Appropriation Bill [B1-2013]: Department of Public Works briefing

Standing Committee on Appropriations

23 May 2013
Chairperson: Mr E Sogoni (ANC)
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Meeting Summary

The Department of Public Works (DPW) briefed the Committee on its Appropriation Bill for 2013/14. It reported that corruption and mismanagement had left the Department without an unqualified audit for eight years. Last year, it had embarked on a turnaround strategy that had focused on six key areas: reducing fraud and corruption, conducting an audit of leases, establishing a lease management framework, ensuring improved audit outcomes, developing a register of state immovable assets, meeting the needs of prestige clients and operationalising the property management trading entity, according to the its mandate. These projects had been underpinned by improvements in processes, systems and structures, as well as a programme to develop both technical and professional skills.   

The DPW had allocated budgets to the Administration Programme, the Immovable Asset Management Programme, Expanded Public Works Programme, the Property and Construction Industry Policy Regulation Programme and the Auxiliary and Associated Services Programme.  An amount of R3.5 billion had been earmarked for the current year. A significant amount under the Administration Programme budget had been allocated to the following sub-programmes: the Corporate Services unit (R11 million) and the Finance and Supply Chain Management unit (R104 million). Under the Immovable Asset Management Programme, a budget of R1.2 billion had been allocated to the Operations Management unit and R80 million to the Projects and Professional Services unit. These units would deliver, among other things, construction projects and a business case for property management and implementing the lease review turnaround recommendations. A total of 506 projects on the infrastructure plan had been funded.

So far the Expanded Public Works Programme (EPWP) had achieved 68% of its five-year target of 4.5 million work opportunities. For the financial year 2012/13, the programme had created about 942 000 work opportunities. This constituted 78% of the target of 1.2 million work opportunities for that period. Three provinces, Eastern Cape, Mpumalanga and Western Cape had over-performed against their 2012/13 work opportunity targets. Northern Cape had achieved 99% of its target. Three provinces had achieved more than 70% of their 2012/13 target: Limpopo, Gauteng and KwaZulu-Natal.

Six provinces had spent more than 95% of their Social Sector Expanded Public Works Programme Grant allocation, while three provinces had spent less than 80% of their allocation. The DPW, as the transferring Department, had reflected a 100% disbursement. In terms of the EPWP’s integrated grant to provinces, 100% of the grant had been disbursed and 90% of the grant had been spent by the eligible provincial departments. However, in terms of integrated grants to municipalities, only 53% of the grant had been spent by the eligible municipalities.

The Department briefed the Committee on the problems that had caused it to default on its regulation to pay suppliers within 30 days. The key obstacles were a lack of awareness, poor compliance, insufficient monitoring of the payment process track and the manual method used to submit and process invoices. Interventions that had been employed included analysing data submitted by regions to get to the root causes, and road shows undertaken by the Minister. A paper trail had been activated as the invoice management system, which would come into effect on 1 July 2013.

Members were concerned that the Department had become a cash cow for consultants and clients alike. Members asked whether the DPW had aligned themselves with the Department of Monitoring and Evaluation to assist them with their monitoring and evaluation programme. What consequences would be imposed if suppliers’ invoices were not paid on time? How could the DPW be sure that what had been reported and achieved was accurate? Was the quotation system working? What role did the Small Enterprise Development Agency play in helping with late payments?

The Chairperson said the Committee should engage with the Director General of the DPW.   It needed to ensure that the Department was making progress, so that it would improve on its audit performance next year.
 

Meeting report

Briefing by Department of Public Works
Mr Mziwonke Dlabantu, Director General (DG), DPW, briefed the Committee on the Department’s Appropriation Bill for the upcoming year. He said the DPW’s past performances had been characterised by corruption and mismanagement, evidenced by eight years of qualified audits as well as disclaimers in the past two financial years. He attributed this to a lack of controls in supply chain management practices, poor lease management, a lack of accountability from their regional offices, a lack of an appropriate accounting platform for their property management trading entity and the inadequacy of the immovable asset register. Last year, the Department had embarked on a turnaround strategy that focused on six key areas:

Reducing fraud and corruption
The Department had always been undermined in this area by inadequate controls and processes, especially in the supply chain environment. So far the Department had created a structure to oversee process, investigation and advocacy.

Conducting an audit of leases and establishing a lease management framework
The DPW had been managing a portfolio of 2 788 leased properties across the country.  It had reviewed leasing business processes, policies and strategy, and addressed lease backlogs. Challenges had been experienced in sourcing information and documentation for the lease review. At this stage, only 42% of floor plans and contact details were in place, resulting in the project being four months behind schedule. To date, 100% of the 2 788 leases had been reviewed. Of the 2 788, 1 316 were leases that required completion, revision or renewal. These were regarded as backlog leases. Of the backlog leases, recommendations had already been made in respect of 365 leases. Recommendations for the remaining 951 leases would be in place by 28 June, 2013.

Ensuring improved audit outcomes
The Department had appointed a clean audit team to clear the negative audit findings in the finance and supply chain areas. Payment of suppliers within 30 days had been identified as a priority. Verifying expenditure, which involved the inspection of every transaction in terms of payment and compliance with supply chain management policy, had also been identified as a key priority.

Developing a register of state immovable assets
The reconciliation of state land had been completed and the asset register had been updated for registered land parcels. These figures would form the basis of a physical verification process that would commence in July 2013. The completion of the immovable asset register (IAR) was aligned to the revised requirements of the Property Management Trading Entity (PMTE), which required the Department to have the IAR completed by 31 March 2015, with final adjustments effected by 31 March 2016.

Meeting the needs of prestige clients
A decision had been taken to centralise the prestige function, to implement a new structure and to create a direct reporting line to the Director General. This had already been accomplished. Clearing the backlog of outstanding prestige services had also commenced. Procurement processes had been streamlined to ensure enhanced service levels and the application of appropriate norms and standards. A new request logging process had been developed that assigned priority and associated turnaround times to different requested categories. This would be underpinned by the deployment of additional resources in both Cape Town and Pretoria.

Operationalising the (PMTE) according to DPW’s mandate.
The PMTE had been the source of many negative audit outcomes by the Auditor General. An interim operating model had been developed and implemented and, with effect from 1 April 2013, PMTE’s and DPW’s main account activities had been separated. A detailed business case for the final structure of the PMTE would be submitted to Cabinet for approval in July 2013.

The Department had allocated a budget for five programmes under review. These were the Administration Programme, the Immovable Asset Management Programme, Expanded Public Works Programme, the Property and Construction Industry Policy Regulation Programme and the Auxiliary and Associated Services Programme. An amount of R3.5 billion had been earmarked for the current year.  The DPW had outsourced services to consultants and other service providers in areas where there were inadequate internal skills and capacity to execute the work or address the current backlog. The service providers had been appointed on a fixed-term contract. Several categories of consultants and outsourced services had been operating in the Department (see report). The use of consultants was to be phased out as the Department implemented its new structure with the relevant core skills and competencies.

The Department’s readiness and strategy to spend its allocated budget were illustrated through various sub-programmes.  Under sub-programme 1, a budget of R211 million had been allocated to the Corporate Services sub-programme.  Key deliverables that were to be executed by this unit include compiling DPW’s HR plan, updating the Department’s organisational structure, developing four employee health and wellness programmes and vetting 100 prioritised personnel at head office. A budget of R104 million had been allocated to the Finance and Supply Chain Management sub-programme. This unit would be expected to develop supply chain management policy, directives, delegations, business processes and structure. Furthermore, a budget of R24 million had been allocated to the Internal Audit and Investigation Services sub-programme, R12 million to the Strategic Management Unit sub-programme, R4.4 million to the Monitoring and Evaluation sub-programme and R7.7 million to the Intergovernmental Relations and Parliamentary Services unit.  

Under sub-programme 2, a budget of R1.2 billion had been allocated to the Operations Management sub-programme.  Deliverables that would be executed by this unit include managing 2 778 private leases annually, developing a business case for property management and implementing the lease review turnaround recommendations. A budget of R80 million had been allocated to the Projects and Professional Services sub-programme to deliver, among other things, 300 construction projects, 40 000 work opportunities and 40 cooperatives. The Strategic Asset Investment Analysis sub-programme had received R47 million, the Inner City Regeneration unit R9.4 million and the Key Account Management unit R34 million.

The infrastructure sub-programme was made up of five project categories: department capital, accessibility, dolomite, land port of entry and prestige. The DPW had been mandated to execute infrastructure projects on behalf of other national government departments. A total of 506 projects on the infrastructure plan had been funded, in line with the stage of implementation per project. Quarterly reviews were undertaken on the infrastructure plan with a view to reallocating budgets in alignment with expenditure trends, and to make provision for new projects.

The PMTE revenue was generated mainly from rental income from government-owned buildings rented to client departments, and a management fee earned for the administration of municipal services accounts on behalf of clients. The PMTE managed the expenditure of leases entered into with the private sector on behalf of client departments. No management fee was collected, as the revenue equalled expenditure. The PMTE had not received an appropriation from National Treasury, except for the augmentation amount.  

Mr Stanley Henderson, Deputy Director General, Expanded Public Works Programme (EPW), said the goal of the EPWP was to create 4.5 million work opportunities for poor and unemployed people in South Africa. So far the programme had achieved 68% of its five-year target of 4.5 million work opportunities. For the financial year 2012/13, the programme had created about 942 000 work opportunities. This constituted 78% of the target of 1.2 million work opportunities for that period. Three provinces, Eastern Cape, Mpumalanga and Western Cape had over-performed against their 2012/13 work opportunity targets. Northern Cape had achieved 99% of its target. Three provinces had achieved more than 70% of their 2012/13 target: Limpopo, Gauteng and KwaZulu-Natal.

By the end of the fourth quarter of the 2012/13 financial year, the Social Sector EPWP Grant spending to provinces was as follows: six provinces had spent more than 95% of their allocation while three provinces had spent less than 80%.  The DPW, as the transferring department, had reflected a 100% disbursement. In terms of EPWP’s integrated grant to provinces, 100% of the grant had been disbursed by the DPW and 90% of the grant had been spent by the eligible provincial departments. In terms of the EPWP’s integrated grant to municipalities, 100% of the grant had been disbursed by the DPW.  However, only 53% of the grant had been spent by the eligible municipalities as at 31 March 2013. Measures that had been put in place to improve expenditure on integrated grants included technical support being provided by the National Department of Public Works, reorientation workshops with officials in the different public bodies, site verification visits to monitor the implementation of projects, and following up with accounting officers and financial officers to provide reports.

Mr Cox Mokgoro, Chief Financial Officer (CFO), DPW, briefed the Committee on the issue of paying suppliers within 30 days. The key obstacles that had defeated compliance with the 30-day payment regulation included a lack of awareness, poor compliance, insufficient monitoring of the payment process track and the manual method used to submit and process invoices.  Immediate interventions that had been employed included analysing data submitted by regions to get to the root causes, and road shows undertaken by the Minister to communicate with suppliers on the matter. The Department had also deployed resources to each region to obtain all outstanding invoices and to ensure that payments had been made. A week’s amnesty had been granted to staff to submit supplier invoices in their possession. Failure to do so would have resulted in disciplinary action. A weekly report had been compiled to reflect all invoices that had been submitted after the amnesty period expired. A standard letter was sent to all current suppliers to inform them of the centralised registry. A stamp had been issued to supply chain management with information about the registry. Registries would accept only invoices that had full back-up documentation attached. A circular had been sent out to confirm that a paper trail had been activated as the invoice management system. Training was provided to staff on the use of a paper trail. The system would come into effect for tracking purposes only on 1 July 2013.

Discussion
The Chairperson urged the members to be brief with their questions as the meeting had started two hours late. If there were questions that could not be answered because of time constraints, then it would have to be dealt with on another occasion. He suggested another meeting with the DPW.

Mr L Ramatlakane (COPE) said the immovable asset programme had become a cash cow for consultants to milk. He wanted to know what had been paid to consultants under this programme to date.

Mr Dlabantu said the biggest problem the DPW faced was that it was being milked as a cash cow. The challenge was to try to align expenditure and performance.

Ms A Mfulo (ANC) asked if the DPW had people on their staff to do in-house training. Had the Department been training up youth to become engineers in order to solve the massive infrastructure problem? If not, what partnerships had they struck with other organisations to address the situation?

Mr Dlabantu replied that the Department had already entered into partnerships with other entities to attract skilled people.

Ms Mfulo asked why there were so many consultants and outsourced services within the Department, as it defeated the government’s objective of creating jobs.

Mr Dlabantu replied that the DPW outsourced services because it had lost critical skills and a large number of employees. He hoped that the Department’s turnaround project would address this issue.

Mr Ramatlakana asked if any work had been done to manage cost escalations and to stem collusion among clients.

Mr Dlabantu replied that if the DPW discovered that there had been collusion among their clients, it would sue and recover the money. If there had been collusion between DPW people and outside people, disciplinary action would be taken if they were found out.

Ms Mfulo asked whether the DPW had aligned themselves with the Department of Monitoring and Evaluation to assist them with their monitoring and evaluation programme. How many of the 506 projects (Slide 56) which were funded in line with the stage of implementation per project, were new and how many were old?

Ms Mfulo asked why the DPW seem to be male dominated in their staff complement.

Mr G Snell (ANC) wanted to know what had happened to the Department’s report on the reason for the price of their building escalating.

Mr Snell referred to Slide 47 headed “public corporations and private entities”, and asked why the budget had been used in its entirety in that instance.

An ANC Committee Member asked what the Department meant with “border fences’ and whether it referred to posts or real fences. How was this applicable to consultants?

An ANC Committee Member asked what consequences were imposed if suppliers’ invoices were not paid on time.

Mr Ramatlakana voiced his concern over the planning and management of the reports. How could the DPW be sure that what had been reported and achieved was accurate?

Mr Ramatlakana wanted to know if the quotation system was working.

Mr Ramatlakana asked if the DPW had the capacity to do what was promised, given the technical nature of the work. How long would it take to appoint senior personnel? What role did Seda (Small Enterprise Development Agency) play in helping the Department with late payments?
An ANC Committee Member asked how the DPW managed under-performance. Had all performance agreements been signed?  Did the Department follow up on those provinces that had underspent? How far was the Department with the completion of the asset register?  Would the Department have a complete and reliable asset register by 2014? How could the Department be sure that the manual method of following up on invoices was fool proof?

Mr Dlabantu said he would provide written responses to the rest of the questions, as suggested by the Chairperson.

The Chairperson said the DG would have to provide the answers by 31 May 2013.

Conclusion
The Chairperson said the Committee needed to engage with the DG as the DPW was an important entity. The Committee needed to know that the Department was making progress, and that it would improve on its audit performance next year.

The meeting was adjourned.
 

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