasury regulations. She thanked the officials for attending.

Mr Freeman Nomvalo, Accountant General, National Treasury, thanked the Committee for its request that National Treasury give a briefing on advance payments. He noted that the issue of advanced payments was regulated by the Constitution, as well as the Public Finance Management Act (PFMA).He briefly outlined the provisions of Section 38 of the PFMA. Section 38(1)(a) prescribed that the Accounting Officer must ensure that a department had, and maintained, effective, efficient and transparent systems of financial and risk management and internal control. Section 38(1)(b) noted that the Accounting Officer of a department was responsible for the effective, efficient, economical and transparent use of the resources of the department.
Section 38(1)(c) said the Accounting Officer must take appropriate and effective steps to manage available working capital efficiently and economically. Overall, the Accounting Officer should ensure that the whole department complied with the provisions of the PFMA, as the responsibility for the proper management of the Department’s resources fell with that person. On the rare occasion that an executive authority might issue an instruction that was inappropriate, then the Accounting Officer should ensure there was compliance with sections 63, 64 and 65 of the legislation dealing with executive authority responsibilities.

He noted that there were two sides to “managing working capital”. The first was to collect all monies due to the department, but the second required the Accounting Officer to ensure there was sufficient cash available to meet obligations, as they fell due, and within the 30 days prescribed by the PFMA. This meant that pre-payments should be avoided.

The issue of prepayments flowed in part from section 7(1) of the PFMA, which said that National Treasury (NT) must prescribe a framework for cash management. Chapter 15 of the Treasury Regulations covered, amongst others, the issue of prepayments. Paragraph 15.10.1.2(c) said that sound cash management included avoiding prepayments (or payments in advance) for goods or services. The principle was that the service or goods should have been received before payment was made. All payments should also be covered by contractual arrangements with the supplier. The only circumstances in which pre-payments could be made were where the contracted supplier insisted upon them, and the Accounting Officer would, in this case, have to assess the specific risk, before agreeing to the pre-payment and signing that agreement.

The Accounting Officer, if he or she signed such a contract, must be satisfied that the entity was of sufficient standing that there was no risk that would prevent him from making proper use of the department’s money. National Treasury regulations noted that payment may be made in advance if there was a signed agreement to this effect, but section 38(1)(c)(2) of the PMFA said the Accounting Officer must take appropriate steps to prevent unauthorised, irregular, fruitless and wasteful expenditure and losses resulting from criminal conduct. If the Accounting Officer had signed an agreement for a pre-payment, the payment was made but the goods were not received, then the State would have suffered loss. Therefore, the spirit of the NT Regulations and the PFMA was to try to ensure that there was economic and effective use of resources, and if losses were incurred, then clearly there was not effective use of resources. The risk must be properly assessed.

Discussion
Mr A Steyn (DA) asked whether the Accounting Officers across the spectrum in public service understood what Mr Nomvalo had just explained. There were often such losses. Although the PFMA made provision for certain sanctions, they seemed never to be applied. He suggested that this presentation should be given to all the Accounting Officers to make them aware of their responsibilities.

Mr Nomvalo responded that Chapter 10 of the PFMA made it a criminal offence for an Accounting Officer, wilfully or negligently, to fail to carry out his responsibilities in terms of this legislation. If the Accounting Officer was not aware of the provisions of the legislation and regulations, then he or she must get assistance in understanding them. National Treasury could look into the possibility of addressing the various forums in some of the provinces, and hopefully some Accounting Officers would make themselves available. Some understood the legislation quite well, but if an Accounting Officer was not aware of the legislation, he or she faced a possible five year jail sentence for transgressions.

Mr Nomvalo agreed that in most instances there had not been imposition of the sanctions under the PFMA. The Public Service Commission reported on some disciplinary hearings that took place, but it seemed from that report that the majority of those subjected to disciplinary hearings were below senior management level in the public service. More recently, it had been seen that inquiries were held into Chief Executive Officer conduct, with some asked to leave their posts for failing to implement the PFMA properly. The sanctions were in place; the willingness to carry them out was the important part.

Ms M Borman (ANC) understood that any advance payments were allowed on the understanding that this should be done responsibly. It was important to ensure that the Accounting Officers knew how to interpret all legislation.

Mr J Matshoba (ANC) asked what happened if the service providers failed to deliver.

Mr Nomvalo responded that if the service provider failed to deliver then the Accounting Officer was in trouble unless she or he could take remedial action quickly, to ensure that the State did not lose. If a contractor entered into a contract allowing for pre-payments then the contract should also ensure that the contract was properly managed, and that the Accounting Officer took the necessary steps. If not, then the Accounting Officer remained responsible for the outcome. He added that the PFMA was passed by Parliament, and Parliament must ensure that it was properly followed. If neither the Accounting Officer nor the executive officer of a department ensured that the legislation was followed, then the people of South Africa could rely on Parliament to look after their interests.

Mr R Bhoola (MF) supported Mr Steyn’s desire to ensure that sound financial management was filtered down to all spheres of government. He cited an example of a contractor in KwaZulu-Natal, who had received a very large prepayment, but now there was a dispute between the province and eThekwini Municipality as to who had given instructions for payment. He asked how, in such a case, National Treasury would apply its rules, and ensure that there was no similar mismanagement again.

Mr Nomvalo replied that if the Accounting Officer was held responsible for his decisions, he would have to answer questions before a disciplinary hearing. If found guilty, then he or she could be criminally charged, and, depending on the severity of the matter, the appropriate penalty, including a jail term, could be imposed. He agreed that it would be preferable to try to find preventative mechanisms. National Treasury did hold  Financial Officers Forums, where questions and challenges around the PFMA were addressed, and the purpose of this was to ensure widespread knowledge and understanding of the legislation and its implications. This hopefully should lessen the chances of mismanagement, although consequences would follow if it did occur.

Ms M Njobe (COPE) noted that it was quite common for prepayments to be allowed, particularly where previously-disadvantaged contractors did not have the cash flow that would enable them to do the task unless they were pre-paid. If the contractor did not finish the task, then she wanted to know what would be done about the Accounting Officer.

Mr Nomvalo said that where small, medium, and micro enterprises (SMMEs) were involved, this was tricky. It was desirable to try to create an enabling environment and provide opportunities for job creation. That did not mean that government should act irresponsibly. He had quoted the sections dealing with issues of working capital. There were many ways to manage that scenario. The legislation already said that payment should be made within 30 days of receipt of the invoice. As soon as a small service provider delivered the invoice, he or she could be paid immediately. There was no reason why officials could not come up with creative mechanisms that allowed small enterprises to continue to operate, while not exposing government to unnecessary risk.

The Chairperson asked the Legal Advisor for her observations on spending patterns.

Adv Charmaine van der Merwe, Parliamentary Legal Advisor, said that there were discussions ongoing with the Industrial Development Corporation around the Rural Housing Infrastructure grant, a Schedule 7 grant, allocated to municipalities to provide on-site water and sanitation solutions. The Department of Human Settlements (DHS or the Department) had appointed a Trust and IDT as service providers. An appropriation of R100 million was given. However, there were problems in getting the programme off the ground, and expenditure was seen only in the third quarter of the financial year. By February 2011, when the Department amended the contract with IDT, there had been spending at only 11%, but this, with further expenditure in March, was raised to 63% by the end of the financial year. However, of the total of R52 million spent in March, R14 million was by way of pre-payments. The DHS managed 40% spending on the conditional grants in that financial year. The DHS was not unique in this. About 18 national and provincial departments transferred significant funding to the IDT only in the last month of the financial year, totalling about R22.6 billion. The conditions under which the money was transferred were not generally known.

Mr Nomvalo added that March was called “the dumping month”, because it was in this month that departments, noting that they had been underspending, would pay money out. Often IDT was the recipient. The problem, from an oversight perspective, was that although on paper there had been proper spending by the end of the financial year, there was no actual service delivery in that year. Government had an obligation to society to deliver services and should rather show real delivery than an artificial picture. All committees should be sensitive to that structure and demand an explanation for late spending.

The Chairperson said that the issue mentioned in the letter to Treasury would be dealt with internally.

Mr Steyn informed National Treasury that there were agencies within the Department that provided bridging finance for SMMEs, to enable them to get off the ground, and they obviously assumed a higher risk than the Department did.

The Chairperson thanked National Treasury for a valuable session, and agreed that the Committee had to be proactive and ensure that its oversight was on the right track.

Cooperative Housing Initiatives: Department of Human Settlements update
Mr Louis van der Walt, Director, Department of Human Settlements, gave a brief overview of work in progress to guide the development of the housing cooperative sector. He explained that a housing cooperative was a legally registered entity or association comprising people who collectively owned and governed their housing on a not-for-profit basis. By working together, members of a housing cooperative could obtain better and more affordable housing than they could as individuals. Within the housing sector, cooperative housing met the particular needs of people wishing to build a community, whilst also wanting to have a say over how their housing was managed, and promote a culture of democracy. A housing cooperative differed from other forms of tenure in that residents shared responsibility, ownership and governance of their homes.

The Cooperative Act, No 14 of 2005 (Act No. 14 of 2005) regulated the registration of cooperatives and their operational procedures. The Social Housing Regulating Authority (SHRA) built capacity in the cooperative sector and regulated the accreditation process; and the South African Housing Cooperatives Association (SAHCA) was an apex body that united, represented and provided leadership to housing cooperatives throughout South Africa.

Housing assistance was provided to housing cooperatives in respect of their members who qualified for housing subsidies through the Social Housing Programme. The programme provided capital grants to institutions for development of non-individual ownership housing options. A cooperative must be accredited by the SHRA before it could access grant capital. Once accredited, the cooperative could also be assisted with training and start-up facilitation funding under the Social Housing Programme. The Social Housing subsidy was calculated on the percentage of the development cost of the dwellings and varied from project to project. Draft guidelines for housing cooperatives had been developed, were currently being processed, and would be published, once approved.

In terms of National Housing programmes, the Social Housing Programme only applied in Restructuring Zones proclaimed by municipalities. If cooperatives wished to develop units outside of Restructuring Zones, they could apply for Institutional Housing Subsidies. Institutional Housing Subsidies were much lower than those available under the Social Housing Programme, at R52 427,00 per unit, and in this case, the cooperative would be required to finance any shortfall from its own resources. Cooperatives could elect to involve their members in the construction of the houses they would occupy. The Peoples Housing Programme (PHP) provided technical and financial support to the cooperative and its members to realise their housing goals.

Cooperatives who wished to apply for grant funding and capacity building assistance through the National Housing Programmes were advised to contact the SHRA through the Department of Human Settlements. All project applications would be considered by the MECs responsible for Human Settlements/Housing. Funding was also administered by the MECs and it was important that proper planning was done, in conjunction with the provincial departments of Human Settlements, to ensure that funding was aligned with development planning.

He outlined some of the critical factors. Firstly, cooperatives must be fully recognised in the housing policy, and must make a contribution to relieving the housing backlog. There was already legislation for the formation, regulation and operation of housing cooperatives, but it needed to be actively marketed to the sector. It was envisaged that a cooperative regulative agency would authorise and generate the formation of new cooperatives, including housing cooperatives, and to regulate their operations. Public and/or private financial institutions had to be prepared to receive the pre-occupancy savings of the cooperative housing members and to provide short-term construction and long term financing for cooperative housing projects. Housing subsidies should be aligned to projects that were ready for launching.

Cooperative Housing Technical Service Organisations (TSOs), played an important role in offering assistance on selection of land, project design, supervision of construction, education and training to the members, boards of directors and committee members on their respective responsibilities. They would also secure the short and long-term project financing, and undertake project operations and management.

Mr van der Walt reiterated that the draft guidelines would be finalised by the Department, in collaboration with stakeholders, and published, and the Department would shortly finalise its institutional arrangements to specifically support cooperative housing initiatives, in collaboration with the SHRA.

Ms Noliswa Tembani, Director, Department of Human Settlements, outlined the institutional arrangements between the SHRA and the cooperatives. She stressed again that the cooperatives played a very important role in provision of sustainable human settlements, but it must be recognised that they needed to be empowered. They provided the economic means to job creation, delivery on housing, and development of the economic sector. A model was identified and was being implemented, and this took into consideration not only the role of the cooperatives in development of the houses, but their continuing role in management, their overall contribution to social housing, and the reserves that they could generate, so that they could build for their members again.

Cooperatives were thus regarded as a valid delivery agent for social housing. However, as already set out, they must subscribe to the same requirements as other Social Housing Institutions, must be accredited to acquire, develop and manage social housing stock, must fulfil all reporting requirements, must be subject to regulations, and must reinvest operational surpluses into new social housing projects.

The SHRA, as the implementing agent of the Department, capacitated the social housing model. She outlined the corporate services, regulations and investment that SHRA provided.

The Department had met with SAHCA on 9 June 2011. It was acknowledged that the traditional European model for housing co-operatives did not work well in South Africa, which needed a uniquely African model. SAHCA advised the Department to consider housing cooperatives that were provincially based, such as Gauteng Housing Secondary Cooperative (GHSC) and the Eastern Cape Secondary Housing Cooperative. The entity would own the property and provide support to primary co-ops who would develop and manage the stock. That would be used as a pilot. It was proposed the SHRA and SAHCA would sign an agreement setting out the parameters of the partnership. The GHSC would submit its business plan to the SHRA for consideration. It had also applied for the establishment grant to set up the organisation.

Ms Tembani then noted the steps that must still be taken. The agreement between SHRA and SHCA still had to be concluded. The GHSC’s request for an establishment grant would be considered, along with its business plan and proposed projects. Then there must be collaboration with Gauteng Department of Local Government and Human Settlements to facilitate the establishment, development, growth and graduation of GHSC. That would be established as a working model. She noted that if the application for accreditation by the SHRA was declined, then the GHSC would have to take advice on what had to be done to obtain that accreditation. If it was accredited, it would be allowed to apply for resourcing capital grant.

The Social Housing Act had to deal with the roles of the owner, the developer, and the property manager. Rentals went to the property manager; the developer would access the funding flowing from the Restructuring Capital Grant. She explained that the funding for Social Housing was a mix of government subsidies and debt; and was made up of the Restructuring Capital Grant, Provincial Top-Up, and Capacitation Grants. All cooperatives, both primary and secondary, qualified for those grants. The cooperative could contribute by way of savings or equity (land). Government subsidised 60% of all projects by cooperatives, subject to regulation.

Ms Tembani explained that the cooperatives’ stock should not be sold for 15 years as any sale before 15 years would result in penalty payments. Any sale must first be cleared with SHRA, and it was a condition of sale that the property should remain as property for rental, catering for the relevant income group. It would, unless confirmed otherwise, also be subject to regulation in perpetuity. Meaningful tenant participation was necessary.

Discussion
The Chairperson commended the Department for the work done on this presentation, saying that this showed tremendous improvement from the previous meeting. She agreed that it seemed correct for South Africa to develop its own model. However, she noted that the Committee had had several previous meeting with the Social Housing Agency, who was a direct rental institution, yet it had stated that it was not dealing with cooperatives, which were not regarded as rental groupings. She understood that only one section in the legislation referred to cooperatives. She felt that the Committee needed more engagement on this.

Ms Borman asked for clarity on the Restructuring Zones, and whether the Department knew where the Restructuring Zones were, or if they were still to be established, with certain criteria.

Ms Borman sought clarity on own buildings, and developers, and rental stock. She understood that a cooperative was a group of people, who were financed and then came together to construct their homes, but the presentation seemed to suggest something different. She asked the Department to explain the practical application of a situation where ten people formed a cooperative and wanted to build their houses.

Ms Borman was concerned about the restriction on selling houses before fifteen years had lapsed, and asked how that would be monitored.

Mr Steyn added that a lot of parallels had been drawn in the presentation between cooperatives and Social Housing. Members had understood that these were two separate processes, but it now appeared that they were being brought together, which was confusing. Specific reference was also made to the PHP which, when it was done by the cooperatives, was not Social Housing, and the beneficiaries retained ownership.

Mr Steyn noted that there was another regulatory body for cooperatives, and asked why it was necessary to establish another regulatory body. He asked if SHRA was not the obvious body to regulate cooperatives as well.

Mr Steyn asked why the department took so long with the guidelines. The Cooperative Act was established in 2005.

Mr Steyn expressed concern about the pilot project to be established in Gauteng and exactly how it would work, because it seemed that it might end up being the regulator, although the GHSC also had to seek accreditation.

Ms Tembani explained that the pilot project was the suggestion of SAHCA. The department was aware that there were other areas and would need to do more work on the cooperatives.

Mr Steyn referred to the comment that the cooperatives would be contributing either savings or equity. However, he noted that the unit would not seemingly be owned by the family and wondered if people would not be reluctant to contribute to something that they would not own.

Mr Bhoola commented that the Department had done an excellent job. He noted that Japan and Germany had risen to the status of world economic powers, because of their recognition of SMMEs and the informal sector. There had been challenges, but the Department had addressed those in a model that could deliver good homes. This reminded him of what had been seen during the study tour to Australia, where that government had partnered projects and delivered funding. This could all be synchronised when the guidelines were finalised. However, Mr Bhoola did think that the presentation had omitted to mention the problems experienced with the enhanced discount benefit scheme, and also the roles of National Home Builders Registration Council and the Housing Development Agency (HDA).

Ms Tembani responded that her presentation had focused on the rental section and on the rental implementation support, which was called Social Housing, and which fell under the Social Housing Act. The Department had also made strides towards incorporating the cooperatives in other programmes. Her presentation touched on only part of what the Department was doing. The Department did not want to leave cooperatives outside its rental housing programme. If cooperatives wanted to become involved, they must be accredited, and economic benefits would flow from the properties being developed and managed. The cooperative members could sell after 15 years, as set out in the Act. Cooperatives would thus be used either for ownership, or for rental. Whatever they were doing, they were still cooperatives. However, cooperatives operating under the Social Housing Act, and the social housing policy and guidelines must be involved in rentals, be able to manage the stock, and be sustainable; if so, they could qualify for funding support of 60%.

The Chairperson appreciated that the Department was building capacity, and the Committee did not have a problem with the Department providing any form of support. However, Ms Tembani had said this was an interim measure because the Department found it necessary to ensure that the rental sector remained as a recognised part of human settlements. The Committee appreciated where the Department was headed. However, the situation must be made clear, and the necessary cautionary steps taken. In the budget, the committee had recommended that at some stage the position of cooperatives must be discussed with the Minister, as had been done with the sectional titles. It was necessary that housing cooperatives be properly managed. She made some further remarks, not in English.

The Chairperson proposed that there must be further interaction because Parliament, as citizens’ representative, had to ensure that their interests were properly and fairly taken into account. There was a need to revisit the SHRA.

Whistle Blowing Policy: Department of Human Settlements briefings
Mr Nyameko Mbengo, Acting Director General, Department of Human Settlements, informed the Committee that the Whistle Blowing Policy of the DHS was reviewed on an annual basis, to ensure that it would be effectively implemented. The latest version would be outlined during this briefing and the comprehensive policy would be forwarded to Members.

Mr Mbongeni Shabangu, Director: Special Investigations, Department of Human Settlements, briefed the Committee on the development and implementation of anti-fraud and corruption systems and programmes within the Department of Human Settlements. He explained that the provision of access to adequate housing and the creation of human settlements could be easily derailed by the high level of fraud and corruption within the Human Settlements sector, and within the Department itself. Fraud and corruption could affect the application and approval of housing subsidies, the tendering process and award of housing contracts, the manner in which funds allocated for human settlements were used, the approval of payment and payment of service providers by relevant officials. Officials might have vested interests in some of the contracts and could in one way or another influence the awarding of contracts, construction of housing (including quality of material used and shoddy workmanship), and the allocation of houses to beneficiaries.

Those challenges prompted the Department to develop numerous policies and strategic documents to curb corruption in the sector. The Whistle Blowing Policy, initially approved in November 2007, was one of the policies.

The Department realised that its employees at operational level would be the first people to detect that crime or malpractice was taking place when it was being done by their colleagues. However, they were often reluctant to report it, through fear of being victimised and regarded as disloyal to their colleagues, if not to their manager. The Whistle Blowing Policy therefore encouraged staff members to come forth and give information. One of the first principles was the Whistleblower’s right to speak, and it was stressed that people were not breaking the law or any relationship with any bodies of the Department if they spoke out. In fact, it was their obligation as responsible citizens, officials and public servants to speak out and inform the Department of any suspicion of corruption. It was important to encourage transparency and accountability by officials in the Department, and to ensure that the Department promoted the disclosure of information. It should not be seen as a once-off encouragement, but needed to be reinforced through different ways, such as distribution of pamphlets and development of awareness programmes.

The Department also needed to ensure that there was participation, and this would be encouraged by providing protection of the source of information. A staff member should be assured of protection of his or her position, and not to run the risk of being transferred to another unit, missing an opportunity for promotion, or being accused of leaking information. The Department would therefore protect its staff member sources.

Part of making this policy effective was that action must follow the report, and where a person was found guilty of fraud or corruption, sanctions must be imposed. These could be disciplinary measures against the official responsible for the fraud or corruption, and criminal prosecution. In addition, the Department could also work to recover any money lost through the fraud or corrupt activities.

The legal framework behind this policy was the Public Disclosures Act, which protected disclosure of information relating to the conduct of an employer or employee, where the person making the disclosure had reason to believe that a criminal offence had been committed or was likely to be committed, or that a person was failing, or was likely to fail, to comply with legal obligations. This referred to normal internal procedures, which defined how matters should be done, and so if an official deliberately failed to comply with those, it would be malpractice. This could, for instance, cover situations where an official might deliberately not update registers or systems. Further requirements under the Public Disclosures Act also related to the likely occurrence of a miscarriage of justice, damage to the environment, endangering the health or safety of individuals, unfair discrimination, as contemplated in the Promotion of Equality and Prevention of Unfair Discrimination Act, No 4 of 2000, or concealing any of these transgressions.

Mr Shabangu explained how the disclosure could be made, by whom, and in what manner. The National toll free hotline was 0800 701 701, and the Departmental anti-corruption hotline was 0800 14 6873. He also outlined the requirements for making the disclosure.

Mr Shabangu then turned to the implementation plan. The Department linked the Whistle Blowing Policy to its general Fraud Prevention Plan. This Plan sought to ensure that areas of potential risk were identified and addressed, that the existence of fraudulent activities within the Department could be detected, and to increase levels of awareness about fraud and to establish effective ant-fraud practices.

The Department had established an internal investigation directorate to develop and implement policies, strategies and other systems aimed at preventing, detecting and reducing fraud and corrupt activities within the human settlements sector. This was part of the Internal Audit, Risk Management and Special Investigations directorate, which generally ensured that there was compliance with government policies and regulations. This directorate had tools to monitor the implementation of the policy and do an impact assessment on how effectively this policy reduced and eradicated fraud and corruption. The Directorate also would try to identify any gaps in the system, and would then recommend appropriate interventions. It recognised that fraud and corruption were dynamic and every-changing, which made it necessary for an annual review to ensure that the Department was able to respond timeously to challenges posed by housing fraud and corruption, as well as any emerging trends. The policy had last been reviewed by the Director General in March 2011.

Mr Shabangu outlined some issues that had led to the policy being developed. It had been discovered that some officials were manipulating the housing subsidy system, passing on information or receiving direct reports from service providers. Some departmental officials were also involved in price-fixing or awarding of contracts preferentially. This was fortunately stopped, but the Department still needed to send a clear message that the Department would not tolerate, and would strongly deal with, fraud and corruption.  

Discussion
The Chairperson thanked Mr Shabangu for this strong message, and appreciated both the formulation and annual review of the policy.

Ms D Dlakude (ANC) welcomed the presentation. She asked what would happen if a contractor, who was known for shoddy workmanship, was awarded a contract.

Mr A Figlan (DA) asked a similar question, noting that some government entities, or private contractors, were doing shoddy work, yet continued to be awarded Departmental contracts.

Ms Dlakude asked what measures were in place to protect a whistleblower.

Ms Njobe understood the policy insofar as internal Departmental employees were concerned, but asked about the role of other citizens in revealing cases of fraud and corruption.

Ms Njobe appreciated the presentation but would have liked to have seen some statistics, such as numbers of cases of fraud and corruption that were detected a result of the implementation of the policy.

Mr M Mdakane (ANC) was interested to know how many cases had been detected since the policy was implemented in 2007.

Ms Njobe asked for the date of review of the policy.

Mr Figlan thought the presentation was timely, and was a necessary step against those who were harming the poor. He asked if the Special Investigating Unit (SIU) was also involved.

Mr Figlan asked about the role of the NHBRC.

Ms Borman concurred with Ms Njobe about the need to know about external information-providers. There was a huge risk of fraud and corruption in the Human Settlements sector, and this was an extremely important document. She also enquired what significant changes had been made on review of the policy. She also asked whether there was a guarantee that information given would be followed up.

Ms Borman asked what needed to be done to ensure that people understood their rights as a whistle blower.

Mr Steyn noted that this policy was one of the National Department, and asked if it applied also to all the agencies who reported to the Minister, and thought that every agency would need to have something similar as part of its risk management policy.

Mr Steyn noted where and to whom disclosures could be made. He  echoed other questions about disclosure from non-employees, pointing out that a third party might wish to disclose a fraud to, for example, the Chairperson of the Committee.

Mr Steyn asked for a response to the following hypothetical scenario: An employee might disclose fraudulent incidents, which were then investigated and proven. Senior officials might then bring disciplinary hearings against the person that they believed were the whistleblower, laying charges that this person had brought the Department or agency into disrepute, and a disciplinary hearing then ensued, using agency money, running into hundreds of thousands of rands. He asked if this was possible, because, if so, it would surely be wasteful expenditure.

Mr Steyn noted that the Department was in the process of developing monitoring tools, although the policy was apparently started in 2007. He wondered how the policy could be reviewed if no monitoring tools were already in place, and asked what the outcome of the latest review had been.

Mr Steyn noted Mr Shabangu’s reference to the manipulation of the housing subsidy, but said that this was actually revealed by the Auditor-General (AG), who had been specifically investigating the subsidy system. He thought that, without the AG’s involvement, this matter may well not have been detected by the Department.  

Mr Bhoola assumed that this mechanism was produced after a thorough evaluation and investigation of the various other entities aligned to deal with all the concerns listed. He pointed out that the Committee had, repeatedly, raised issues of fraudulent tenders and shoddy workmanship, and finally the Minister had called for a national audit. He wondered if this idea by the Department would work, when it seemed that the monitoring of other entities had not.

Mr Bhoola also wanted to know the time frames, noting that the media had already raised some crucial matters this year.

Mr Bhoola asked if the DHS had engaged with other departments, such as Department of Justice and Constitutional Development, on the provisions of other legislation protecting people’s rights.

Ms N Mnisi (ANC) also expressed concerns about the number of houses built with substandard materials and asked if there was not anything in place to require contractors to use quality materials. She also thought that the incorrect allocation of houses to the wrong beneficiaries was a serious problem that would take many years to resolve.

A Member commented that anti fraud and corruption policies existed in all organs of State, yet problems were still apparent. Other Members had asked about the difference between the first policy and the current one. The policy was reviewed precisely because there were problems. Minister Trevor Manuel had raised the issue of corruption in the National Planning Commission report. Nationally, much work was being done, but it seemed that the real work was at levels below the national level, where the tenders were awarded by provinces, metros and municipalities. He believed that every single organ of State giving out money should have anti-corruption policies in place and working. Many of the houses that had to be rebuilt were the responsibility of provincial government, and he thought that the real problem lay in how to synchronise and ensure that wherever money was handled, there were anti-corruption policies in place to ensure that the money was being spent correctly.

The Chairperson noted that she still had the read the full policy.

The Chairperson noted the reference to “baseless reporting” under the heading “Purpose and Scope” an asked how reporting could be assessed as “baseless” if certain processes to check the validity had not been taken.

The Chairperson also pointed out that a whistleblower must be protected when he or she genuinely believed that illegal, unethical or immoral conduct was being reported. However, the Committee would need to engage further on this. The policy had referred to the staff needing to be protected from threats from senior staff members, and she noted that officials must be impartial and ensure that the rights of whistleblowers were protected. She referred to general protected disclosure, and said that a distinction must be made between an ordinary citizen and one making disclosure internally. She thought that the list of where disclosure could be made was very limited, and the staff had the right to approach a senior member, not only to report to the toll-free number, but the policy did not seem to deal with this. Finally, she said that the 2007 policy was not clear. The Committee would need to examine it and would continue to interact. Other issues must also be taken into account to ensure that the process was managed in a safe, just and transparent manner.

Mr Mbengo admitted that the Whistle Blowing Policy was quite complicated. His presentation had focused mainly on the tools for implementation of the reviewed policy, which was reviewed because it was realised that without effective tools, the objectives may not be achieved. In the past, there had been failure in implementation. He reiterated that the comprehensive policy document would be submitted to all Members, and the Department could then deal with further issues they wished to raise.

He agreed that it was critical to try to synchronise policies across the sector. He agreed that this was a National Department policy. However, it was desirable that different agencies and institutions within the sector should start to apply the same policy framework. Currently, there was a problem in that policies were very fragmented and not integrated, and that was why different agencies responded differently on certain issues. The DHS had a responsibility, at national level, and through the MinMEC structure, to begin synchronising human settlements policies. This was why it was already engaging with all sector agencies, to try to inform them what the Department was doing, and to try to reach integration.

Mr Mbengo noted that since the DHS itself did not have the capacity, it was involving the Special Investigating Unit. There might be some contradictions as to when certain information would be protected. SIU was paid quite a substantial sum to deal with the National Department’s matters. However, when SIU visited other agencies, it might find other policies in place, which may be contradictory, and that did create some tension.

The meeting was adjourned.   


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