Department of Human Settlements briefing on its 3rd and 4th Quarter 2014 reports

Human Settlements, Water and Sanitation

02 September 2014
Chairperson: Ms N Mafu (ANC)
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Meeting Summary

The Department of Human Settlements presented their third and fourth quarter reports to the Committee. Before they made their presentation, the Chairperson gave an opportunity to the Committee Researcher to present his observations and analysis of the report. The researcher pointed out that the Department’s report largely highlighted their achievements and not their shortfalls.  This was unfortunate, because the role of Parliament was to intervene and assist where the Department needed help.

The spending trends of the Department were also worrying, as they were not in accordance with Treasury regulations -- the spending had been very slow in the first and second quarters, and had then peaked in the fourth quarter. The Department also needed to address the findings of the Auditor General and implement the action plans earlier in the financial year rather than later, or the next audit would reflect the same problems as the last one. This also applied to the issues raised by the Financial and Fiscal Commission, which needed to be taken into consideration. The highest cost drivers in all the Department’s programmes were compensation of employees and expenditure on goods and services.

The Department made their presentation, which covered spending and targets per branch for the third and fourth quarter. The presentation also highlighted the communications and outreach programmes that they had conducted, to get closer to communities. The Minister and Deputy Minister had often participated in these programmes, which were done in collaboration with municipalities and the provinces.

The programme also addressed Outcome 8 targets and achievements, accreditation of municipalities, efficient utilisation of land for human settlements development, improving the property market, and job creation by the Department.

The Committee felt that they had been “short-changed” when it came to the presentation by the Department, and requested that the Department should provide the Committee with a more comprehensive report. There were no explanatory notes on how the different branches spent their funds, especially when they overspent and underperformed. The Committee said that it was unacceptable for the Department not to spend funds that had been budgeted for. Overspending meant that the Department had not done proper planning.  Members could not understand how one branch could spend 228% of their budget, and still not achieve their targets.
 

The Department said they would provide a comprehensive report for the Committee, and during the forthcoming workshop with the Committee, a lot of issues would be clarified. They assured the Committee that there were strict measures regarding the allocation of additional funding to branches.
 

Meeting report

The Chairperson said she had asked the Committee Researcher, Mr Leepo Tsoai, to give the Committee an analysis and his observations from the report before the Department of Human Settlements’ actual presentation.  There would be the observations of the researcher, the presentation of the Department, the Budgetary Review and Recommendation Report (BRRR) training and the Auditor Generals’ report.  All these would assist the Committee to have a broad understanding of the Department.

Key issues from third and fourth Quarter Report of the Department of Human Settlements

1. Expenditure Trends

The analysis was based on the third and fourth quarter annual performance report (2013/14) of the Department of Human settlements. The analysis was sourced from National Treasury as at the end of March 2014, as the financial year of the Department ended on 31 March. The Departmental report, however, also formed part of the analysis. The analysis would also look at the expenditure trends from the first quarter to the fourth quarter.

The total allocation for the 2013/14 financial year amounted to R28.1 billion, which represented a nominal increase of R3.1 billion, or 12.5%, from 2012/13. The Department had transferred R27.4 billion -- 99% of the overall allocation -- to provinces and municipalities. In the first quarter, the Department had spent 11%, 32% in the second quarter, 65% in the third quarter and 98% in the fourth quarter. However, according to the Treasury threshold, the Department was supposed to have spent at least 25% per quarter.

2. Issues for consideration (Auditor General)
The Department of Human Settlements had received an unqualified audit opinion with the following findings:

The department has disclosed an amount of R22 413 000 for invoices received from the Department of Public Works (DPW) for office accommodation -- and the Department did not occupy the building.

Expenditure management had been a challenge for the Department. It had also been 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.

3. Issues for consideration (Financial and Fiscal Commission)
The Financial and Fiscal Commission (FFC) highlighted a number of issues emanating from the Annual Report 2012/13 of the Department of Human Settlements.  The FFC stated that the national budget allocations of the Department had increased from R22, 5 billion (2011/12) to R25, 1 billion (2012/13), which represented a real increase of 8%.  It was further stated that there had been an increase in the budget over the years. However, the increase in the budget allocation was not aligned to the delivery on the ground.

The FFC reported that the Department expenditure trends from 2009/10 to 2012/13 were at a 98% average spending performance.  In the 2012/13 financial year the performance was poor, due to poor performance of the Rural Household Infrastructure Grant (RHIG) and the Human Settlement Development Grant.

Expenditure per Programme


Programme 1: Administration
The National Treasury stated that 48.5 % of operational expenditure in 2013/14 was from April administration, representing R299.1 million, and was mainly for goods and services and compensation of employees.

Programme 2: Human Settlements Policy, Strategy and Planning
Operational expenditure to the end of fourth quarter was R72.1 million, the majority of which was spent on the compensation of employees and on goods and services. It should be noted that spending under this programme could not be compared to the previous financial year due to the departmental structure changes in 2013/14.The main cost drivers related to spending on the compensation of employees as a result of the personnel requirements for policy development and human settlements planning.

Programme 3: Programme Delivery Support
Operational expenditure to the end of fourth quarter was R82.2 million, the majority of which was spent on compensation of employees and on goods and services (mainly for business and advisory consultancy services, and travel and subsistence).  Spending under this programme could not be compared to the previous financial year, due to the departmental structure change in 2013/14. The main cost drivers related to compensation of employees, consultants in the National Upgrading Support Programme (NUSP), and travel and subsistence relating to the programme oversight of the Chief Operations Office and the Project Management Unit.

Programme 4: Housing Development Finance
Operational expenditure to the end of fourth quarter was R162.8million, the majority of which was spent on compensation of employees and on goods and services. Expenditure under this programme had decreased by R130.4 million, or 44.5%, when compared to the same period last year.  This was primarily due to lower spending on payments for capital assets, specifically relating to the Rural Household Infrastructure Grant (RHIG).

General observations
The report submitted by the Department did not outline the challenges -- it focused only on the achievements. The primary goal of parliamentary oversight was not punitive, but rather to assist the Department to perform optimally towards successfully achieving its mandate.

The Department’s performance against the targets, as at 31 March 2014, showed that a total of 98 targets out of 123 had been achieved. This translated into an 80% achievement, which was a slight improvement from the 77% of the second quarter. Furthermore, the office of the Chief Operations Officer spent 228% of its budget, but only 85% of the targets were achieved. The Committee needed clarity on this issue.

On the issue of accreditation, the Department provided accreditation to a number of municipalities that had been assessed for level 1 and level 2.  It would be interesting for these municipalities to be mentioned, given the capacity issues that were constantly mentioned by the Portfolio Committee.

However, it was clear that the Department was confronted with capacity related challenges that needed to be attended to by the Department. These were:

- Expediting the process of filling vacant posts;
- Providing assistance to Metros whose spending was slow, particularly on the USDG;
- Fast tracking training and development in cases of new recruits;
- Making use of Government institutions, such as the Development Bank of South Africa (DBSA), to assist with scarce technical skills, such as engineers.

Furthermore, the department had certain challenges in respect of the timely transfer of budgets to receiving entities such as provinces and local government.  In this case, the Department should enforce strict measures where slow spending occurred as a result of non-compliance and/or inadequate compliance with procedures and regulations by the receiving entities, and should single out non-complying entities for parliamentary intervention.

Discussion
The Chairperson said the purpose of the report by the researcher was to provide more insight into the report submitted by the Department and to note any shortfalls in the report. Next week, the Auditor General’s office would come present their observations. Then, after the two meetings, the Committee would thoroughly interrogate and move forward with the Department.

Mr S Gana (DA) said he was disappointed with the Department’s presentation.  According to what they had presented last term in the Annual Performance Plan, they were supposed to furnish the Committee with a report. The presentation and the available reports were not "talking to each other", thus it was not clear where the information on the presentation had come from. The problem was that one could not raise adequate questions on a summarised version of information when it was not clear where it came from. The Committee needed thorough reports in order to interrogate things properly.   On the presentation by the researcher on expenditure challenges, the information was from the 2012/13 report and the Department’s presentation was on the third and fourth quarter of 2013/14. In order to fully examine and understand the information, there needed to be a comprehensive report where the trends were outlined and could be studied.

Mr H Mmemezi (ANC) added what was missing from the researcher’s presentation was inputs on what was happening in provinces.

Mr K Sithole (IFP) proposed that the Department and the Committee Secretary, Ms Kholiswa Pasiya, should put together a combined and thoroughly researched report on the Department, starting from their strategic plans from 2011, during the leadership of Minister Tokyo Sexwale, on to present.

The Chairperson supported the proposal of Mr Sithole to have background reports as well as the recent current ones in order to fully understand what was happening in the Department.

Department’s Third and Fourth Quarter Reports 2013/14
The Chairperson welcomed the Department and gave them an opportunity to introduce themselves.

Mr Thabane Zulu, Director General of the Department of Human Settlements (DHS), gave an outline and overview of the presentation.

Departmental Expenditure vs Performance – Third Quarter  
Ms Lucy Masilo, Chief Director: DHS, focused on the financial aspects of the presentation. Out of the six branches of the Department, overall expenditure for the third quarter was 52% and targets achieved were 77%.  The Human Settlements Delivery Frameworks branch spent 84% of their budget and achieved 45% of their targets. The Office of the Chief Financial Officer branch spent 79% of their budget and achieved 100% of their targets.

Branch Expenditure vs Performance – Fourth Quarter  
For the fourth quarter, the branches spent 82% of their budgets and achieved 80% of their targets. The Office of the Chief Operations Officer branch overspent on their budget.  They spent 228% and achieved 85% of their targets, whereas the Programme Management Unit spent 40% of their budget and achieved 68% of their targets.

Communication and Outreach Programmes  

Mr William Jiyana, Acting Deputy Director General: Strategy, Planning and IGR, took over the rest of the presentation.

The Department had participated in all Ministerial outreach programmes and face to face communication had been conducted with communities. A help desk had been set up and individual queries were logged in for further investigation, or solved on site. This was done in collaboration with municipalities and provincial Departments of Human Settlements.  Public engagements included exhibiting during the annual Rand Show, the Pretoria Show, the South African Housing Foundation and BRICS Conference.  About 4 500 generic publications were distributed to the Government Communication and Information System (GCIS) library in Parliament, and to Thusong Service Centres in Mpumalanga and Limpopo in their regional languages.

Door to door campaigns were carried out and publications were handed over to members of the communities on 6 August in Oudtshoorn and 2 October in Lerato Park in Kimberley. There were community imbizos hosted by the Minister and Deputy Minister, which were held across the country. Other outreach programmes were conducted by officials during Youth and Women Build programmes. These community outreach activities, hosted during April, May, and June 2014, covered four provinces where houses were built and handed over.

Outcome 8: Upgrading of Informal Settlements 
This outcome sought to create sustainable human settlements and improved quality of life through the:
- Upgrading of 400 000 households in informal settlements with access to secure tenure rights and basic services;
- Implementation of a National Upgrading Support Programme (NUSP);
- Delivery of 80 000 well-located and affordable rental accommodation;
- Declaration of restructuring zones;
- Accreditation of 27 municipalities to undertake human settlements functions;
- Efficient utilisation of state land for human settlements development;
- Improved property market

The number of households provided with upgraded services as at 31 March 2014 was 417 423, which represented 104, 4% of 2014 target of 400 000.   The Free State went over their target and achieved 143.8% delivery, while KwaZulu-Natal was the lowest performer, achieving 84.5% of the target.

National Upgrading Support Programme (NUSP)
Technical assistance was in place in 47 of the 49 NUSP municipalities, plus an additional three municipalities that had requested support;

The 50 municipalities represented approximately 605 informal settlement upgrading plans.

Tender proposals were evaluated in December 2013 for the capacity building programme and a proposal to appoint a service provider was submitted to the Bid Adjudication Committee for approval.

Increased provision of well-located rental accommodation
Only 60,8% of the targeted declaration of restructuring zones had been achieved.

With regard to the revision of social and rental policy, Community Residential Unit (CRU) policy and institutional subsidy, the terms of reference for the appointment of expertise to undertake a detailed investigation of the implementation of the programme had been finalised and submitted to the Technical Bid Evaluation Committee for consideration.

For the development of a backyard rental policy, a set of proposed policy interventions had been developed by the Department and the EMT structure had been briefed.  Based on the discussions at EMT, the proposals had been refined and would be fed into the policy decision-making process.

The total number of units delivered to date was 51 271 units, representing 64.1% of the target.

Accreditation of municipalities

The total number of municipalities accredited at level 1 was nine, and the total accredited at Level 2 was 19.  Therefore the total number of municipalities accredited was 28, and progress on the assignment was at approximately 75%.  The assessment to evaluate the readiness of Metros for the assignment function had also been undertaken.

Efficient utilisation of land for human settlements development
Well-located land for human settlements development needed to be released.  The target had been exceeded – 9 361 ha had been released, representing 149, 8% of the target. Currently, there was a process in place to develop a land assembly strategy which would be accompanied by a land pipeline, and would address forward planning, proper funding and focus on national priorities.

There was a revised Financed-Linked Individual Subsidy Programme (FLISP) policy implemented in April 2012.  Currently, the additional amendments were receiving attention to address implementation challenges. The policy amendments were to address implementation challenges, supported by EMT, for submission to MINMEC. All implementation processes were streamlined by the National Housing Finance Corporation (NHFC), and various marketing and communication initiatives had been launched to promote awareness, which covered 215 municipalities and 164 employer associations.

Rationalisation of the development finance institutions (DFI’s)
The Department was continuing with the implementation of Phase 2.  The results of the operational due diligence study and the draft synergies and opportunities report had been discussed with the DFIs. The business case was being finalised.

Approval of the revised funding model and business case for the Mortgage Default Insurance Scheme was still awaited from National Treasury.

DFI’s had provided 292 191 loans, banks had approved 94 772 loans and employer-assisted housing involved the granting of 644 loans.   These amounted to a total of 393 607 loans, representing 65,6% of the 600 000 target.

During the quarter, 20 163 serviced sites and 31 415 top structures had been delivered. This delivery translated to 16 946 job opportunities - if the definition of a person employed for a period of one year was considered. If temporary employment was also considered for only that three month period, the delivery for the quarter was estimated to have created 36 737 jobs during the construction phase.

Conclusion
Mr Zulu said this had been a period where the Department of Human Settlements was moving away from the housing mandate, and there were a number of changes happening - structural changes, undertaking new initiatives such as establishing a new unit to oversee and monitor where the money of the Department was going, and also to give effect to the Breaking New Ground Policy. It was a cycle where the Department was testing its new mandate and giving effect to it.   A new approach to delivery agreements was also put in place. The cycle would be measured by how it delivered against the mandate and plans of the Department.

The Director General also asked that the DHS be given time to prepare a comprehensive report and presentation on sanitation from 2009 to 2014. Putting together that presentation would take a month.

The Chairperson agreed to give the Department until 2 October  to provide that report to the Committee.

Discussion

Mr Gana said it was difficult to engage with slideshows -- sometimes there needed to be accompanying notes. On slide 8, there were three units that had overspent, but that had not been followed by delivery and meeting targets. The absence of explanatory notes in these instances made it impossible to provide sufficient oversight.  The figures alone did not say anything, and it was not clear where the funds came from.

Fiscal dumping had happened in the last three months of the year, when spending had spiked. The full report would be helpful in understanding how much was budgeted under each programme for the year and if the spending trends were consistent.

On the question of Limpopo, in the last two financial years the province had given money back for human settlements.  The province did not have a lot of informal settlements, but those that were there needed services. It needed to be investigated why Limpopo continued to under-spend on their programmes.

The briefing was missing how provinces and municipalities were spending their grants.  It was looking at the quarterly reports where municipalities returned funds, with reasons, but there was no actual monitoring of how they were spending.  Waiting for the next audit period would be a great delay and too late.

Mr Zulu said the presentation was an executive summary of what was contained in the quarterly reports of the Department, and Members would be given those reports. The quarterly reports highlighted where the Department was, how they performed and were moving forward.

Regarding spending in Limpopo, he said there was a defined budget and the business plan for the provincial Department was earmarked as a risky business plan.  It was agreed with the executives that interventions were needed.   It should be clarified that the Department of Human Settlements was not under administration, but there were stringent measures in place for funds to be released by Treasury.

Mr Sithole asked for an explanation as to how the Office of the Chief Operations Officer had spent 228% of the budget, while he achieved target was 85%.  Regarding the accreditation of municipalities to undertake human settlement functions, since the last meeting with the Department and Portfolio Committee, how far were they to resolving the issues raised by the Minister?

Mr Sithole asked how may square metres of land had been transferred from the Department of Public Works (DPW) to Human Settlements.  Another issue was the over expenditure by the Department that the Committee needed to do oversight on, especially on the refurbishing of settlements. There had been over-expenditure, but targets had not been achieved.


Mr Zulu said it was in the nature of the sector of the Department that there was over-expenditure in some branches and under-expenditure in others.  What was important was to check the marginal differences.   In terms of accounting principles, however, informed by planning principles, branches had to work within their budgets.   There were unforeseen circumstances where branches went above their budgets and were asking for more money.  In these instances it was common that the business case had not beendone properly. There were processes to approve over-expenditure.

Mr Jiyana said he would get the correct exact extent of the land transferred from DPW to the DHS. There was a substantial amount of land that the Department had received from the DPW, as well as from Land Reform.

Ms T Baker (DA) referred to the slide  on the utilization of land, where it was stated that the target had been exceeded by 9 300 hectares. Assuming that the land was for housing, how many sites would the land translate into?

Mr Jiyana said that this was a planning instrument that varied against what was there to be achieved. If it was for single density residential units, it could be 800 units to a hectare, depending on the size of the plot, and if it was multi-density, it became higher. On average, it was about 800 per hectare.

Mr M Shelembe (NFP) said he had missed the definition of level 1 and level 2 municipalities when it came to accreditations.  Were there any attempts by the Department to look into the extreme under-performance in Limpopo and KwaZulu-Natal. Though it was pleasing to see that jobs had been created, the skills transfer after the completion of the projects were concluded had not been mentioned. There was no explanation regarding the training of new recruits that affected the performance of the Department, especially in municipalities.   What was the follow up to ensure there was training in municipalities?   Also, were there any contracts framing how long a person trained by the Department had to work for the Department thereafter, so that the Department was not training people for skills they could not retain?

Mr Jiyana said levels referred to the ability to take on certain functions of the Department. Level 1 was when a municipality was able to be responsible for the database and its management of the housing function. Level 2 meant taking further responsibility, which may include administering funding. There would more detail during the workshop, and also inthe report that would be sent to the Committee.

The transfer of skills was inherent in the work of the Department.  If it was in DPW-linked projects, it was always linked to acquiring skills.   Government projects were now directed to that.  The Department did not get too close to the ground, but Nurcha had been established to be an emerging contractor development agency, and its core function was to ensure there were trained emerging contractors. 

 

Regarding the training of students coming into the industry, there was a programme to pursue a career in human settlements offered as a degree at Nelson Mandela Metropolitan University (NMMU), and UNISA would possibly offer it as well. If one was trained in that programme and they entered the Department, there was a contractual obligation to work for the Department for a period of five years.

Ms T Gqada (DA) said she had hoped that the report would talk about alternative building methods that could be initiated, as used in other countries.

Mr Jiyana said alternative technologies was a highly driven subject. Where there was an Indaba, there would be a component of alternative building components exhibited.

The Chairperson said that this was a presentation of the third and fourth quarter report.  The Department had agreed to provide more information to the Committee, and when the annual report was ready, it would be sent to the Members in order to understand what was happening within the Department. The explanations given during the presentation were adequate for the meeting, but the questions that Members had asked could be clarified further only when the Committee discussed the annual report.  More explanations would be provided during the policy workshop which would help tie matters together and provide understanding.

Ms L Mnganga-Gcabashe (ANC) said that when the Department was due to submit reports to the Committee, it needed to be in the first two days of the week so that the office of the Chairperson could develop and distribute the packages in order for Members to adequately prepare for meetings.

The Chairperson said the Portfolio Committee on Human Settlements sat on Tuesday and Members had constituency work on Mondays, meaning that they mostly arrived back in Cape Town on Monday evenings.  This meant that most Members got to see the documents only on the Tuesday during the meeting. It was advisable that documents should be sent the previous week so that by the time Members left on Friday, they had received them. In essence, the documents should be distributed on Thursday.

Mr H Mmemezi (ANC) said that when a quarterly report was presented, the Department should know that the Committee did not appreciate poor expenditure. Once there was a budget, allocated it should be spent.  Under-expenditure was not acceptable.  The quarterly reports would end up in the whole financial year report.  It was also unacceptable that there were branches that overspent but did not reach targets.  This meant that there was no proper planning.

The Chairperson thanked the Department for their presentation, and excused them from the meeting.

Closing remarks
The Chairperson reminded that the Committee was invited by the Department to a policy consultative workshop, from 4 to 6 September.  However, there were changes, as the workshop would finish on 5 September. The Committee had also asked for an invitation to be extended to the NCOP Committee. She urged the Members to attend the workshop, as it would be beneficial.

There was also a Human Settlements Indaba on 25 and 26 September.  The date may change, but that would be communicated to Members. The Committee would also be working on its own strategic plan, for which a date would be confirmed.

Lastly, the Chamber of Mines had extended an invitation to the Committee to a workshop on 10 September.

Mr Gana said that according to the programme, the following meeting was supposed to deal with the Rental Housing Amendment Bill, not the Auditor General’s report. He also proposed that the strategic planning workshop of the Committee be held in October.

The Chairperson said they would look into Mr Gana’s proposal. The Auditor General’s office was going to be presenting at the next normal Committee meeting as part of giving tools to understand what was happening in the Department, moving forward.

Ms Pasiya said the programme was going to change slightly for the coming week. The Auditor General had requested to come to the Committee to conduct a training workshop on how to conduct oversight, based on the quarterly and annual reports of the Committee.  After the Auditor General’s presentation, the Department would also present.  However, the agenda was to be confirmed with the Chairperson.

The Chairperson said the Bill had not been referred to the National Assembly yet.

The meeting was adjourned.
 

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