Meeting SummaryThe Department of Human Settlements (DHS) and Servcon Housing Solutions briefed the Committee on the plans to wind down Servcon, which had essentially completed its mandate of normalising or right-sizing properties, from 1994 to 2009, and to present the financial statements for 2009/10. In line with the original mandate given to Servcon, any outstanding matters would be handled to finalisation by the sole shareholder, the Department of Human Settlements. Over the last fourteen years, Servcon had managed more than 300 000 “normalisations”, and had ceased to operate in the sense that it had no income after 2009, although the work towards final completion and de-listing and de-registering had continued. 300 title deeds remained still to be handed over to the rightful beneficiaries, and conveyancers were currently busy with that process. Once all the liabilities of the entity had been settled, the guidelines contained in the Public Finance Management Act (PFMA) would be followed to de-list Servcon as an entity.
Servcon had received unqualified audits from inception up to 2009, but the 2009/10 audit certificate was qualified in two respects. Firstly the auditors had reported that South African Revenue Services (SARS) had declared that Servcon was not tax-exempt, because the form of the entity, rather than the work it undertook, was considered when making the determination. Secondly, the auditors were obliged to raise Servcon’s status as a going concern, in light of the loss that it reported of over R1 million, directly linked to the lack of revenue and the steps to wind it up and de-list it.
Members questioned why the Department of Human Settlements had taken so long to compile this report, asked what exactly led to the decision to wind up Servcon, whether communities were adequately informed of the decision, and what would happen to properties still held by banks. They also questioned exactly what the assets comprised, and why a loss had been recorded. Members also asked why only six provinces had been mentioned in the report and called for specifics of where the land parcels were located.
Department of Human Settlements briefing on background to Servcon financial statements
Mr Neville Chainee, Chief Operations Officer, Department of Human Settlements, noted that Servcon was previously an entity of the Department of Human Settlements (DHS), but a decision had been taken some time ago to close it down, since the work that it did was essentially completed. The final financial statements had been prepared and could be presented.
Presentation by Servcon: Status and financial statements 2009/10
Mr Michael Rakgogo, Chief Executive Officer, Servcon, noted that this entity was originally established to assist provinces with issues relating to housing and the normalisation of properties, which would include assisting with repair of decaying structures, and ensuring that title deeds went to the rightful beneficiaries. Across all the provinces, there were now only 61 properties that still needed to be normalised, whilst more than 300 000 “normalisations” had been carried out by Servcon over the last fourteen years. Since Servcon had essentially completed its mandate, a decision was taken by the Department of Human Settlements that it should cease its operations and be formally wound up.
He reported that Servcon stopped operating in September 2009, having successfully managed to complete the bulk of its work. The entity was now in the process of delisting and deregistering.
There were two issues that needed to be highlighted in the 2009/10 report of the independent auditors. Firstly, however, Mr Rakgogo stressed that Servcon had received unqualified audits, since inception, up to this financial year. The first issue was that the auditors raised a question about Servcon’s status as a going concern, but this was of necessity linked to the fact that it was in the process of winding down, and served to alert users of the financial statement to this fact.
During the period under review, Servcon showed a loss of more than R1 million, largely due to the fact that all operations had ceased and there were no sources of revenue.
The auditors had also reported that the South African Revenue Services (SARS) had declared that Servcon was not tax-exempt, and he reported that this was a case in which the form of the entity, rather than the work it undertook, was considered when determining that the entity should not be deemed tax-exempt.
There were still a few land parcels in the possession of Servcon, and these would be disposed of through competitive bids. Notwithstanding the notices of the cessation of operations, Servcon still received numerous queries and complaints. There were still a few properties that were held by the banks, and 61 properties that needed to be normalised. 300 title deeds remained still to be handed over to the rightful beneficiaries, and conveyancers were currently busy with this process. Once all the liabilities of the entity had been settled, the guidelines contained in the Public Finance Management Act (PFMA) would be followed to de-list Servcon as an entity.
The Chairperson said that the information contained in this presentation seemed to be more geared towards what a National Assembly portfolio committee would require, than what the National Council of Provinces (NCOP) committees would need. He expressed concern about the amount of time it had taken for the Department to produce this presentation, which was requested a long time ago, and emphasised that close interaction between the Department, its entities, and the Committee was critical in ensuring that service delivery improved.
Ms M Themba (ANC, Mpumalanga), asked what exactly led to the cessation of operations by Servcon, whether communities had been adequately informed that it would be wound up, and what was done in regard to the properties held by the banks. She also asked why only six provinces were indicated in this presentation.
Mr Rakgogo responded that the decision to wind up Servcon was taken because it had essentially fulfilled the mandate given to it. Communities were kept adequately informed by advertisements being published in the three national newspapers. The properties still held by banks would be handled in accordance with the original mandate, which meant that any outstanding matters would be finalised by the DHS. Those provinces that were not indicated on the report had already been right-sized or normalised, so that no work was needed there.
Mr P Groenewald (DA,
Mr Rakgogo responded that the assets reflected took the form of land parcels acquired from Transnet with the intention of transforming them into human settlements. The loss reflected in the financial statement was a direct result of the entity ceasing its operations, so that whilst it still had some operating expenses in the winding-up process, it had no sources of revenue.
The Chairperson asked why the audit opinion was qualified. She enquired if there was a plan around the phasing-out, and why operations were still continuing when this phase-out was apparently at an advanced stage. She also asked where the parcels of land that were referred to in the report were situated.
Mr Rakgogo responded that the audit opinion in this year was considered qualified, because of the need for the auditors to raise issues around Servcon’s status as a “going concern”. This was a standard accounting practice, and was aimed at alerting users of the financial statement that Servcon was winding down its operations. The entire business plan of the entity was revised, and this had an impact on the ability of the entity to handle matters that it was committed to handling. There were parcels of land remaining, mainly in
Ms Themba said that the information given must specify the provinces.
Mr Chainee responded that the DHS would compile a schedule with specific data pertaining to the land parcels.
The Chairperson thanked him, and noted that the interactions had been important.
The meeting was adjourned.
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