Independent Development Trust & Council for the Built Environment on their 2011/12 Annual reports

Meeting report

Independent Development Trust
The Chairperson opened the meeting by advising Members that she had already confronted the Independent Development Trust (IDT) over the poor state of its Annual Report, which contained so many errors that her first instinct had been to send it back to their head office to correct it before making the presentation. However, the IDT had responded that they had identified the mistakes referred to, and had pleaded for the opportunity to proceed with the presentation. She asked Members if they were agreeable to this, and they assented, with the proviso that the report should be corrected and reissued.

Mr Somadoda Fikeni, Chairman of the IDT, apologised “profoundly” and said the situation would not be repeated. The IDT was faced with an “existential crisis,” as it had almost exhausted the R2bn that it had been given in 1990. It was now having to ask for funds from National Treasury and the Department of Public Works (DPW), and this had proved time-consuming and had led to a rush to meet deadlines.

Ms Thembi Nwedamutswu, Chief Executive Officer of the IDT, accepted responsibility for allowing the report to be printed in its current form, but also pointed to the effect of time pressures. The entity’s goals for the year had been to contribute to job creation, to reduce infrastructure backlogs, and to ensure meaningful and sustainable economic development and growth in order to enhance the quality of life in rural areas and among disadvantaged communities. During the review period, the IDT’s business portfolio had grown from R2.4bn to R4.243bn, driven by demand from the line departments. A breakdown by province indicated that 42,2% of the portfolio (R1.8bn) had been spent on programmes in KwaZulu-Natal, while the smallest amounts had been spent in the Northern Cape (2,2%), Western Cape (1,5%) and the Free State (1,3%). In line with government priorities, 54% of expenditure had gone towards education, human resources and skills development, while rural development and health accounted for just over 13% each.  The number of job opportunities created by the IDT had amounted to 25 528, while those created by the Expanded Public Works Programme (EPWP) had totalled 39 687.

The IDT had received a “clean audit report,” and the matters of emphasis which had been raised in the previous year, had been resolved. The Auditor-General (AG) had reported that the entity’s levels of governance had met statutory requirements.  The staff occupancy rate was running at 83,5% -- below the targeted figure of 85% -- and there was a high staff turnover rate, mainly because of insecurities raised by the uncertain future of the IDT. The new board, after interaction with the Minister, had assured the IDT that the issue was receiving top priority. The transformation of the entity was expected to be completed by the end of the financial year, with the organogram already approved by the board.

Mr Ian Ellis, Chief Financial Officer of the IDT, said the IDT’s revenue for 2011/12 had amounted to R321m, of which R150m had been allocated by Treasury, R139m had come from management fees, and the balance from investment and other income.  Overhead expenditure had been R430m, meaning that there had been an operating deficit of R109m. The entity’s opening balance had been R278m, but without additional funding, this would drop to only R33m by the beginning of the next financial year – enough for one month’s funding of programmes. Expenditure of R430m was well within the R498m budget owing to improved controls, and fruitless and wasteful expenditure had fallen from R900 000 in 2010/11 to R53 000 last year.

Although the IDT had received its tenth consecutive unqualified audit report, the AG had reported on some legal and regulatory requirements.  Actual reported performance had not been valid, accurate and complete due to a lack of monitoring and review by senior management of actual achievements, annual financial statements had contained material misstatements which had been subsequently corrected, procurement and contract management had not followed the processes required by the Public Finance Management Act (PFMA), and internal controls on financial and performance management had been inadequate. The IDT had prepared an implementation plan to deal with these shortcomings, which had been presented to the audit committee, and progress against the plan would be monitored over the second half of the financial year.

Ms Nwedamutswu concluded the presentation with an analysis of the risks facing the organisation. The key risk was the need for a legislated and funded mandate, with such a mandate confirming the IDT’s relevance and distinctive value to the national development agenda and government priorities. This would enable it to invest in sustainable development to attain self-reliance in the communities it served. Another risk revolved around the growing misalignment between development and poverty in the country, and the ability of the IDT to make a measurable impact with the resources at its disposal.

Discussion
Mr K Sithole (IFP) referred the IDT to the President’s call for all vacancies to be filled, and asked how long it would take to achieve this at the entity. He also drew attention to the provincial breakdown of programme expenditure, noting that their were many areas where there had been no expenditure at all – for instance, in Gauteng, nothing had been spent on health care facilities, sports, art and culture, water and sanitation and welfare support, with a similar pattern in the Northern and Western Capes. He wanted the reasons for this to be clarified.  He also criticised the presentation for providing statistics as percentages, instead of figures, making it difficult to understand the actual situation.

Ms N Madlala (ANC) raised concern about the number of schools being built, particularly in the Eastern Cape, where pupils were still being accommodated in mud huts or learning outdoors under trees. She pointed out that no schools had been built by the IDT in the Northern Cape, even though it was also a rural province like KwaZulu-Natal, where over R1bn had been spent on building schools. She wanted to know why this had happened.

Ms A Dreyer (DA) asked for further details to be provided on the investigation into the possible supply chain management fraud referred to in the Annual Report.

Ms C Madlopha (ANC) pointed out a wide range of inconsistencies in the Annual Report, which needed to be corrected. A big proportion of the R150m allocated to the IDT had gone to consultancy costs, despite the call by the Presidency to reduce this aspect, particularly in the sphere of non-technical work. She urged the entity to heed this call in the interest of job creation. She also took the IDT to task for claiming over-achievement against targets when it had in fact over-spent its budget to do so.

Ms N November (ANC) asked for inconsistencies in parts of the financial section of the Annual Report to be clarified, and requested that the Committee receive a copy of the implementation plan which had been prepared to address the matters raised by the AG.

Mr M Swathe (DA) asked why the IDT had fallen short of its 35 732 target of job opportunities, creating just 25 529 (71%). One of the staff vacancies was in senior internal audit – how long had the post been vacant, as this affected the running of the organisation?  He wondered if the IDT’s leadership was providing “value for money”, as it had not provided adequate oversight in respect of financial reporting, or compliance with laws and regulations

Ms N Ngcengwane (ANC) asked for an explanation for goods not being procured in line with PFMA regulations, particularly in regard to internal oversight and controls. She also wanted further details of the mud schools replacement programme in the Eastern Cape.

Mr N Magubane (ANC) said that although a high proportion of funds had been allocated for building schools in KwaZulu-Natal and the Eastern Cape, these provinces were densely populated. More schools were needed, because children had to walk long distances to get to school, and the government could not provide transport. High schools, in particular, should be built, and more funds were required to deal with the mud school problem.

Mr L Gaehler (UDM) referred to the poor quality of schools built by the Development Bank of Southern Africa (DBSA) in the Eastern Cape, most of which were not complete. Those built by black contractors trained by the IDT were all complete. He felt that the DBSA should stick to financing, and not get involved in building schools. He asked whether the provincial “split” of funding had been the result of the involvement of line departments. Some provinces were benefiting more than others, although lack of infrastructure affected all provinces. There should not be one “super-province” – something was wrong and needed to be explained.

Ms Madlopha said that confirmation was needed that the high-budget projects in the Eastern Cape and KwaZulu-Natal had actually been completed, as oversight visits often resulted in lack of progress being hidden. She asked how long the internal audit function would continue to be outsourced. She did not think the IDT had received a “clean” audit, as claimed in the presentation – it was merely unqualified, and there were still challenges around the issue of leadership and financial management. What was the IDT going to do to rectify these challenges?

Mr Fikeni confirmed that the IDT considered the AG’s report as an “unqualified” audit, and that it was the entity’s objective to obtain a “clean” audit, targeting the matters of emphasis.

Responding to the vacancy situation, he said that while the government was insisting that all vacancies should be filled, the IDT had been in the unique situation of facing closure, with virtually no money by next year. However, he was happy to report that meetings with Treasury and the DPW had yielded results, and the Minister was supporting their efforts. Signals had been received that the IDT might receive some bridging finance, but the objective was not to follow a survivalist strategy, but to operate in the same space as the DBSA and the Industrial Development Corporation (IDC). With its track record, and given resources, the IDT would achieve more.

Ms Nwedamutswu said some of the leadership issues were the result of absenteeism at board level, but this particular hurdle had been overcome. Performance management information had not been well handled – reporting accuracy was rated at 44% compared to 66% last year – so measures had been put in place, including the appointment of performance information officers in all the provinces to ensure the submission of supporting documentation.

She said the Committee Chairperson had been right to refer to the under-utilisation of funding in Limpopo. As the province was under administration, the Treasury and the administrator were engaging with the IDT to take over all social development funding.  The IDT had a responsive, or reactive, role and line departments allocated funds to it in accordance with the Division of Revenue Act (DORA), and the IDT could not determine where implementation would take place.  KwaZulu-Natal, the so-called “super province,” had received its level of funding through the provincial government, and much of it had been used to deal with natural disasters in the area, where school roofs had been blown off. In this instance, the IDT was responding to a crisis.

The Chairperson said that owing to time constraints, the IDT should respond to the unanswered questions in writing by Friday, and thanked the delegation for its presentation.

Minutes
Council for the Built Environment (CBE)
Mr Lucky Molobela, CBE council member, introduced the delegation in the absence of Ms Portia Tau-Sekati, CBE chairperson, who was expecting a baby. He said that for some time the entity had been limited by the legislative mandate of the Act which established the CBE, and he was glad the DPW had started evaluating the legislation with a view to correcting these limitations so that it could fulfil its mandate as expected.

Ms Gugu Mazibuko, CEO of the CBE, gave an overview of the CBE’s strategic goals, the key one being to drive, support and advise on transformation within the built environment. A particular focus had been to align the policy priorities of the CBE and the built environment professions to those of the government, with the aim of ensuring a tangible and measurable contribution to the development agenda. Four “identification of work” regulations had been finalised and submitted to the Competition Commission, the objective being that only built environment professionals would be allowed to practise in areas in which they had been trained and were competent. This would effectively mean that no person would be allowed to practise without registration. The Council’s role as an arbiter of appeals was being compromised by bottlenecks which were preventing appeals from being heard within a 60-day period.

Ms Maphefo Sedito, Chief Financial Officer of the CBE, outlined the entity’s financial performance, and gave details of non-compliance identified in the AG’s report. In the area of strategic planning and performance management, the accounting officer had not submitted the proposed strategic plan to the executive authority timeously. The financial statements submitted for auditing had not been prepared in accordance with the provisions of the PFMA.  Procurement contracts had been awarded to bidders who had not submitted a declaration on whether they were employed by the state, or connected to any person employed by the state. There were also bidders who had not submitted declarations of past supply chain practices, such as fraud or other abuses of the system. In addition, the accounting authority had not taken steps to prevent irregular, fruitless and wasteful expenditure.  Total revenue had been R29.5m and total expenditure R30.1m, resulting in a R0.6m deficit for the year.

Ms Mazibuko said the CBE had an oversight role to ensure that the six built environment professional councils supported the growth and development objectives of the government. Its regulatory approach was to steer and guide the activities and performance of these councils towards policy priorities such as job creation, economic growth, skills development and environmental concerns. A code of conduct framework had been developed by the CBE in 2009, and all of the councils had developed codes of conduct which governed ethical conduct within their professions, and failure to adhere resulted in disciplinary action. Disciplinary cases had dropped from 257 in 2008 to 172 in 2012, but the numbers were still high and a significant number of cases related to professional incompetence, which was concerning.

The CBE had developed a policy framework as a guideline for professional fees. In terms of their Acts, professional councils continued to publish annual guideline professional fees, but the Competition Commission had raised concerns that this practice was possibly uncompetitive in nature. The CBE was addressing this matter with the Commission, and was also engaging with the Health Professions Council on the matter.
The CBE was also developing a policy framework which would guide the recognition and incorporation of professions such as town planners and land surveyors, which currently fell outside the ambit of the CBE Act. The total number of registered built environment professionals had grown by 22% since 2007, from 45 857 to 56 075, of whom 62% were black and 38% white. However, in the fields of architecture and property valuers and landscape architecture, the figure for blacks fell below 50%. Transformation remained a challenge in the built environment.

Discussion
Mr Gaehler said the CBE had issued 54 student bursaries, and asked for a breakdown of how many were studying to become architects, quantity surveyors and engineers. How many bursary recipients had graduated since 2009, and what had happened to them after graduation?  The Minister of Works was implementing a turnaround strategy – to what extent was the CBE assisting with the provision of skills? If most of the entity’s non-compliance issues were due to incompetence, what disciplinary steps had been taken to address them? What was the CBE doing about professionals who were registered with their councils, but were also registered in their companies’ names as contractors, and were submitting tenders?

Ms Dreyer said some members of the CBE Council were claiming as much as R123 000 for attending meetings, while others had claimed nothing. What was the reason for the disparity?  It was worrying that professional incompetence had been a factor in a significant number of cases brought before the CBE, as those involved had been trained and registered, but had still been found to be incompetent. Her view was that the development of technical skills began at primary school level, and as the basic education system was dysfunctional, this was contributing to the country’s shortage of skilled professionals.

Ms Madlopha said that last year the issue had been raised of students finding themselves unaccredited after completing their studies at some institutions. Had these institutions now been accredited?  What was the CBE going to do about the leadership and management control weaknesses in the areas of procurement, financial statements, expenditure and asset management, which had been identified in the AG’s report?

Ms Ngcengwane asked how many bursaries had been offered to women, and how the bursaries had been distributed among the provinces. Was the CBE doing anything to make students aware of institutions that were not registered, to prevent them from being unaccredited through no fault of their own?  She bemoaned the low standard of mathematics in the country. In the past, there used to be higher and standard grade mathematics – now there was “maths literacy” as an alternative, and students who made this choice limited their career options. Had the CBE made any effort to discuss this with the Department of Higher Education?

Mr Molobela said he would provide the Committee with details of the CBE bursary situation in writing before the end of the week.

He said most of the questions that had been raised were related to the issue of legislation, and the powers given to the CBE and the six professional councils. On issues of discipline and misconduct, the CBE came in only on matters of appeal after they had been dealt with by the professional councils concerned. Most cases involved work being conducted by people not accredited to perform the work, which was an area the CBE was addressing through finalising the “identification of work” project. He acknowledged that it was sometimes difficult for the CBE to impose itself on the professional councils in disciplinary matters.

Referring to the skills shortage, he said the number of students enrolling for engineering and other professions at tertiary institutions was decreasing every year. The CBE was researching what was causing this trend, as without sufficient professionals the government’s infrastructure agenda would fail. Two of the professional councils were in danger of closing, owing to ageing membership. It was a big challenge which required intervention from both the CBE and government.

The Chairperson commented that the Committee had been advised the previous week that the numbers were dwindling because learners were choosing maths literacy at school level.

Mr Molobela said an additional factor was the 30% matric pass mark – how did one expect a student with a 30% pass mark in maths and science to make the grade in engineering?  This was a political matter, and the Committee would have to assist, as the CBE had to accept what it was given.

The Chairperson argued that engaging the Minister of Education was part of the CBE’s responsibility. Had the entity ever raised the issue in its Annual Reports? It needed to make it clear that those who opted for maths literacy would not be able to become engineers.

She was supported by Ms Madlopha and Ms Ngcengwane, who said the CBE should be proactive on the issue of science and maths, starting at primary school level.

Ms Mazibuko said the skills problem started at a basic education level. The CBE was targeting schools from grades 8 to 11 with maths, science and technology support programmes. A challenge was to find funding. Partners had been identified who were successful in implementing Saturday and vacation classes, and there were a number of varied school interventions.  At a tertiary education level, the number of bursaries made available was dependent on the funding it could get. An approach had been made to the construction Sector Education and Training Authority (SETA), which had indicated it would provide support with a roll-out of bursaries. Newly qualified graduates were also being assisted through a structured candidacy accreditation programme. As far as dealing with the Department of Education was concerned, the Minister would be getting a representative from Higher Education to sit on the CBE Council.

To assist the DPW, which needed technical skills within the Department at national and provincial level, the CBE had formed a task team and was participating in the skills plan for the country’s infrastructure development programme. A policy proposal was that a percentage should go to skills development as a condition of contract for those participating in the programme. A programme of technical support for municipalities was being provided through the Municipal Infrastructure Support Agency (MISA).

The reason for the disparity in claims by Council members was that some were assigned from government departments, and others from the private sector offered their services voluntarily.

Mr Lucas Zepe, Acting Chief Operating Officer at CBE, said cases of professional incompetence raised the question of whether there were loopholes in the registration process.  The CBE was trying to “demystify” the process, to make it transparent and evident to all concerned what was required for registration.

He said most of the accreditation problems related to quantity surveying and landscape architecture, which was a reflection on their capacity at professional council level. Both had serious financial constraints, and the landscape architecture council did not have the staff or resources to accredit programmes.

The Chairperson thanked the CBE delegation, and urged them to try to remove any blockages that might prevent the country’s children from achieving what they wanted in life.

The meeting was closed.