Department of Public Works on its 2nd quarter performance 2012/13

Public Works and Infrastructure

30 October 2012
Chairperson: Ms M Mabuza (ANC)
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Meeting Summary

The Department of Public Works gave an overview of its turnaround strategy when presenting its second quarter performance report to the Committee. In order to bring stability to the organisation, the process of appointing a new Director General and Chief Financial Officer was under way. All the gaps in the supply chain management process were being identified, with the assistance of a secondment from the Construction Industry Development Board, to stabilise that area of operations.  The under-spending of budgets was being tackled, where it had been found that most of the problems were related to poor planning of projects. Contract administration was under the spotlight, following the Auditor General’s finding that contracts were lying “all over the place,” and that some officials had made documents linked to lease agreements “disappear.” The Special Investigating Unit was involved in dealing with this matter. Efforts were being made to accelerate completion of the immovable asset register. The Department had also requested assistance in resolving human resource issues.

A lack of capacity was blamed for many of the shortcomings highlighted in the report. Although the DPW had made progress in the human resources area, the manning of the Department was skewed by the fact that “non-core” positions had been filled, but 220 of the “core” skilled, professional posts had not been filled. The result was the Department did not have adequate skills. The National Treasury had been approached for approval to switch funds from capital projects, so that 40% of the backlog could be eliminated by the end of the financial year.  The main challenges facing the DPW were delays in SCM processes, under-spending in key programmes resulting in an adverse impact on service delivery, capacity constraints and a lack of coordination between head office and regional offices. These would be addressed by a wide range of projects forming the basis of the Department’s turnaround strategy.

Members asked questions about the possible extension of Pretoria’s inner city regeneration project to other centres, and why the Independent Development Trust still required funding after the Department had indicated it would stand on its own after receiving a “last chunk” of R150m last year. Another contentious issue was the manner in which the Department had to fund ad hoc state events, such as funerals, without having adequate budgets in place. The report also identified a long list of government departments which owed Public Works nearly R900m in outstanding accommodation charges.

Meeting report

Ms Mandisa Fatyela-Lindie, DPW Acting Director General, covered some of the main issues affecting the Department, as an introduction to the presentation on the second quarter performance.  In order to bring stability to the organisation, the process of appointing a new Director General and Chief Financial Officer was under way, and it was hoped the new CFO would take up office on 1 December. All the gaps in the supply chain management (SCM) process were being identified, with the assistance of a secondment from the Construction Industry Development Board, to stabilise that area of operations.  The under-spending of budgets was being tackled, where it had been found that most of the problems were related to poor planning of projects. Contract administration was under the spotlight, following the Auditor General’s finding that contracts were lying “all over the place,” and that some officials had made documents linked to lease agreements “disappear.” The Special Investigating Unit was involved in dealing with this matter. Efforts were being made to accelerate completion of the immovable asset register. The Department had also requested two people – one from the Department of Public Service and Administration, the other from Rural Development – to assist in resolving human resource issues.

The Chairperson asked what action had been taken against the officials involved in the disappearance of documents.

Ms Fatyela-Lindie said one person had been suspended, and was facing disciplinary action. She added that the missing documents posed a serious problem, as the Auditor General was strict about requiring original documents, and would not accept copies. This made it difficult to assess the scale of the problem.

Mr Mfezeko Gwazube, Acting Chief Operations Officer, said the objective of the review had been to enable areas of under-performance to be quickly identified, so that the issues could be investigated. Progress in populating the immovable asset register, targeted for completion by 31 March 2014 was well ahead of schedule. However, the assistance of MinMEC was being sought to help unlock the bottlenecks delaying the confirmation of land parcels under the DPW’s custodianship. Title deed endorsements were below target. Service delivery was being affected, as user departments were not signing service level agreements (SLAs) with the DPW, and User Asset Management Plans (UAMPs) were not being completed. Capital works implementation programmes, which should already have been actioned, were still being revised. However, there were only six key account managers dealing with 50 portfolios, which illustrated the Department’s lack of capacity.

The Department’s worst performing programme was in the area of professional services and project management. Expenditure should by now have reached 50%, but was only at 19%. Only 29 out of 50 targeted construction projects had been completed. Only 3 466 short- to medium-term jobs opportunities had been created, against a target of 10 000. No progress had been made in professional skills development. Contracts aimed at facilitating black economic empowerment were not achieving the expected results.

Although the DPW had made progress in the human resources (HR) area, the manning of the Department was skewed by the fact that “non-core” positions had been filled, but 220 of the “core” skilled, professional posts had not been filled. The result was the Department did not have adequate skills. The National Treasury had been approached for approval to switch funds from capital projects, so that 40% of the backlog could be eliminated by the end of the financial year.

Three Bills under development by the Department were behind schedule. These were the Agrément SA Bill, the Built Environment Professions Bill and the Expropriation Bill, where work was either still in process or the draft policy was being circulated for comments.

The Expanded Public Works Programme (EPWP) was “doing pretty well” recruiting learners for the National Youth Service, creating job opportunities and providing support to municipalities implementing projects. However, some of the reported figures still required verification.

The main challenges facing the DPW were delays in SCM processes, under-spending in key programmes resulting in an adverse impact on service delivery, capacity constraints and a lack of coordination between head office and regional offices.  These would be addressed by a wide range of projects forming the basis of the Department’s turnaround strategy.

Ms Sue Mosegomi, Acting Chief Financial Officer, said the Department had spent 52% (R4.1bn) of its annual budget (R8bn) at the halfway stage of the financial year.  Compensation of employees was already at 54%, which was a problem area, but the R2.7bn recorded under transfers and subsidies (67% of the annual budget) was “not bad” because it was mainly due to the new upfront incentive payment method for the EPWP. Infrastructure expenditure amounted to R276m, or only 19% of the annual budget.  She pointed out that expenditure on goods and services during September had amounted to R30m, which related to two funerals declared state events, and additional funding had been requested as part of the adjustment estimates. The Property Management Trading Entity (PMTE) was showing a deficit of R482m by midyear, and its overdraft stood at just over R2bn. Government departments and entities owed the DPW R420m in outstanding accommodation charges for state-owned premises, and a further R474m for privately-owned premises.

Ms Fatyela-Lindie said the Department was reviewing all the performance agreements with its top managers, to factor in all that the Auditor General had said they should be doing.  Attention was being given to the payment of property rates and taxes, and this had become a priority for MinMEC to see if this function could not be devolved back to the municipalities. The issue of vesting had become a key project in terms of the immovable asset register, and was starting to receive special attention in some of the provinces. Unused capital budget funds were needed to pay for turnaround projects, but the Department needed to be patient in awaiting Treasury approval in the light of current financial conditions.  The Department of International Relations and Cooperation (DIRCO) had asked the DPW to create a precinct under one roof for the Pan African Parliament, as well as a similar facility to house all the United Nations entities.  The Minister had agreed that the bloated number of non-core employees was over-burdening the Department’s budget, and hard decisions would have to be made when these employees’ contracts ended.

Discussion
The Chairperson asked from where the funding for the Pan African Parliament would be coming. When told it would be funded by DIRCO, she pointed out that DIRCO was disputing the costs attached to the project.

Mr Gwazube responded that the DPW was having to engage with departments other than DIRCO, which were also raising issues around the costing of projects. As far as the Pan African Parliament was concerned, they were contesting some of the costs for which the DPW had said they should pa, on the basis that the project had actually come to a halt as a result of the environmental assessment interventions.

Ms P Ngwenya-Mabila (ANC) referred to the list of departments which owed the DPW large amounts for accommodation charges, and felt that the Committee should intervene to resolve the matter, as non-payment had a negative effect on the Department’s ability to provide service delivery. Both the Department of Justice and the SA Police Service owed over R80m for private accommodation charges – what serious action was being taken to address this? The Department of Justice had said they would not pay without receiving an itemised billing, so what was the problem in compiling the required record?  She expressed concern at the over-expenditure on goods and services, and reminded the Department that it had to operate according to its budget.

Ms A Dreyer (DA) agreed that it was essential for the DPW to collect its debts, and pointed out the anomaly that according to the presentation, the Department itself owed R29.1m – to itself! – for private accommodation charges. Even Parliament, which should lead by example, owed money. Why did the SA Social Security Agency have outstanding accommodation charges in all the main centres?  She said there needed to be a clear policy on what should be spent on state events, such as funerals, as at present there was an open-ended “blank cheque” situation. This would enable proper budgets to be put in place.

The Chairperson said it had been reported that when the Department hired equipment such as cutlery and crockery for state functions, it paid R120 per glass – and these were empty glasses!  This was why each funeral cost R15m, and although the issue was sensitive, ways had to be found to eliminate wastage of funds.

Ms Dreyer criticised the fact that only 19% of the capital budget had been spent, as infrastructure expenditure played a major part in economic growth and creating jobs. However, she realised that one could not achieve targets if one did not have competent, skilled and technically qualified people to do the work, so putting the right people in essential jobs should be a top priority for the Department.

Ms N Madlala (ANC) said the Department was conducting a study into the feasibility of the Pretoria inner city regeneration project being rolled out at the other major centres, and asked when this would happen.

The Chairperson, referring to virements and transfers, reminded the Department that it had assured the Committee that approximately R150m had been the “last chunk” to be given to the Independent Development Trust (IDT). However, in the past financial year, the DPW had given a further R50.8m to the IDT. Why? The Committee had been told that the IDT was going to “stand on its own.” She cited numerous other examples of funds being moved from one programme to another, without the Committee being informed.

Ms Fatyela-Lindie explained that the Department was merely a conduit for the payment by Treasury of R50.8m to the IDT. The IDT was under financial stress, and needed funding for its survival.  Talks were going on between the DPW, IDT and Treasury regarding the recapitalisation of the entity.

The Chairperson said she could not understand how the IDT could be under financial stress, as it appeared its services were under-utilised. She asked why the funds could not have been transferred direct from Treasury to the IDT.

Ms Fatyela-Lindie said the IDT was a Schedule 2 entity, and used to be self-funding, and Treasury indicated it could not provide funding if it retained its Schedule 2 status. There was now discussion about whether the IDT should be a Schedule 2 or Schedule 3 entity. Treasury had been pushing for the latter.

Mr L Gaehler (UDM) said the Committee had met with the IDT, and it had been agreed that they would become a Schedule 3 entity. It had been expected that the new board would follow this process.

The Chairperson said that after explaining the implications of a change of status, the IDT had said they did not want to become a Schedule 3 entity.

Ms Fatyela-Lindie said a condition of the IDT receiving Treasury funding was that they become a Schedule 3 entity.

The Chairperson said the issue needed to be resolved at a special meeting, as the IDT appeared to be confused and the Committee required a proper briefing. One could not keep on funding an organisation which was unsure about what it wanted to do.

Mr Gwazube said the inner city regeneration programme for Pretoria, initially known as RKTP, was approved by Cabinet in 2004 or 2005, and did not refer to other city centres – only to the regeneration of the capital city. The DPW had found no evidence that Cabinet had amended its direction so that the programme could be expanded to other centres. It had therefore been decided to re-focus on Pretoria, and Cabinet would have to be approached if a change in direction was requested.

The Chairperson asked why there had been implementation delays since 2005. She suggested there might have been tampering by officials, trying to get other towns involved in the project.

Mr Gwazube sighed and said he did not know why the DPW had not implemented the project in the way it had been mandated to do. There had to have been governance and management failures. This highlighted why the Department needed a turnaround strategy.

The Department had embarked on a two-stage process to stabilise the organisation. The first stage was to fill the vacant “core” posts as quickly as possible, using funds transferred from other projects. It was expected that 40% of the 220 vacancies would be filled by the end of the financial year. The second stage was to implement a decision taken in 2005, but not implemented, to decentralise so that there would be competent professionals in the regions to carry out projects. The Department had been filled with people who were not capable of doing the required work, and the organisation structure was not right. The “rot” had to be stopped.

The Chairperson said the R1.3m being spent on employee training should not have been used to raise them to a level of competence which they should have had when originally employed.  Some employees of the Property Management Trading Entity had openly admitted they did not understand how they had been appointed to their positions in the organisation.

Mr Gaehler asked what the DPW would do about the “dead wood,” as it could not keep on paying people who should not be in the organisation.

Ms Dreyer suggested the Department should be disbanded and start again from scratch. A new organogram should be developed, so that employees would have to apply again for their old posts. One could not build a new house on poor foundations.

Ms Fatyela-Lindie confirmed that the DPW was reviewing its organogram as part of its turnaround strategy.

Ms N November (ANC) proposed that service level agreements (SLAs) should be signed as soon as possible, otherwise there would be no progress in implementing projects.

The Chairperson asked why there had been an R87m rollover in the EPWP, as this was a programme which dealt with issues of poverty and hunger.

Ms Mosegomi said the DPW needed to pay off commitments from the previous year, because of the new incentive payment scheme. The commitments had previously been under-estimated.

Mr Gwazube said that state functions, such as funerals, posed accounting problems for the Department, as they involved the Presidency and the dictates of the Ministerial Handbook. The DPW was a provider of hard infrastructure, and was not geared to deal with event management.

Ms Mosegomi added that the Department could not budget for funerals, so expenditure had to go through as adjustments.  The real challenge was that these ad hoc requests came from the Presidency and could not be turned down. They came at short notice, and resulted in eleventh hour purchasing which disrupted the normal supply chain management system. Treasury did not reimburse the Department for over-expenditure.

Ms Fatyela-Lindie said she had written to the DG in the Presidency, asking for a reduction in the number of ad hoc requests, which since August had amounted to R11m.  The DPW had to account for this expenditure to the Auditor General and the Presidency, and without budgeted funding, deviations were required and this led to an audit finding of “irregular expenditure.”  The Department was being pushed into a corner, but was proposing that it should pay for planned, budget events, with the Treasury repaying expenses incurred in organising ad hoc events.

Mr Gaehler said service providers should be closely monitored, to ensure the DPW was not over-charged for state events. He suggested it would be better if the Presidency were charged directly, as a department, for these expenses.

Ms Ngwenya-Mabila said the present situation compromised the DPW’s ability to deliver on other projects. The matter needed to be thoroughly discussed, and proper budgets established.

Ms Mosegomi said although transferring funds from the goods and services budget technically violated the Public Finance Management Act, the DPW had to do it, with the approval of the DG.

Ms Ngwenya-Mabila said the correct procedures needed to be followed.

Mr P Mnguni (COPE) asked how the Committee could assist the DG in the position she found herself.

The Chairperson replied that the DG must simply state in writing that there were no funds for further activities. What was being done at present was wrong.

She wished the Department good luck with its turnaround strategy, and closed the meeting.


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