Audit outcomes of Department of Human Settlements for 2013 & First Quarter Expenditure Performance

Meeting report

Opening remarks
The Chairperson welcomed guests and said the agenda consisted of two items. The Committee would receive a briefing on first quarter performance for the Department of Human Settlements (DHS), as part of preparing for the Budgetary Review and Recommendations Report (BRRR) process. The previous year, Chapter 9 institutions like the Auditor General (AG), Public Service Commission (PSC), SA Human Rights Commission (HRC), The Public Protector (PP) and the Fiscal Financial Commission (FFC), had all raised performance concerns. All these institutions undertook evaluation work on behalf of the Department and the intention was to complement what the DHS was doing. The Committee hoped there had been improvements on the issues raised. The AG would shed some light on the kind of response from the executive, as well as on the impact of the oversight by the Committee. The issues were not just raised for the sake of raising them, but to ensure good governance, service delivery, and that good value was generated from the appropriated funds. It was crucial that funding appropriated by Parliament was utilised effectively. The work of the Chapter 9 institutions helped to intensify Parliament’s work.

AG presentation
Mr Andries Sekgetho, AG Senior Manager: DHS Portfolio, said the presentation was a snapshot of where the human settlements portfolio stood. The notable change in the portfolio was the addition of the Estate Agency Affairs Board (EAAB) to the entities administered by the DHS. He clarified the significance of colours in the presentation: yellow represented financially unqualified with findings on predetermined objectives, or compliance with laws and regulations; blue represented a qualified audit opinion, where only the financial statements were qualified; grey represented those that had not been finalised; and the red was an adverse audit opinion.

In terms of the Public Audit Act (PAA), the office of the AG should give an opinion on the financial affairs, compliance, as well as performance of the entities. The Department had achieved an unqualified audit opinion with matters of emphasis; this was the same as the previous year. The DHS was financially unqualified, but with findings on predetermined objectives and compliance.

The National Home Builders Regulatory Council (NHBRC) had improved its financial opinion, from last year’s qualification. The entity had avoided that qualification this year. The rest of the portfolio had remained the same, except for Thubelitsha and Servcon -- their statements were outstanding by the time of finalising the audits. It was also worth noting that the two entities were in the process of being liquidated. This was noted as a regression, because it had been outstanding at the time of the reporting, but once those audits were finalised, that would be tabled in Parliament.

In the portfolio of Human Settlements, only two entities – the DHS and the NHBRC – were audited by the AG. The rest of the entities were Section 43, who in terms of the Act, the AG opted not to audit and were audited privately. The Department had issues with usefulness of information – one of the criteria used to measure performance. DHS’s plan contained targets and indicators that were not included in the performance report. There were consistency, presentation and relevancy issues in the plan. Reporting in the plan was a challenge, as it did not give accurate information; reporting ought to be done regularly on the progress of the actual performance. The AG had found that this reporting process had invalidated some of the targets and rendered them irrelevant. That had been addressed, in line with what the entity was about.

The DHS had moved in the right direction on reliability, but had encountered pitfalls.  The AG would like the Department to be able to report on what the sector had done, but it also had to play a consolidation role. One should be able to take the DHS’s annual report and have a sense of how the entire portfolio had performed.  In trying to achieve this goal, the Department had included certain key targets in the annual performance plan. It had reported on some of those targets, but the challenge was the lack of the supporting evidence from the entities. DHS had consequently reported on things it could not get information on, from entities and provincial departments. This had contributed to the DHS obtaining a qualification on reliability of information.

With regards to compliance, the Department was able to curb findings with regard to supply chain management (SCM). DHS did not incur irregular expenditure worth reporting in the financial year. Last year, DHS did not have a human resource (HR) plan, as required by DPSA, but had since drafted the plan and it had been approved. The Department still had a lot of funded vacant positions. There was an issue with payroll certification that had not been done on time, and that had a potential to open up the system to ghost workers. Payroll certification was a control mechanism for management to ensure the Department did not pay ghost employees. Sadly, this control mechanism currently was lacking at DHS.

Expenditure management was another challenge at the Department. He cited the Rural Household Infrastructure Grant (RHIG) programme, where large sums were transferred, without a mechanism to verify whether what was paid for had been delivered. Before one made any payment, one needed to have a prescriptive clause, to indicate work would be evaluated prior to payments, and therefore one needed to have a process of evaluating the actual work in place. DHS ran the risk of having to pay for work where there was no value received; in the books, DHS would record expenditure. Under assets management, the AG noted the lack of monthly reconciliation controls, particularly with regard to sanitation and capital expenditure assets. This finding had been in DHS annual reports for the past three financial years. It got reported again, because the recommendation from last year on monthly reconciliation had not been implemented.

The AG had recommended last year that the Department prepare monthly financial statements, even though they were not mandatory in law. The monthly financial statements were only required to make quarterly reports to National Treasury (NT) and to the Committee, but they assisted the process of auditing at the end of the year. The AG believed monthly statements were crucial, and would help entities to becoming better at financial management. When an action was done repetitively, chances were that entities would improve in the skills required. At the end of a financial year, entities would not be stuck with volumes of work, having to reconcile for the whole year in two months with a huge risk of missing certain things. It would merely be a matter of consolidating what had already been done throughout the year. And this kind of an exercise did not require additional capacity. This was the summary of the materially significant findings that the AG had noted in the audit report.

DHS was also challenged by the lack of oversight from leadership to ensure that financial performance and operations at entities happened without hiccups.  Annually, departments and entities compiled action plans, but often these did not comprehensively address the findings. These action plans were implemented quite late in the financial year, thereby resulting in the same findings recurring.  DHS had an action plan, but it was not addressing the issues that it should have addressed. The AG had previously requested that the Department brief the Committee quarterly on progress and implementation of the action plan. He was not sure if this had happened. But the AG felt the action plan was inadequately monitored, and that it resulted in the repeat findings.

Ms G Borman (ANC) sought clarity on the yellow arrows that appeared in one of the graphs, and asked if they had any significance in relation to the main findings. It would be important to the Committee if results of the entities audited privately were reflected in the graph as well.

Mr Sekgetho replied that the colours in the arrows certainly had significance and that what they meant was indicated in the leader-board at the bottom of the graph (see above explanation on colours). The detail of the other entities was also elaborated on in the graph.

Mr S Mokgalapa (DA) sought clarity on why entities would be audited privately, if the final report would be compiled by the AG. Was it legislated that the entities did not have to report to the AG? This kind of information would assist the Committee in understanding the issues that were there, and would enable Members to ask why entities would refuse to work with the AG when it came to audit outcomes.

Mr Sekgetho replied that when he made reference to entities not required to report to the AG, he simply meant financial statements. The Public Finance Management Act (PFMA), stated that if an entity was compelled to comply with the Act, that entity should produce its financial statements. Section 55 of the PFMA, depending whether one was a department or an entity, said those entities would have to submit the financial statements to the office of the AG to audit. The AG preached monthly compilation of financial statements so that by the time the annual reports were compiled, at least entities were familiar with the process. That would allow them to produce more reliable and complete financial statements. The mandate in terms of the PAA was for the AG to do a full briefing of the audits, whether done privately or not, to the Committee so that it could exercise its oversight responsibility.

Mr Mokgalapa sought clarity on how much of a challenge reliability of information would be with those entities that had been privately audited, given that the entities failed to do monthly reporting on their financial statements. How that could be dealt with?

Mr Sekgetho replied that all auditors complied with the minimum accounting standards, and that it did not make a difference if a report was conducted by the AG or an independent accounting firm. The methodology was approved centrally by an oversight body in the profession. The controls and checks and balances that auditors complied with were the same.

Mr Lourens van Vuuren, AG Business Executive: Entities, clarified that the relationship between private auditors and the AG was dealt with in the audit directive that the AG issued in terms of the PAA. The Act stated that the AG could opt not to audit some of the entities. What private auditors needed to comply with was spelt out in the audit directive.  Auditors were told exactly how they ought to audit performance information.  For the past four years, the AG had also been addressing the issue with the format of audit reports.

The Chairperson pointed out that reference had been made to Thubelitsha and Servcon, which should have been closed down long ago.  She asked how long the liquidation of the two institutions should take. Liquidating the two entities should have been long done with.

Mr Van Vuuren replied that this was indeed taking longer.

The Chairperson interjected, and said it had been six years already.

Mr Van Vuuren replied no one was still employed by the two entities, as the employees had already been deployed to other entities. He suggested that the Department, as it was still responsible for both entities, should prepare a presentation to the Committee on progress and an action plan that would wrap up the process of closing down the two entities. It was certainly not a desirable situation that liquidation should just go on and on.

Mr Sekgetho said another issue that the AG also wanted to share with the Committee was the organisational structure of the DHS. A number of changes had taken place over the past financial year. But a concerning matter was the fact that an audit executive had been acting for six months at DHS.  The challenge with appointing people in an acting capacity was that positions remained vacant. In senior management, the post of another Deputy Director General (DDG) - Mr Neville Chainee – had become vacant. In achieving targets, entities required resources and personnel. There should be a clear link between the targets and where the money was being spent. This was the reason that with the performance information, the AG emphasised a strategic plan that was clearly linked to the budget, as well as to the human resources (HR) plan. The connection had to be very clear on the amount of money required to meet targets and the kind of skill that a department or an entity had. Under HR, performance agreements should be clearly linked to the strategic plan.

There had been improvements in SCM at the Department, but they still incurred some minuscule irregular expenditure. The amounts involved were so insignificant to the point that they did not require reporting or red-flagging.  The finding on SCM centred on the appointment of service providers for the Rural Household Infrastructure Grant (RHIG) programme.  The AG had gone for technical consultation in the terms of reference, and although open for different interpretation, they were found to be compliant, hence the Department could not be qualified on irregular expenditure with regards to the appointment of the service providers. There had been a regression on the predetermined objectives.

There was no improvement in the HR management, but DHS now had an approved plan. Still, the Department was challenged by a high vacancy rate. There was no improvement in the IT controls from the previous year. These issues were repeat transgressions and there appeared to be a lack of ability to implement AG recommendations from the previous financial years.

Mr Sekgetho requested the Committee to instruct the entities to produce monthly financial statements. This would ensure that the AG’s model worked and would guarantee a move towards clean administration. The Committee should also insist on action plans that adequately addressed the shortcomings. Such action plans should be reported to the Committee on quarterly basis to ensure that implementation was tracked and traceable.

The Committee should also request the entities to start punishing transgressors. Normally, the process involved the AG, who identified the findings and forwarded them to internal audit who subsequently investigated with a view to determining whether there was a malicious intent. Internal audit would make a recommendation to the accounting officer. This would be forwarded to HR if there was an action to be taken. The risk in this process was that by the time the process got to be finalised, an entity would be sitting with the same transgression in its next annual report. This process should be shortened to ensure proper action against transgressors.

The AG was also calling for the rigorous review of quarterly reports when presented to Parliament. Lastly, the Department and the entities should be encouraged to use the AG’s monthly key control assessments.  This was a good tool to use as an early warning system.

Discussion
The Chairperson sought clarity on the Housing Fund that had been referred to in the presentation.

Mr Sekgetho replied the SA Housing Fund was a dormant entity and was no longer operational. The entity was in the process of being wound down now.

Mr Van Vuuren clarified that when the Division of Revenue Act (DORA) had started, there had been no more use for the Housing Fund, even at a provincial level. In terms of the National Housing Act, provinces were supposed to establish their own housing funds and own housing legislation. Some provinces did, and others did not. With the implementation of the DORA, that mechanism for funding to build houses was no longer needed. The Housing Fund was dormant -- there was R38 million rand lying in its account. DHS had indicated in negotiations over the years that the only way to really close the entity was to amend legislation to no longer make provision for the Housing Fund, as it was only then that the Fund would be wrapped up. The Department had indicated over the years that it considered doing that; it was not ideal for Government to have money lying in private accounts.

Mr C Mathale (ANC) commented that it confused him that the presentation had talked about significant deficiencies in internal controls at DHS and NHBRC, while it glorified leadership at the institutions.

The Chairperson concurred and said this was indeed a contradiction. The AG could not mention good leadership in the same report that contained so many red and yellow blocks, typifying adverse findings in accounting. What did good leadership mean if the Department and entities attained yellow and red blocks?

Mr Sekgetho clarified the issue of leadership and the red blocks in the graphs. The graph indicated the exact kinds of internal control deficiencies that were there.  Leadership was evaluated on all the aspects and then an overall result under leadership was given. The AG’s checklist looked at the code of conduct, and whether there were any known cases of fraud in the Department. From that point of view, one could not accuse the leadership of committing fraud. The report simply looked at the code of conduct from an ethics point of view, and did not look at issues like failing to exercise oversight responsibility. The reference to good leadership was just one component within the overall leadership assessment.

Mr K Sithole (IFP) congratulated the AG and sought clarity on unaudited supplementary schedules. What were these, and how helpful were they to the Committee if the AG had not expressed an opinion?

Mr Sekgetho replied the AG’s office simply received financial statements containing the figures. This was the information that was important, as it spelt out how the money had been spent and where it was utilised. This was the annual report, and not the annual financial statements -- the annual reports contained other information which the Department might wish to disclose to give the users more information on what the Department had done. The AG did not audit the entire annual report, but only the financial statements, and then reviewed the annual report to ensure the information was not materially inconsistent with what was contained in the audited financial statements. Sometimes the entities would include supplementary schedules to the financial statements to give a further breakdown of the transfer payments that had been made.

Ms Borman commented that the AG had the Committee’s support on the issues it wanted the Committee to address, including instructing entities to prepare monthly financial statements. The Committee had noticed a big improvement in the Department regarding their quantifiable targets, but some more improvements were still necessary. The targets set were extremely important.  Of the 146 targets set for the year, 68 had not been achieved. This was a huge amount, and needed to be dealt with.

Mr Sekgetho replied in order for an entity to be unqualified the figures needed to balance, and the financial opinion needed to be clean, with no findings on predetermined objectives and compliance. What tended to happen was that entities obtained a clean audit opinion and yet there was no service delivery and they were not achieving targets. The office of the AG had decided to include the paragraph that outlined the targets. This was mainly to alert the user, so that the user could go and verify. Not achieving targets was linked to the issue of vacancies; because there were no warm bodies at entities, material under-spending resulted. Funded vacant posts in entity’s organograms resulted directly in under-spending and missing targets.

Mr R Bhoola (MF) said although the Committee welcomed the areas of improvement, there were glaring contradictions in the report. He sought clarity on why the AG would say, legislatively, entities were not compelled to provide monthly financial statements and yet see fit to recommend that the Committee order entities to provide such statements. He asked how the AG’s concerns could be translated into solutions.

Mr Sekgetho replied that many Committees in Parliament had raised the issue about the AG being able to help departments and entities achieve clean audits. However, auditing was a very retrospective process -- auditors came only at the end of the process, and by the time they highlighted what had happened, it would be already too late. The office of the AG had a number of interventions to help entities achieve clean governance. One such intervention was the quarterly key assessment, where the AG visited entities on quarterly basis to look at key controls that were considered to be the minimum requirements. There also were quarterly sessions with the Ministers.  The new Minister (Ms Connie September) had already been met and had been provided with a list of commitments that the AG required from her Department.

The Chairperson interjected and commented if the AG visited entities every quarter, then such visits were not having an impact. Something was wrong.

Mr Sekgetho said he would have to let the Department reply to that. Another intervention was the review of the annual performance plan (APP) before it was submitted to Parliament. The intention was to ensure there were no findings on usefulness of the targets, as being not SMART. It was still the management’s decision to review or not, but the majority of the recommendations were implemented. The entities in the portfolio met with auditors regularly and were provided with the requirements for the auditing process. Another high level intervention was the interaction with the Committees.

Mr Mokgalapa said regression, and the serial offending of the Department, was concerning. Although the AG indicated DHS had improved on the SMART principle, this had not translated into quantifiable targets; Members had always been requesting correct projection of targets. What should be done, especially now that the AG was claiming that 60% of the recommendations from last year had not been implemented. The IT matter and the internal controls had always been shown in the red blocks, which meant the Department was challenged with leadership. The Committee supported the AG’s recommendations, and would take up some of the issues.

The Chairperson agreed that the Committee would support the commitments that had been requested by the AG. The Department had been requested to address Members at the Chapman’s Peak meeting on how it had progressed with implementing the AG’s recommendation.   The DHS would have to respond the following day when it presented its annual report. The action plan was there, and DHS had indicated it was reacting to most of the recommendations, contrary to what the AG had just said. The implementation of the recommendations would certainly be brought up tomorrow. The Committee had emphasised the need for entities to prepare monthly financial statements as well.  It would appear that this too had been ignored, and Members should take it up with the Department.

Ms J Sosibo (ANC) noted the AG had indicated that the report on the procurement process for the RHIG programme had not been finalised when the annual report was compiled. Why had the report not been finalised, given that it was commissioned over a year ago?

Mr Sekgetho replied that the request had been received from the former Minister (Mr Tokyo Sexwale) but there had been challenges at the initial stages, particularly with regard to finalising the engagement letter. Once one started in engaging in such a task, one should set forth clearly what needed to be captured in the engagement letter.

The Chairperson said the AG needed to provide the Committee with a report on the use of consultants by the Department. The matter had been raised vociferously, and yet the DHS had opted not to include the issue in the annual report.

Mr Van Vuuren replied he had noted the point. There had been intensive engagements with the DHS on the audit on the sanitation projects. There were technical issues that had to be clarified. But DHS had indicated that the report was in the final review stages, and that it would be finalised soon.

Ms Sosibo wondered aloud: “How soon?”

The Chairperson said the Committee wanted that report urgently.

Mr Mathale commented that the Committee appreciated the presentation, and agreed with what the AG had recommended. He pleaded with the Chairperson that the Committee follow up the issue of the targets that had not been achieved, otherwise there would not be any improvements.

DHS presentation
The Chairperson said the Department had brought additional information to supplement the presentation, as requested by the Committee. However, the Minister had instructed that the second quarter performance information not be tabled, as she had not approved it. The programme for the meeting had been reviewed and the second quarter report had been taken out.

Ms Sindisiwe Ngxongo, Chief Operations Officer (COO): DHS, said the overall achievement of the Department stood at 65% -- out of 118 targets for the quarter, 77 had been achieved. When comparing the figures with the previous financial year, there had been a slight improvement. Targets not achieved had not been included in the presentation. Reasons for non-achievement included the State Information Technology Agency’s (SITA) failure to deliver the required services as per the service level agreement (SLA).

Mr Thabane Zulu, the Director General (DG) had been scheduled to meet with the SITA, but that had not happened and the DHS had as a result decided that it would engage the private sector for purposes of the procuring an IT system. The DG would communicate this stance to the SITA management. The DHS could not continue reporting on the SITA matter. The Department was nevertheless still engaged with SITA in order for them to sign the revised SLA. This would enforce SITA to comply, and that would result in improved performance.

Another challenge confronting the DHS was the non-availability of suitable land for human settlements development in the provinces. The Housing Development Agency (HAD) had been tasked with this function. Going forward, it had been agreed that entities, including the HDA, would form part of the technical MinMec (Ministers and MECs’ meetings) agenda. This would ensure coordination, and shortcomings would be picked up early.

Insufficient active monitoring of the grants – the Urban Settlements Development Grant (USDG) and the Human Settlements Development Grant (HSDG) – was a challenge. The Department was addressing the issues relating to the grants, and there would be an improvement in future.  The DHS had a high vacancy rate and had undertaken to fill posts speedily. There was a challenge with the verification of the qualifications by the South African Qualifications Authority (SAQA). An SLA with SAQA had been signed in an attempt to address the turnaround time for verification. The turnaround time had previously been two months, but that would soon change to two days.

The Department would fill the vacancies of senior management, as they were required to be involved in the recruitment of junior staff. The vacancy rate issue was being presented on a weekly basis at executive management meetings, where progress was being monitored. There had been progress -- of 210 vacant positions at the end of the first quarter, 155 were in the process of being filled. Included in the 210 were the employees who had resigned during the year.

Remedial measures put in place to improve performance included compulsory training on bid specifications, evaluations and adjudication, from the level of assistant director and upwards. This had been highlighted as an area of concern. A special committee had been established to closely scrutinise the terms of reference when the Department wanted to go to tender. Challenges relating to intergovernmental collaborations had been addressed. These challenges impacted on policy development processes and service delivery. The DHS should engage with stakeholders. There had been an improved compliance by provincial departments and usefulness of the HSS data.

The next remedial action was providing sufficient monitoring presence in provinces and metros to reduce the turnaround time in the collection of information on performance.  The DHS had approved guidelines to standardise and guide the implementation of the People’s Housing Projects (PHP) across the sector. The Department had also gone on a full-scale implementation of the departmental AG’s action list, looking at the non-compliance issues cited.  As the DHS reviewed the performance, it also highlighted the areas that had been raised by the office of the AG.

Suspect numbers
Ms Ngxongo took the Committee through detailed tabulated information on its delivery targets.  The information on Outcome 8 was accumulative, and the DHS had been reporting on it with a view to underscoring what it had delivered during the first quarter. She said 188 056 households had benefited from the RHIG since 2009. This represented 27% of the 2014 target, and when one included the performance of the USDG, the figure increased to 255 000 households. In percentage terms, this represented 63.9%.

The Chairperson interjected, and said she was confused by the statistical data. She disputed the figures and said it was not clear from which grants delivery figures had been given. She cited the upgrading of informal settlements, where it was indicated that the money utilised was from the USDG. Officials would be engaged on these figures at some other time.

Ms Ngxongo replied that the table the Chairperson had cited was comprised of numbers of housing units delivered per province from 2009.

The Chairperson disapprovingly said: “From 2009?”

Ms Ngxongo replied: “Yes.”

The Chairperson said this was all confusion. The target that the sector had agreed on upgrading of informal settlements had been set by the President, and was 400 000.  She sought clarity on whether the 4 000 units delivered from April-June 2014 included top structures or not.

Ms Ngxongo indicated this was indeed the case.

The Chairperson sought clarity on where in the report there was reference to security of tenure, as uttered by the President. Too much focus had been given to upgrading, rather than building new units.

Ms Ngxongo clarified the confusing slide, saying this was the delivery of the metros within the provinces of Gauteng, EC, FS, WC and KZN.

The Chairperson interjected, and sought further clarity on how provinces reported as, according to her, the current reporting was unclear and prone to double counting.

Ms Ngxongo replied there was no double counting in the figures on slides 11 and 12.  The DHS had indicated previously that there was an element of under-counting; this was the reason delivery had been separated from each province.

The Chairperson said the officials did not understand her question.

Ms Funani Matlatsi, Chief Financial Officer (CFO): DHS, said the understanding from the beginning was that the 400 000 was reference to households who had benefited. This needed to be corrected, because it might not necessarily be units, but households that had benefited. The slide indicated that what had been counted were the figures of the USDG, including the HSDG.   The DHS had indicated there was no point in saying only the USDG households had benefited. The issue of the USDG had been brought to the end of June 2013.  Whilst there was a target of 400 000 households to benefit to date, including both the USDG and the HSDG, 188 056 households had benefited.

The figures had been separated to indicate that 4 244 households had been achieved in the quarter. As a percentage figure, the DHS was at 47% and was not proud that it had not achieved at least 50%. This was the combination of the two grants in terms of the upgrading of informal settlements through the units, the households that had benefited, as well as those that had benefited in terms of sites and services. When figures were extracted for the USDG alone, about 77 000 households had benefited; and if that was added to the 188 000, one ended with the figure of 255 00. The USDG had been used for top structures, and that had been added as well.

Mr Mathale commented that he was still not clear, especially given that in the previous meeting it had been indicated that the USDG was an infrastructure grant only.

The Chairperson said the confusion that needed to be clarified was over the use of the word “household”. The reporting in the report was problematic. The DHS could not, when it suited it, say that the President had proclaimed 400 000 households should benefit and, when reporting, refer only to units delivered. How did one align household and the units in the reporting, she asked?

Mr Mokgalapa agreed, and said the Chairperson’s concern was legitimate. There was a potential for double counting. He sought clarity on the statement that the 188 000 was inclusive of both grants, and 77 000 was from the USDG alone. He asked if the provision of the top structure only meant green-fields, or the brown-fields.

Ms Matlatsi said this was Outcome 8 information. The DHS had had lengthy discussions on this kind of reporting, and had also been taken to task by the Presidency. There was an element of not counting to the point where the DHS wanted to. It was possible that the Department might have counted less.  It would be ideal for the Department and the Presidency to go back and relook the issue of reporting. The Department needed to go back and look at this matter. Reporting was a challenge, and together with the Committee, the DHS ought to decide on how best to report.

The Chairperson agreed.

Defining households and units
Ms P Duncan (DA) asked how the DHS defined a household. Was this not what had led to all the confusion? If the household element could be addressed, it would be easy to decide on which grant to use where.

Ms Matlatsi replied that a household was categorised as a number of people occupying a house unit; a unit referred to a single house.

Mr Mathale stopped the CFO, and asked the policy executive to explain this difference.

Mr Martin Mapisa, DDG: Policy, DHS, replied that Members needed to understand that there was a family unit, and in one family unit one might find an extended family, but such a family could qualify as a household.  However, one might have an extended family in the same yard, staying in the backyard or garages. Sometimes there would be no formal unit, and people would be differentiated as those who had benefited from services, and not houses. If the rural areas were to be included, such a scenario could even be bigger and more complicated. In rural areas, a household might mean a block in terms of what was found in urban areas.  This was where there were disagreements.  The standard other departments used was lower than the DHS.

The Chairperson suggested that a day be set aside on the matter.  Africans had extended families, but in terms of government, there should be a standardised policy that clarified a number of people that constituted a household. The Committee would accept the report, but the DHS would still have to fix its reporting.

Mr K Sithole (IFP) said he was confused. The explanation by the CFO was simple, but the explanation of the DDG had plunged Members back into darkness. The suggestion for a separate day being set aside in order to understand the household concept was a good idea. In his understanding, his extended family were part of his household.

The Chairperson said this was typical of Africans, but the suggestion was that government should introduce a law that specified a number of people that constituted a household.   It could be five. The Committee was trying to set up a trend of reporting.

Mr Sithole quipped: “What if one had more than five children?”

Mr Mathale retorted: “There would always be variations where the number would be three sometimes, and ten some other times!”

Presentation continued
Ms Ngxongo explained that the objective of the National Upgrading Support Programme (NUSP) was to provide technical support. The Department was in the process of appointing a service provider to assist with upgrading strategies and plans. In the process, DHS wanted to determine the kind of assistance required by municipalities. This was being introduced in a phased approach, where certain municipalities were targeted. This process was currently under way.

The Chairperson said reporting needed to be accurate, and indicate that 49 municipalities were targeted under this programme. In fact there was nothing wrong if many more municipalities were added, as long as the reporting indicated this. There were a number of municipalities in Limpopo that were challenged with informal settlements that needed to be upgraded. But the Committee supported the Department on this.

Ms Ngxongo requested that information on provision of well-located land be tabled at the planned workshop. The Department had managed to accredit eight district municipalities on Level 1; eight metros and 11 district municipalities on Level 2; the implementation protocols had been concluded on 24 municipalities; and an assignment which was Level 3 of metros. The Financial and Fiscal Commission (FFC) had identified a number of operational issues that needed to be addressed on the Outcome 8 deliverables. The DHS was busy addressing such issues.

The Chairperson asked whether the issues that had been identified had been attended to. The FFC complained last year that it had not received cooperation from the Department.

Mr Mapisa replied that had happened during the first quarter. The proclamation by the premiers was under review, and dates were likely to change. There were 27 municipalities that the DHS had worked on cumulatively, and some of them were at areas level and were graduating from Level 1 to 2. Currently there were no municipalities that were graduating to Level 3, but the targeted metros were at an advanced stage of Level 2 and were advancing to Level 3 and to full accreditation. It might help to understand which municipalities were being considered for Level 3. A municipality that was Level 1 at some stage would graduate to Level 2. There were certain criteria that the FFC had indicated for measuring the processes.

The Chairperson interjected, and said the FFC and DHS had both been present at that meeting; the Committee wanted to know if the issues that the FFC had raised in relation to accreditation had been addressed.

Mr Mapisa replied before this quarter, the DHS did not have the FFC report. The Department had worked on recommendations, some of which had been addressed, and others were being attended to. There were conditions that should be attended to, and could be addressed within a financial year, and there were those that could take longer.

The Chairperson said that next week the FFC would be appearing before the Committee, and the item should be entertained then. The challenge was that the DHS had changed the accreditation policy without the consent of the Committee. The new policy had been requested early last year. This was a policy that would advance and enhance the objectives of government, yet Members had not had sight of it. The Committee had requested a full briefing on the policy before MinMec adopted it. Policies ought to come to the Committee first. But because DHS officials had disregarded the Committee, they had gone on and adopted it. The Department was implementing the policy now, and challenges were beginning to crop up. She failed to understand the involvement of premiers in accreditation matters; what business did premiers have with accreditation of municipalities?  What implications were there as a result of this?   Some municipalities would be accredited, only for the Department to take back the accreditation. This was the reason that necessitated a collaborative effort with the Committee, even if the roles were so distinctive.  The DHS should develop policies but at least inform the Committee, and understand the purpose of such policies.

Mr Wonder Nkosi, Chief Director (CD): Strategy Development, DHS, replied that the Department had not moved on with implementation, and it still awaited a date when it could come to the Committee and present the policy. Last week the panel appointed by the Department had briefed the Minister on this aspect and had compiled a report. This would be communicated to the Committee by the Minister.

Mr M Matshoba (ANC) interjected, and said this explanation was not satisfactory.  The involvement of the premiers was of great concern.

Ms Ngxongo continued, and said when it came to well-located residential land, the Department -- with the assistance of the HDA -- had already exceeded the target of 6 250 ha in this area of its work. The HDA was required to sign SLAs with the provinces.   The DHS worked with the Department of Rural Development and Land Reform (DRDLR), and where land was identified, the DRDLR supported the Department. Although DHS had exceeded its targets on well-located land for 2014, it would not stop.

The Department had been assisted by the National Housing Finance Corporation (NHFC) on the improved property market and the Mortgage Default Insurance (MDI) scheme. The NHFC had been instrumental in coming up with a delivery model in response to the announcement by the President. NT was also involved; the Department awaited their concurrence so it could move to the implementation phase. The President had announced this as a guarantee scheme, but subsequent studies had indicated that a capitalisation delivery model was more viable.

The Chairperson interjected and wanted to know the last time the DHS had met NT on the MDI scheme. According to the information that had been presented to the Committee, this issue had been resolved.

Ms Ngxongo replied she did not have the exact date. Concurrence was needed from NT in order to move forward to the implementation phase of the MDI scheme.

Mr Mokgalapa said at a meeting with the Deputy Minister of Finance (Mr Nhlanhla Nene), the Committee had been informed the matter had been resolved.

Ms Matlatsi said she did not know if the problem had been resolved. The last meeting had been when the DGs had met in the presence of the National Housing Finance Corporation (NHFC). There was still the element of who would take the risk, between DHS and the banks. This had not been resolved, so the DHS regarded the matter as outstanding.

Ms Ngxongo said the Finance-Linked Individual Scheme Programme (FLISP) would not be implemented per project, but would be accessible to individuals as per the advice of the Committee. The big four banks – First National Bank, Standard Bank, Allied Banks of SA, and Nedbank – were in support of the DHS when it came to tackling the matter of the gap market. Banks were worried about the National Lending Act and how it regulated the credit market. The Act spelt out the conditions of lending; it regulated against what was perceived as reckless lending. This was the challenge this sector was confronted with.

Financial performance
Ms Matlatsi said she would just indicate to the Committee how the Department had dealt with allocation in the financial year. The DHS had received an allocation of R28.1 billion, which was not much different to the previous year’s budget. The only thing that differed was that in this financial year, there had been a clearly marked allocation for disasters - R299 million – within the R16.9 billion apportioned for the HSDG. It would be important to come and present a report on how the disaster money had been spent. The rest was standard.  The DHS still monitored the grant performance relative the DORA and the government-wide monitoring framework.

Over the Medium Term Expenditure Framework (MTEF) there was a budget of R28.1 billion, and R32 billion in the outer year.   There was a generic increase of 9% in the budget, and it would remain within the R30 billion mark for the next three years. The DHS wanted to indicate that 97% of the budget went to metros, provinces and to the entities. The USDG took R9 billion of the budget. She gave a breakdown of transfers to entities, and highlighted that NURCHA had received an allocation of R100 million, and that there was no guarantee that the entity would receive an allocation for the outer years. The HAD had received R97 million, and this was only for the operational budget, and not for capital expenditure.

The Department should have been at thr 25% expenditure level for the quarter, but that had not been achieved. There had been slow spending.   The Department had decided against drawing money it would not be able to spend from NT. It had been agreed that spending should be projected at 17% for the quarter, and then the difference would be spread over the other quarters. The Department had undertaken to address issues that had been raised earlier around SITA and vacancies, as they had impacted negatively on spending. She took the Committee through the breakdown of the budget.

The Department had an operational budget of R800 million, 15% of which had been spent. Money had been withheld from Limpopo, as it was a high risk environment and its business plan was not effective. The DG, acting on advice from NT, had decided not to transfer to Limpopo until the governance issues had been resolved. Subsequently, a leadership decision had been taken to request NT to release funds to Limpopo because delivery had stalled in the province for the quarter, and the poor were suffering.

The Chairperson sought clarity on whether the DHS had assisted Limpopo to come up with credible business plans for the coming financial year.

Ms Matlatsi replied this had indeed been the case. The province had been assisted and its business plan had been adjusted. The DG believed that the funds that had to be released would have to cater for the six months of the amended business plans. She would personally sit with the province in its strategic plan next week. While no funding had been transferred, work had not stopped because the DHS had multi-year projects.

There had been challenges with the province of Mpumalanga earlier in the year, but these had since been resolved. There were issues that had been flagged in the business plans of Mpumalanga, and the Department could not have signed the business plan just for the sake of doing it. The feeling was that the targets the province had set were not achievable, and could not be measured. The province had been allowed in this financial year to put in their business plans the targets that had not been met in the previous two years.

The Chairperson interjected and said this was confusing to the Members.

Ms Matlatsi clarified that it had been indicated to the Committee before that money had been spent by Mpumalanga, but the DHS could not prove the sites and the units. This was to indicate that while the province had spent, the Department was not comfortable that the province had achieved its targets. When this had been verified by the national DHS, delivery sites could not be located, resulting in business plans for the province being cancelled. The business plans had not been informative, and were not fair and just to the Department.  The DHS had sat with the province and analysed their business plan, and agreed that all the targets that could not be achieved would be brought into this financial year. There were ongoing investigations in Mpumalanga (on the previous management that had been deployed elsewhere in the provincial government), and only the Premier could give more information on this. Once the Department had been satisfied that the business plan was credible, it had then started effecting transfers in July.

Mr Mokgalapa asked if NT supported the position to transfer funds to Mpumalanga.

Ms Matlatsi replied that NT agreed with the analysis of the Department, and had indicated that Mpumalanga would receive all its allocation.

Mr Mokgalapa asked if there was a peer review mechanism to monitor spending.

Ms Matlatsi replied that there definitely was.

Ms Matlatsi did not dwell on the reasons for under-spending, as they had been alluded to earlier. She indicated that most had come from last year, and that strategies were being put in place to address them, particularly the issue of the office space. If one looked at the issue of office space, it had also contributed to the vacancy rate, because there would not have been accommodation for staff.

The Chairperson interjected and requested clarity on the issue of accommodation, since the Department of Public Works (DPW) had indicated a while ago that office space had been acquired.

Ms M Njobe (COPE) commented that the issue of office space had been going on for too long. She wanted to know what was happening, and what the lack of office space meant. It had been four years now, and this had resulted in the DHS being unable to employ, which had hampered delivery.
Ms Ngxongo replied it was not entirely true to say the DPW had obtained office space. The matter had not been resolved and quite a number of stakeholders were involved. She indicated that the landlord had appointed a service provider to handle the matter on his behalf.

Mr Mathale sought clarity on the service provider who acted as a go-between the DPW and the landlord. What was the role of the service provider in this matter?

Ms Ngxongo replied the landlord had to make specific alterations to the building before handing it over. A month ago, the DHS had approved layout plans for the office space, and had forwarded them to the DPW.   The DPW, as procuring agent for the DHS, had engaged the landlord on cost issues. At the current moment the DHS was waiting for the DPW and the landlord to provide a plan with timeframes of how the building would be reconfigured to meet the needs of its staff.

Mr Mathale sought clarity on where the service provider was required in this matter.

Ms Ngxongo replied that was the arrangement between the landlord and the service provider. The DHS was a DPW client.

Mr Mathale commented he did not see the role of a service provider in any of these processes. This ought to be a simple process between the DPW, the landlord and the DHS.

Mr Matshoba wanted to know who the service provider was.

Ms Ngxongo replied she could not remember off hand who the service provider was.  The DHS was being represented by the DPW. It had been established that information was not being communicated to the leadership at the DPW, but the DPW DG, Mr Mziwonke Dlabantu, had been helpful in the matter.  The DHS was now liaising directly with him, as opposed to interacting with DPW officials who had failed to expedite the process.

Mr Matshoba said the Committee should call in the DPW DG.  This would be easy, because he was part of Human Settlements.

Mr Mokgalapa supported the point and said it was worrying that the DPW was paying rent while the building remained unoccupied. This had been the case for four years.

Mr Mathale proposed that the Department provide a written report of what had been happening all these years.

The Chairperson said she would communicate the matter with the Chairperson of the Committee on Public Works, with a view to having a joint meeting with both DGs in attendance. She requested that the report be made available to her office by Friday.

Ms Matlatsi clarified that the DHS had disputed having to pay the lease, resulting in a contingent liability, because the DPW had not been paid while the lease was signed. This state of affairs impacted on the expenditure of the Department. There were still debates on whether to pay or not.

Mr Mokgalapa asked if the DPW had indeed been paying the landlord.

Much to the concern of the Members, Ms Ngxongo replied that the DPW had been receiving invoices and forwarding them to the DHS.   In return, the DHS had been requesting the DPW not to pay, because they could not continue to pay for a building that was not occupied.

The Chairperson requested that the Friday report include the amount that DPW had paid thus far.

Ms Matlatsi said the report would be made available on Friday.

She continued and said the National Upgrade Support Programme (NUSP) ran at a slow pace. There were a number of programmes in terms of the appointment of service providers. At some point the Department would have come to the Committee and indicate it had not spent the entire allocation. This had been discussed with NT.   DHS did not want to surrender funding. The funding had been earmarked and had been made available to the Department by NT on a certain benchmark.
The Chairperson said NUSP had to do with the upgrading of informal settlements and the training of municipal staff. Given the skills challenges that were there in the country, why on earth would this programme not spent its budget?

Ms Matlatsi replied the NUSP budget was given specifically for training. The number of municipalities that had been earmarked was less in proportion to the budget that had been made available.

Mr Mathale commented that departments were allowed to vire money once there had been a surplus. The law allowed for money to be moved to other programmes where it was needed.

The Chairperson asked how it could happen that the Department would have a budget that was more than the target. She also said the DHS could exploit the Medium Term Expenditure Budget Statement (MTEBS) window.

Ms Matlatsi replied that the NT made the NUSP budget available without any targets. She said the money could be vired, but the NUSP budget was earmarked specifically for that programme.

The Chairperson asked why the DHS could not increase the number of trainees at municipalities, especially those that y were challenged for skills.  As many people as possible should be involved in the programme.   This money had to be spent, otherwise NT would take it back.

Mr Nyameko Mbengo, CD Finance, DHS, replied that the money was ring-fenced for training, and could not be moved to any other programme for any other purpose. He requested that the Committee be involved in pressurising municipalities to volunteer to be involved in training programmes.

The Chairperson said there was a demand for training in poor municipalities.  She requested that the Department provide a list of the 23 districts that had been targeted by the President. The Committee would plan what should happen.  This money would not be surrendered to NT.  Members would decide how the money would be used.

Ms Matlatsi said the DHS was in communication with NT and would not want the money to go back. There were a number of unfunded mandates within the Department. The DHS would request that the measure to take back money be relaxed, as it was an earmarked funding.  The observations of the Committee had been interesting and had been noted, but the Department would not implement outside of the PFMA provision.

Ms Matlatsi said the rest of the presentation dealt with the allocation of the HSDG. Going forward, the Department would continue with the 80/20 split that prescribed that provinces would receive an allocation for the normal projects and Outcome 8 allocations. Money had been put aside to ensure Outcome 8 was achieved. It had never been funded before.

The Chairperson sought clarity on the disaster relief fund. Did provinces indicate where they spent the money?

Ms Matlatsi replied that provinces had reported on the matter, and to not have brought a breakdown had been an oversight by the Department. The money had been reported separately.

The Chairperson said the Committee should receive a report on how the money was spent.

Mr Mokgalapa asked why the Western Cape (WC) had not received an allocation.

Ms Matlatsi replied that during the allocations it had been found that the WC had not experienced harsh disasters. The province had not been excluded and the money had been decided by the National Disaster Relief Fund, and not the DHS.

Mr Matshoba asked why it took so long for the money to be made available to disaster-stricken areas.

The Chairperson said the Committee should call provinces to come and account for the money.

Ms Matlatsi said the DHS was not proud of its spending and the matter had been brought to MinMec. The Department had already identified some provinces that would not be able to spend their funds. Measures had been put in place, because the Department did not want to surrender a cent to NT. Two provinces – the NW and the NC – had financial pressures in terms of running visible projects. Although the NC received little money it was delivering, and money could not be returned to NT if there was a performing province that required the money. More work needed to be done in the NC. The biggest budget taker was Gauteng, but it did not show a favourable spending pattern for its R4 billion. The province was assisted by three metros and did not have a reason not to spend. If Gauteng failed to spend, the Department sat with a problem. This posed the danger of fiscal dumping -- the province had failed to spend throughout the year and yet had managed to spend R3 billion in one month towards the end of the financial year. This was questionable. Gauteng should pull up its socks. This trend happened even last year. There had been a slow pattern of spending and yet 70% of the budget had been spent in February and March. This was fiscal dumping.

She said challenges included slow procurement, poor cash flow management, and non-availability of suitable land for human settlements developments. It had been realised that provinces did not pre- plan and did not do pipeline planning. This had resulted in suspect business plans being drawn up. She said the rest of the presentation talked to different metros.

Mr Matshoba pleaded with the Department to be responsive to the challenges identified by the Committee during oversight. The failure to do follow-ups on provinces’ spending was problematic.

Closing remarks
The Chairperson concurred and said if officials failed to attend to recommendations by the Committee, how could the DHS be trusted that it would address people’s concerns? The benefit of being in Parliament was to conduct oversight. When constituency concerns were brought up, the intention was to have such issues addressed within the provision of the law. The reason to have officials accompany Members on oversight was to ensure issues would be attended to immediately.
Ms Njobe sought clarity on the availability of suitable land for human settlements that had been continually cited as reason for under expenditure, whie the presentation had indicated over 7 000 ha had been acquired. Was this not a contradiction?

Mr Nkosi outlined the challenges of land availability by citing the piece of land bought for the Cornubia project (KZN), where there was a challenge of the contour of the land. When HDA had successfully bought land, it did not mean that it was ready for human settlements.   As it bought land, it needed to spend time with technical teams to make a determination if a piece of land was suitable for human settlements.

Ms Ngxongo clarified the 7 000 ha that was available was not spread in all the provinces. There was a need to engage with provinces and municipalities. The DHS would ensure that provinces should plan for a delivery of units, but also indicate where the land was coming from. That 7 000 ha could be more if there was cooperation from all spheres of government.

Ms Borman commented the DHS should be working harder, as there were municipalities that had never heard of the HDA. The presentation had been depressing to listen to. There were fundamental problems arising from it. Starting the first quarter with under spending was not an ideal situation. The issue of vacancies was a challenge; it did not come out clearly whether the 74% of vacant posts were in the process of being filled, or if there were people at the office. Was the Department serious about what it was doing, she asked rhetorically?

The Chairperson summoned all heads of entities to attend the meeting the following day, where the annual report was going to be presented. She said the WC was aggrieved by the HDA -- what was troubling the province about the HDA?   The HDA should come and identify land so that people could be provided with houses. The engagement need not be considered in a bad light.  The Committee simply wanted to be constructive on how it critiqued the Department.  Stakeholders should work together and when challenges cropped up, the Committee should be alerted.

The meeting was adjourned.