Department of Public Works & Property Management Trading Entity 3rd Quarter Financial Performance report

Meeting report

Department of Public Works Property Management Trading Entity (PMTE) Third Quarter 2011 Financial Performance
Ms Cathy Motsisi, Chief Financial Officer, Department of Public Works, presented the third quarter 2011 financial performance report for the Property Management Trading Entity (PMTE), a trading entity of the Department of Public Works (DPW or the Department).

The budget of the PMTE was R7.049 billion, but the amount it received stood at R4.56 billion. The PMTE was currently in overdraft to the extent of R2.18 billion. An analysis of the expenditure projected an overspending of R221 million. Expenditure on all items except leasing was low when compared to the previous year, and lower than projected for the year. Although the budget for Planned Maintenance and Rehabilitation showed possible over-expenditure of R275 million, a trend analysis showed a projected under-expenditure of about R300 million. Property rates were low in relation to the preceding 11 years. The average expenditure for this should ideally stand at 75%, but the reason for the lower allocation was largely due to the Pretoria region’s low expenditure of only 26%.

In relation to State-owned accommodation charges, PMTE had received R2.5 billion (or 97%) and noted an amount of R75 million still outstanding. Fourth Quarter invoices were to be issued during January 2012. Payments by clients were currently on schedule, although these payments could decrease in the new financial year as clients were insisting on itemised billing. Letters to the Director-Generals to confirm occupation were still to be signed by the Acting Director-General of DPW. A letter was also to be sent to the National Treasury detailing a re-allocation exercise. A recommendation would be made for the current year to be invoiced against devolved amounts. All four quarters of the Augmentation amount had been invoiced, and received in full.  

In relation to private accommodation charges, R1.23 billion (or 72%) of the invoiced amount of R1.71 billion had been received. The first quarter charges were invoiced during April 2011, and were based on the expenditure of the previous financial year. A reconciliation based on the actual expenditure in respect of the first quarter had been completed and additional invoices/ credit notices were then issued. Since July 2011, invoices had been issued retrospectively, based on actual expenditure, as constant reconciliations were found to be confusing for clients.

In relation to municipal services, R1.35 billion (or 75%) of the R1.8 billion claimed had been received. There was currently an outstanding amount of R453 million.

Ms Motsisi reported that R1.56 billion (or 88%) of the R1.78 billion for Projected Accelerated Capital Expenditure (PACE) recoveries had been recovered. The balance of these was currently at R221 million. This indicated a good recovery rate. Of the outstanding amount, 58% was due in 30 days, 27% in 60 days and 12% in more than 90 days. Of the total outstanding amount, 3% was carried over from the previous financial year.

On the Recoverable Current Account for the current year, she reported that of the R497.2 million claimed, R214 million (or 43%) had been received. The most significant outstanding amounts were from the Department of Defence (R273 million), the Department of International Relations and Cooperation (R59 million), and Government Printer (R48 million).

The Client Capital Budget was projecting under-expenditure of in the region of R262.5 million.

Discussion
Ms P Ngwenya-Mabila (ANC) asked whether there was a policy around private leases. She asked the causes of the deficits and whether there were there plans in place to work within the allocated budget. She also wanted to know what timeframes were set for Departments to pay for state-owned accommodation, and whether there were any penalties imposed for late payments. She asked for specific comment on the reasons why the Department of International Relations and Cooperation had paid an excess amount, and wondered why contracts were not provided for departments.

Ms Mandisa Pathela-Lindi, Acting Director-General, Department of Public Works, answered that there was no private lease policy in place, though it was in the process of being developed. This had not been done in the past, largely because of poor capacity in the PMTE. Junior officials were generally given the task of negotiating leases with private companies.

Ms Motsisi added that the deficit would only be reduced once the Department’s business model changed. At present, if a client defaulted on payments this would reflect negatively in the books of the Department and not the client. In order to get rid of the deficit, a different model would have to put in place. The departments in default had agreed to pay outstanding amounts in January and had been told that the cut-off date was 31 March 2012. The Department of Internal Relations and Cooperation had paid more than invoiced, as these were invoices from the previous financial year.

Ms Pathela-Lindi conceded that the lack of contracts was a failing of the Department of Public Works, and that it was being rectified. In relation to the lower than expected figures, she noted that some clients did not want to be based in certain areas, such as the Pretoria Central Business District (CBD).

Ms A Dreyer (DA) asked whether there were any processes under way to tackle the issues around client services.

Ms Pathela-Lindi answered that the Department was currently looking into the possibility of letting go of municipal services, as this was proving too onerous.

Mr K Sithole (IFP) asked what mechanisms were in place to ensure that monies owed to the PMTE were paid by departments.

Ms Motsisi reiterated that these departments had agreed to pay outstanding amounts in January, and review would be done to ascertain whether it had been done.

Mr L Gaehler (UDM) asked why the Department did not undertake a needs analysis of all departments in order to ensure better planning on its part.
 
Ms Motsisi answered that this was a very important issue and was currently a major challenge. The DPW had experienced serious challenges around poor leadership and planning, and these added to other external problems that it faced.

The Chairperson asked why no mention was made of month-to-month leases, and why it was stated that Members of Parliament “owed” the DPW, since their rent was deducted, at source, from their salaries. She suggested that it would be useful for the DPW to hold a workshop to explain these issues, and said that details of all leases, nationally, should be provided to the Committee.

Ms Motsisi answered that the month-to-month leases arose from reluctance of departments to renew leases during periods in which there was a leadership transition. The challenges presented by this made it all the more urgent to develop a different business model.

Ms Ngwenya-Mabila said that the lack of contracts was of major concern, as it hampered the ability of the Department to function effectively. A list of the client departments who owed DPW money from the previous financial year must be forwarded to the Committee. She thought that a meeting should be arranged with these departments and National Treasury.

Mr Gaehler said that a list of all available Government property and land should also be compiled and made available to the Committee. The Director-General should also provide the Department with its business plan for the financial year ahead.

Ms Pathela-Lindi answered that the Department would forward this information to the Committee.

Mr M Swathe (DA) asked why junior staff members were used to negotiate leases, and also enquired if actions were taken against poorly performing staff.

Ms Pathela-Lindi responded that this issue had been addressed, and now a dedicated unit had been established at Head Office that would be responsible for this function.

Ms C Madhlopa (ANC) asked whether the PMTE had a credit control policy.

Ms Motsisi answered that there was no such policy currently in place.

The Chairperson asked whether DPW had completed a skills audit, and what the outcomes were. She also asked what the timeframe was for development of the lease policy document.
 
Ms Pathela-Lindi answered that the skills audit had been completed, though it did not reflect positively on the Department. The lease policy document should be drawn up by the end of April 2012. The Minister was planning to address the Committee and would, in that meeting, answer the Members’ questions more comprehensively.

Department of Public Works Monthly Financial Performance Report
Ms Cathy Motsisi, Chief Financial Officer, Department of Public Works, presented the monthly financial performance report of the DPW. She noted that as at 31 December 2011, the Department had spent 76% of its compensation of employees budget, 67% of its goods and services budget and 76% of its transfers and subsidies budget. A total of 68% of its yearly budget had been spent by this time.

She then outlined the financial performance per programme, noting spending of 74% of the budget for Programme One (Administration), 71% of the budget for Programme 2 (Immovable Asset Management), 55% of the budget for Programme 3 (Expanded Public Works Programme), 80% of the budget for Programme 4 (Property and Construction Industry Regulation) and 80% of the budget for Programme 5 (Auxiliary and Associated Services).

An analysis was done of the current budget per branch, noting over-expenditure in the areas of Corporate Services (116% spent) and Regions (102% spent). The Cape Town, Pretoria and Mthatha branches had overspent their goods and services budgets by 115%, 194% and 108% respectively.

There was high expenditure on audit fees, at 110%. Expenditure on compensation of employees had exceeded the 1% guideline, because of creation of new posts, performance bonus payouts, and paying of overtime.

Under goods and services, the office accommodation expenditure for the end of November 2011 was R242 million, which was equivalent to 60% of the allocated budget. Telephone expenditure was 8% higher in comparison to the same period in the last financial year. Expenditure for fuel and fleet services had increased by 67%, with the Cape Town region’s expenditure on these line items standing at R8.649 million.  Expenditure for travel and accommodation was 107% higher in comparison to the same period in the last financial year.

Discussion
The Chairperson reiterated her question how it could be that Members of Parliament were reflected as owing money to the Department, given that their rental was deducted from their salaries. She also noted that the DPW should look into the poor state of the Parliamentary villages.

Ms Pathela-Lindi answered that visits to parliamentary villages would be undertaken by the Department to look at improvements.

Ms Motsisi added that a requisition for the acquisition of new furniture for these villages had been received.

Ms Madhlopa asked why there was additional expenditure noted for furniture and asked how often it was replaced.

Ms Pathela-Lindi answered that there had been a Prestige policy, though this was not implemented which resulted in confusion around this. This policy would however be presented to the Committee. The replacement of furniture was worsened by the constant changing of leadership, particularly at Director-General level.

Ms Ngwenya-Mabila asked why there was 100% expenditure on furniture, in view of the poor state of the furniture currently.

Ms Pathela-Lindi clarified the 100% spending was not for furniture only, but on transportation costs for the Board.

Ms Madhlopa asked why audit fees were so high.

Ms Pathela-Lindi advised that the audit fees were affected by the audit for the 2010/11 financial year being extended to September 2011.

Ms Madhlopa cautioned that the poor spending on the Expanded Public Works Programme (EPWP) would ultimately result in the country not meeting its goal of halving poverty by 2014. She urged that protocols signed with municipalities needed to have buy-in from mayors.

Ms Pathela-Lindi said that the spending challenges around the EPWP were intertwined with capacity challenges at municipal level. She noted particular concerns around the poor spending on the EPWP by the larger, better-capacitated Metros.

The Chairperson asked why there was such a high figure for spending on fuel in the Cape Town Parliamentary village.

Ms Motsisi answered that the Regional Manger was currently investigating why this figure had been so high.

Ms Ngwenya-Mabila asked what penalties were imposed for exceeding the amounts allocated for fleet costs.

Ms Motsisi answered that there was a policy in place to guide this. It would be necessary to monitor where the cars had been driven to ascertain whether these trips were official business travel.

Ms Ngwenya-Mabila asked if the new posts that had been created were already filled.

Ms Dreyer asked who had received performance bonuses.

Ms Motsisi answered that performance bonuses had not been paid to Senior Management staff for the past two years. These bonuses were paid to those at levels 1 to 9.

The Chairperson asked whether the Director-General could commit to disposing of the unused furniture in both the Cape Town and Pretoria warehouses. The matter of new furniture being purchased every time a new Minister was appointed also needed to be looked into.

Ms Pathela-Lindi responded that, as these were long-standing issues, the Department would look into this matter and submit a report on its findings to the Committee.
 
The Chairperson said that the Department should, at its next meeting with the Committee, provide updates on remedial actions it would be taking on issues raised by the Auditor-General, as well as an update on the poor state of border posts.

The meeting was adjourned.