Rural Housing Infrastructure Grant underspending, refusal of rollover, Department Human Settlements and National Treasury briefings

Meeting report

Chairperson’s Opening remarks
Chairperson E Sogoni welcomed Members of the Portfolio Committee on Human Settlements to the meeting, saying that the Department of Human Settlements (DHS) had been requested to clarify some budgetary issues at this meeting. He reminded Members that the two Parliamentary Committees had met jointly to debate sanitation issues, on 17 August, and one of the issues dealt with at that meeting related to under spending of the Rural Household Infrastructure Grant (RHIG). That meeting had also been attended by Department of Cooperative Governance and Traditional Affairs (COGTA), National Treasury (NT) and the South African Local Government Association (SALGA), and it was resolved that they should all address the RHIG underspending. DHS was now due to report on progress.

Co-Chairperson Ms B Dambuza apologised that not all Members of the Portfolio Committee on Human Settlements were able to attend, but would be hearing of the progress of DHS.

Chairperson Sogoni observed that Mr Thabane Zulu, Director General, DHS, apparently disagreed with the remarks on the purpose of the meeting. He read out the invitation that was sent out to the Department, which specified that it must report on the virements of 10.5%; shifting funds from funded vacancies, the under-expenditure on RHIG that was recorded as a saving, and also on the slow spending in the current financial year. He commented that virements were allowed in the Public Finance Management Act (PFMA), but only if they were below 8% of the total allocation, otherwise they would require approval from Parliament.

The Chairperson said that NT would regard spending that was not in line with plans submitted as amounting to under-expenditure on RHIG. The Committee wanted the DHS to motivate why the virement should be approved.

Chairperson Ms Dambuza requested that the DHS start with the progress made since recommendations at the August meeting, outlining plans by the Department to improve spending on RHIG programme.

Mr S Mokgalapa (DA) agreed, and said it was made clear to the DHS that a progress report would be required on the implementation of RHIG. He said the briefing needed to focus on whether there was a meeting and what was agreed on. RHIG was a source of concern for Members.

Mr Sogoni proposed that the Committee be fair and allow Mr Zulu to respond.

Mr Zulu said the invitation was not specific in setting out that the recommendations of the meeting on 17 August must be reported upon. There were two parallel processes. One dealt with RHIG as a programme, and second was to report on the recommendations of the meeting of 17 August. DHS had understood that it merely had to focus on the progress made in the RHIG programme, and the financial expenditure on the programme.

Ms Dambuza interjected that the agenda for the meeting on the following day made it quite clear what reports were expected. This meeting of the two Committees wanted feedback on the recommendations made at the August meeting. She requested that the DHS must be quite clear, if it did not have a report, and tell the meeting whether it had met with the other departments.

Mr Zulu replied there was some confusion in communication, and there was misunderstanding about the report. There was a process dealing with the recommendations. Although a presentation was not prepared, one of the officials could reflect on what had been happening to follow up on the recommendations of the 17 August meeting. DHS was prepared, at this meeting, to present on how RHIG was being implemented.

A presentation could be prepared on the recommendation. The Department had thought it useful to present modalities around RHIG to the joint meeting.

Ms Dambuza proposed that the Chairpersons would meet and deal with the matter. An explanation would be needed on how the funding, already returned to National Treasury, would be spent.

M L Yengeni (ANC) told DHS that the Standing Committee dealt with issues of appropriations, and not with progress on programmes. The invitation had specified that the Appropriations Committee wanted to hear about appropriations, even though the meeting was a joint sitting, and it was problematic if that had not been communicated properly to the DHS.

Ms A Mfulo (ANC) requested that the presentation be delivered.

The Chairperson agreed, saying that RHIG was covered in the presentation.

Members of the Portfolio Committee on Human Settlements were released from the meeting.

Adjustments Appropriation Bill 2012: Rural Housing Infrastructure Grant: DHS briefing
Mr Zulu said DHS had challenges around a high vacancy rate, as a result of the moratorium on post filling that was in place, pending finalisation of the new organisational structure, by the Department of Public Service and Administration (DPSA) and Cabinet. This posed a challenge for various programmes at the Department, and had an impact on budget prioritisation, where rollovers were not approved.

In that context, DHS had seen fit to shift funds. The vacancy rate contributed to under-spending and the Department had taken a decision to implement all existing vacancies within the new structure. That process had begun and would be completed before the end of this financial year. This was one of a number of items that contributed to under-spending.

Ms Funani Matlatsi, Chief Financial Officer, DHS, noted that the DHS had interacted with NT in relation to where it wanted to be during the adjustment process. At the beginning of the financial year, the Department requested a R109 million rollover from the previous year. R70 million of that amount related to the RHIG funding that had not been spent, but only a R13.5 million rollover was approved.

The rollover, in addition to RHIG, was earmarked for paying the Special Investigations Unit (SIU) and Government Communication Information System (GCIS). Rollover funding was also required for the refurbishment of the new office space. However, as already outlined, the full amount of R70 million rollover for RHIG was not approved, and the Department had to reprioritise and find other savings within the existing budget.

Ms Matlatsi explained that the R10.5 million was not within the virement amount, but should be seen as a shift from personnel costs to the goods and services programme. She said NT had to allocate accordingly where funds could be used. This was more like a forced saving, because NT realised that RHIG was not spending. DHS lost an amount of R138 million from the RHIG programme.

Mr Phillip Chauke, Chief Director: Sanitation, DHS, said a meeting was scheduled with NT on the previous Tuesday to discuss these issues, but had had to be cancelled, due to busy schedules. He reiterated that the RHIG grant under-performed by R70 million and the rollover for that was not approved by NT.

He provided a detailed slide, with a breakdown into municipalities, indicating the total values that had been lost.

The Chairperson interjected to ask if the adjusted figure of R340 million, reflected on the slide, was reduced from a total budget of R479 million for the programme in 2012.

Mr Chauke replied this was indeed correct.

Mr M Swart (DA) sought clarity on why the Western Cape and Gauteng were not on the list of the affected municipalities.

Mr Chauke replied that these two provinces were never part of RHIG. The programme was biased towards rural provinces.

Mr Chauke went on to state that the Department ensured the cuts took place where there were less  qualifying beneficiaries. Although 13 municipalities were allocated funding, there were not enough beneficiaries processed. RHIG was implemented with the Municipal Infrastructure Grant (MIG). Mvula and Independent Development Trust (IDT) had appointed contractors, and both had been asked to provide details of the contractors’ names and the villages they were working on. This allowed for better monitoring of projects, and in fact the level of monitoring had been raised.

The Department was meeting all implementing agents and contractors on site to identify difficulties. This had already been done in Limpopo, where the visits included those to schools and institutions that lacked basic sanitation. The Department was appointing additional contractors, and on Tuesday 06 November the bid committee was finalising that process. The contractors would be contracted for a longer period, which should help enormously in improving the spending, to the end of 2014.

He said there was work on a revised plan, and the DHS would make this available at the next meeting. The plan would be finalised in February. The DHS recognised that there was no “magic” to finishing the sanitation facilities, but it was viewed seriously, and DHS was intending to use some of the Urban Settlement Development Grant (USDG) for sanitation, especially on eradicating the bucket system. The DHS still had backlogs and it needed to deliver more quickly. DHS was responsible for developing the national sanitation master plan.

Ms Matlatsi said DHS had been affected by the budget. A saving was made during the time the Department had a moratorium on vacancies, but since that moratorium was lifted, some of the posts had been filled. The total amount of the saving during this financial year was R17 million. The Department was presently sitting with a vacancy rate of 31%, but it was hopeful it would reduce it by the end of the financial year. The Department had established a Chair at the Nelson Mandela Metropolitan University (NMMU).

Expenditure had now moved from 40% to 52%. However, she explained that the 52% was characterised by the number of transfers made, and substantiated by the larger amounts of the Human Settlements Development Grant (HSDG) that was transferred to provinces, as well as the USDG. The amounts, together, totalled R12 billion out of the allocation of R24.4 billion. The highest spending programme was the Housing Policy, Research and Monitoring programme. The figures were preliminary, as monthly reconciliations still had to be done.

She said R9 billion of the appropriated money had been transferred to provinces as part of the HSDG. The Department was satisfied with spending. DHS had undergone a vigorous process by asking provinces to indicate how the rest of the money would be spent, up to the end of the financial year. There was a plan in place that indicated how the 48% would be spent.

Mr Zulu conceded that the picture was not satisfactory, but assured Members that measures were in place to improve spending, especially of the USDG. The Minister would give direction on Thursday, at the MinMEC, to ensure that budget was used effectively.

Discussion
Dr M Van Dyk (DA) wanted to know how the DHS hoped to remunerate new employees, if it had shifted the money intended for compensation of employees. This was particularly serious, if DHS was looking to fill all the posts by the end of the year, and he questioned where the money to pay them would be sourced. He stressed that departments should not be ready to use budget for compensation of employees on other programmes.

Dr Van Dyk said the statement on contractors worried him, and questioned the process of appointment of contractors, and how scrutiny was done. He commented that invariably, there would be problems with these contractors, meaning that additional contractors had to be appointed.

Dr Van Dyk hoped that many of the projects would be done by the end of the financial year. He asked the DHS to share with the Committee the logistical and capacity problems that it experienced on the ground. He wanted to know exactly what the DHS plans were to improve spending.

Mr N Singh (IFP) wanted to know what portion of the 31% vacancy rate related to specialist positions. It was important for the Committee to get an indication of the challenges DHS faced.

Mr Singh also sought clarity on the additional contractors involved on the RHIG programme, noting that Mvula and the IDT were the implementing agents.

Mr Singh asked what specific engagements there had been with the Department of Water Affairs (DWA) to ensure RHIG succeeded. He commented that stopgap toilets for rural homes were not ideal, and instead the standard of toilets found in urban areas should be applied. He wondered if the DHS should not rather be planning to provide decent services in the long run, even if it took a bit longer, as people deserved to have decent toilet facilities across the board.

Mr Singh sought clarity on the spending by provinces and selected municipalities. He commented that provision of housing needed not be measured in a single year. Delivery on this objective needed to be aligned with the Medium Term Expenditure Framework, which was the three year budgeting cycle.

Mr M Swart (DA) sought clarity on the R138 million saving. He commented that the Committee had problems with the implementing agencies in the past. They were behind with other projects, like the Accelerated School Infrastructure Development Initiative (ASIDI). DHS would find it difficult to meet its objectives with these companies, especially given that December was a holiday period in the construction industry.

Mr Swart requested further details on the research projects done, and the consultants used by DHS. He also sought clarity on the creation of the chair at NMMU, asking why DHS, and not the Department of Higher Education and Training (DHET) had created this Chair.

Mr L Ramatlakane (COPE) commented that the DHS had "short-changed" the Committee on the information given, and more was needed. He questioned whether the forced-saving meant the Department did not want to relinquish the R138 million, saying that DHS did not mention the reasons for this. He asked what had been the initial plan for spending the R138 million, which was not clearly stated in the turn-around strategy. He also wanted to understand if DHS had the capacity to spend that money.

Mr Ramatlakane commented that he was not sure if the turn-around strategy would enable the Department to meet its targets on RHIG. He asked if DHS would be able to meet the target.

Mr Ramatlakane enquired what the cost was of the additional contractors that were being appointed, and whether this was likely to escalate or be managed downward.

Mr Ramatlakane asked whether the Department had any capacity to control what went down at municipalities, when it came to RHIG expenditure pattern.

Mr Ramatlakane commented that the shifting of funds was a general trend. He asked how it impacted on the baseline budgeting on personnel expenditure.

Ms Yengeni wanted to know the kind of plan that was presented to NT along with the request for the rollover. She commented that the plan was clearly not convincing enough, as it was unlikely that money would otherwise have been disallowed, for something as important aspect as sanitation. She asked NT representatives directly why NT had not approved the rollover money for the RHIG. She commented that too many end-users needed to benefit from that and questioned why DHS should suffer.

Ms J Mashigo (ANC) commented that meeting of the various stakeholders who were affected by the withdrawal of the R138 million was crucial, because the need on the ground was insurmountable.

Ms Mashigo questioned the role of the Department of Public Works (DPW), when it came to sourcing office space for departments, and asked when DHS would be able to move to its new office space. This had been an issue going on for a substantial time, with rollovers on this funding. The lack of office space affected service delivery.

Ms Mfulo wanted to know why the Department had so many vacancies and yet failed to fill them. She said it appeared the Department did not have a plan to address this.

Ms Mfulo was concerned that so much money was being shifted across programmes. She said under-spending at DHS seemed not so much to relate to vacancies as the fact that DHS did not currently have competent people to do the job. In future, she would like to see all budgets accompanied by specific plans, especially in relation to vacancies, as that issue had been troubling the Department for the past three years.

The Chairperson said that, at the joint sitting in August, there was a clear instruction to the DHS that it must come up with a plan to say how the money would be spent. He said it was still not clear how DHS would have spent the money, if it had been approved. The Committee wanted to assist Departments, but they were not spending.

The Chairperson said the inability to spend on RHIG was worrying. It had been mooted, in the last year, that this function should move across to COGTA, but a strong argument was put up that this function should remain with DHS, because of the need to establish stability in the programme. COGTA struggled already to administer the Municipal Infrastructure Grant (MIG). It was agreed that the reason the grant was not performing was because the function had moved around departments.

The Chairperson commented that Members found it hard to motivate for rollovers. Departments should assist the Committee as well in this regard, and he fully agreed that DHS should come back to the Committee with the plan. He cautioned Mr Zulu that this was the last chance that would be given. He wanted NT to try to assist with allowing a rollover of the amounts requested, and said that NT was finding it too easy to take money away from departments. He reminded everyone that when money was taken back, it was the poor people who suffered, not the officials. For this reason, taking money away should be avoided, at all cost. He urged that if there were capacity challenges, those needed to be addressed. There needed to be a plan specifically on how DHS hoped to spend the RHIG, in order to provide decent sanitation to the poorest of the poor. Members struggled to explain government processes to those affected, who were not interested in hearing about the problems, but merely wanted a decent service, for which money was provided.

Ms Yengeni agreed that RHIG was a very serious issue, and also agreed that it was not the officials of the DHS who were affected. This was discussed at the August meeting and it was agreed that all stakeholders - including NT - needed to work out a plan on how to improve spending on the programme. She voiced displeasure that, before that process could even begin, NT saw it necessary to confiscate funds from the RHIG. NT had shown extreme patience to other departments that were more problematic.

The Chairperson said the Committee was patient with NT as well. It must be admitted that DHS was not doing well on some of the other grants it administered. However, he reiterated that this issue must be seen from the perspective of the poor, who would find it difficult to understand that services were denied to them, despite there being money.

National Treasury Response
Ms Marissa Moore, Chief Director: Public Finance Infrastructure, National Treasury, replied that the rollover centred around R70.2 million that was unspent in the 2011/12 financial year. Not only was this money not spent, but there was no proof of commitment for this money at the point of approval. It was not as if NT forced the issue of twelve months, for all that was needed was proof of commitment, and if that had been provided, the rollover could have been approved.

Ms Yengeni interjected and sought clarity on whether the official implied that if DHS were to come up with a convincing proposal, the approval would be considered.

Ms Moore replied that NT processes had to be done at certain times, and a special decision would have to be taken if the rollover request for the RHIG money was to be re-considered. She referred to the adjustment budget that was brought to Parliament two weeks ago. R543 billion was appropriated at a national level, but expenditure was R546 billion. The additional spending related to the rollovers.

She noted that adjustments were made on compensation for public servants and this had left NT in a precarious situation that necessitated it instructing all departments to declare savings in their budgets. The R138 million saving was part of a broader saving of over R3 billion. All other departments – including bad performers – had to declare what they would not be able to spend.

The Chairperson sought further clarity on the saving, and wanted to know if NT instructed all departments to declare savings on unspent funds.

Ms Yengeni commented that when the recommendation was made on 17 August that all departments come up with a plan on the R70 million, National Treasury was represented at that meeting. She questioned whether NT did not see it necessary to speed up the process of devising a plan, so that it could be presented before the rollover approval period ended. The meeting of 17 August had specifically resolved that all concerned departments were responsible for the under expenditure of RHIG.

She noted that the instruction was clear that departments had to meet. They had not done so, yet despite this, NT had gone ahead and taken a decision not to approve the rollover. She was sure that if departments had met prior to the approval date, the decision would have been different. She struggled to accept the explanation of NT. These kinds of decisions, on important programmes, needed to be taken after extensive engagements.

Ms Moore replied that savings opportunities were identified by NT, after engaging with the finance managers at the relevant departments, in relation to money that could not possibly be spent. The perception that NT was trying to be intrusive was not true. Instead, NT was looking for solutions to encourage spending on sanitation. The objectives of the DHS were the same as those of the Committee. It was also embarrassing for NT when money was allocated and not spent.

Ms Yengeni clarified that her question sought to establish the reasons why the departments had not met prior to NT taking the decision not to approve the rollover of the RHIG money.

Ms Moore replied that NT had attempted to meet with DHS three times on the matter, in the last five months, in line with the Committee’s requests. Sadly, there was no response to all the requests, and nobody had ever turned up to engage in the meeting, at the proposed venues.

DHS Response
Mr Zulu replied it was incorrect to say that the DHS had been included in the decision making process prior to the money being withdrawn. An evaluation was done by NT, who then informed DHS of its decision. The DHS said it would re-work its plans, and it had done that, based on NT’s evaluation on the under spending. Evaluation of spending was a continuous challenge for departments, and it was an accounting principle to take back funds after a certain period of time if expenditure did not occur. This was not a consultative process.

He said he had had serious problems when the matter was brought to his attention. DHS had a plan as to how it could rigorously put programmes in place, on the ground, to deal with the backlogs in sanitation. The Department now had to re-plan the programmes, based on the reduced grant it received, in the current financial year.

The Chairperson sought to establish if DHS was instructed to do a saving on the RHIG grant.

Mr Zulu replied NT would do its assessment at a national level, based on the programmes and expenditure. Once NT had identified an area in which a department was not spending, it would take money from that area. He had some problems with that approach. DHS had tried to explain that RHIG was a new programme, and it was experiencing challenges.

Mr Zulu agreed with the view that there should have been a meeting to see how the challenge was dealt with. Unfortunately, this was not how NT operated, as it simply attended to a figures exercise, and, having done this, would send its instruction to departments. It was immaterial whether turnaround plans were submitted on how to remedy situations, if the numbers were not showing positively.

Mr J Gelderblom (ANC) said it was important that cooperation and communication was improved between departments and NT. The Committee would not solve the problem now, but it would be important to address this relationship and communication in the future.

Mr Ramatlakane asked what DHS had planned, in order to spend the R138 million. If there was a plan, then NT must be asked why that plan was not considered.

Ms Yengeni concurred with the view that departments needed to improve on communication and cooperation. This was a norm in many situations. She reiterated that whilst in this instance, NT was quick to take back the money intended for RHIG, there were other under performing departments, who consistently under-spent, without interventions being made. The unilateral way in which NT conducted its business was unacceptable. It was particularly incorrect in the case of the RHIG because the Committees had instructed both departments to meet, specifically to discuss the under expenditure of the programme.

Ms Yengeni said the tendency among Parliamentarians was that Members could engage with other departments, but not with NT. The behaviour by NT undermined Members, because it had been part of the meeting yet had not complied with the instruction. NT should consult other departments before making sensitive decisions. The country had a problem of rollovers given, contrary to Parliament’s views, and she cautioned that this would come back to haunt Members during the elections. It would not solve the problem simply to move allocated funds from programmes. Proper plans, however, would solve the problems.

Ms Mfulo said there was a need to ascertain the impact of decisions, through consultation with other departments. If an impact assessment was not done, it gave the impression that NT only cared about the figures and not what was happening on the ground.

The Chairperson asked DHS to respond specifically to the NT claim that three meetings were requested, and that the Department did not attend.

Mr Chauke replied that last week’s meeting was not held because the DHS was busy preparing for the meeting this morning.

The Chairperson said NT spoke of three meeting requests, and one of those was soon after the August joint meeting of the Committees.

Mr Chauke replied that the Department had various exchanges with NT, via e-mails and cellphones. There were ongoing discussions, but on some areas the two departments disagreed on how to handle situations. He had evidence of regular communication happened with NT, but the relationship with NT was strained.

Mr Gelderblom interjected and said meetings on cellphones and e-mails would never work.

Ms Mashigo believed that another meeting must be arranged to deal with the matter, to ensure that this Committee did not lose its focus, which was how DHS should spend the money. This Committee did not even have a report on what was required

Ms Yengeni agreed, and suggested that the Committee should meet with NT on rollover funding, with a particular focus on RHIG. This was an important issue, and she reiterated that it would have a negative impact during canvassing for elections.

Mr Chauke replied that most grants started with low spending at the beginning of the financial year, but gained momentum once all contractors were in place, as money would be needed once they started wording. The total value that was forfeited to NT was R208 million. The R70 million was not approved despite the Department providing evidence that it had committed the funds. Letters confirming the contractual obligations were issued to IDT and Mvula, giving them permission to appoint private contractors to start work on the projects. He submitted that evidence was provided to NT. DHS had lost that value, despite having committed itself to spending millions, that it now did not have. He pleaded that NT should find it in its “good heart” to approve the rollover.

The Chairperson requested Mr Chauke to focus on the proposals that were made.

Mr Chauke reiterated that DHS had plans and would be able to spend the balance of the money that was available to it via the RHIG. The amount of money forfeited could have built 20 000 toilets for rural people. The Department had scheduled a meeting with DWA, but the Director General of NT was a very busy man. He said that RHIG had an impact on the ground.

Mr Ramatlakane said he was very worried with the responses the Committee got from DHS. Members were being told that Directors General were unable to meet to deal with important issues concerning the poor. There were structures, including FOSAD, where officials could meet.

He noted that this Committee needed to deal with the expenditure on programmes. Anything else concerning operations was to be discussed at another forum. He pointed out that all the issues now being outlined could well have been dealt with at other platforms. He pointed out that NT needed solid evidence in order to act. Whatever was granted must be given against tangible proof of what DHS was doing, and had nothing to do with whether or not NT should show a “good heart”. He was not convinced that DHS had shown a plan that proved its ability to spend the money. In his view, there was some measure of liability attaching to both DHS and NT. DHS had not demonstrated, to the satisfaction of NT, that it had the capacity to spend. He suggested that the R138 million issue needed to be closed.

Ms Yengeni said there was a need to meet with the Ministers and Director Generals of both National Treasury and Human Settlements, in order to fully understand issues. The Committee was concerned about under spending.

Mr Steven Kenya, Director: Fiscal Framework, National Treasury, said although NT had been trying to meet with DHS, that did not stop DHS from doing other work on sanitation. Operations and maintenance was a major issue with the sanitation portfolio. NT was currently reviewing the local government equitable share formula, and the Committee would be more fully briefed on that. In brief, however, the new formula proposed a subsidy for each poor household, for the maintenance and operations cost associated with sanitation. NT was also looking to review all of the infrastructure programmes, using the 2011 census results. The census data would be used to understand which municipalities had made progress. There had been increases on the Ventilated Improved Pit (VIP) toilet system, from 600 000 to over one million.

Closing remarks
The Chairperson said it was very rare that departments would fail to meet after being instructed to do so by the Committee. This was disrespectful to the Committee and Parliament. The Committee might have been more inclined to overlook it, had the issue affected the officials, but it did not. He noted that DHS had not responded to NT’s comment that invitations had been sent three times, asking for meetings. He was not sure, however, whether it needed to be elevated to Ministerial level. Instead, he insisted that DHS must decide when it would meet with NT.

Members of this Committee wanted to see its plans. The programme must succeed. The Committee needed to be informed of challenges. The “us and them approach” must cease. He requested that the officials meet urgently to address the RHIG issue. The issue of capacity at the implementing agents – IDT and Mvula – had to be considered, and DHS needed to consider bringing other contractors on board. The Committee was essentially interested in delivery.

The Chairperson also commented that the fact that 52% transfers did not actually translate to expenditure, because all it meant was that the money was no longer with the DHS, but someone else. DHS needed to look at increasing its real expenditure, given the importance of its programmes.

The meeting was adjourned.