Audit Outcomes of Department of Human Settlements: AGSA, Financial and Fiscal Commission and Public Service Commission briefings

Meeting report

Welcome and Opening Remarks
The Chairperson welcomed Members of the Committee, and the delegations from the Office of the Auditor General, the Financial and Fiscal Commission, and the Public Service Commission.

The purpose of the meeting was to be briefed by the AG’s Office on the audit outcomes of the Department of Human Settlements (DHS); to be briefed by the Financial and Fiscal Commission on the audit outcomes of the DHS and its entities for the 2012/13 financial year; and to be briefed by the Public Service Commission on the capacity of the DHS to spend the budget allocated according to their business plans and annual performance plans. The Department would brief the Committee on its Annual Report in the afternoon.

Briefing: Office of Auditor-General
Mr Andries Sekgetho, Senior Manager: Office of the Auditor-General (AGSA) said that as the Supreme Audit Institution (SAI) of South Africa, it existed to strengthen the country’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence.

The purpose of the presentation was to provide Members of Parliament with the necessary information/guidance on the audit outcomes for the portfolio to enable the Portfolio Committee to effectively execute its oversight function.

When dealing with performance monitoring, portfolio committees should seek whether the strategic plans and annual performance plans for entities were aligned to the National Development Plan (NDP). Does the entity have adequate resources (human and financial) available to achieve predetermined objectives? Are the targets realistic (can it be done)? How were the entities ensuring that strategic plans and annual performance plans will be achieved (performance contracts, quarterly monitoring, etc.). A portfolio committee should review the quarterly progress of entities with regard to predetermined objectives and contributions to the NDP, and should review annual achievement of predetermined objectives by entities (annual reports). It should approve and track changes to strategic plans and annual performance reports.

Mr Sekgetho said that on accountability and remedies to address transgressions and poor performance, a common reaction to the general reports related to the questions posed by many, including key role players in Government, about the need for accountability and consequences and how these could be enforced. Legislation provided the answer to this question, as it clearly defined accountability and the remedies. The details were available on pages 44 to 65 of the AGSA booklet: “In Brief: The Auditor-General of South Africa”. This booklet highlighted the legislation that enabled remedies to be applied where national and provincial departments were guilty of transgressions and poor performance. It addressed the following typical matters reported in the general reports -- failure to comply with legislated obligations and responsibilities, unauthorised, irregular and fruitless and wasteful expenditure, possible fraud and corruption, poor work performance by officials and suppliers, and other areas of non-compliance with legislation.

Discussion
Mr S Gana (DA) said that according to the 2012/13 and 2013/14 AG reports, money was transferred in March and as the result of that, the money was received late by municipalities for their spending. He asked whether the Auditor-General’s Office checked the frequency at which those funds were transferred to provinces and municipalities.

Mr Gana also asked what kind of information the AG did not find useful and not reliable in so far the Department of Human Settlements was concerned so that they could take it further, because from the AG report it was bit technical.

Ms P Ntobongwana (EFF) asked what measures the Department was taking in filling the vacancies.

Mr M Shelembe (NFP) asked how the AG aligned the Municipal Finance Management Act (MFMA) and the Public Finance Management Act (PFMA) when it came to the decision making for the internal auditor at the local government level, and the internal auditor at the provincial level.

He asked how the Department aligned projects of the municipalities with the funds that had been transferred from the provinces to municipalities.

Mr Sekgetho said that with regard to the last question, the constitution stated that there were three spheres of Government, and the provincial sphere operated autonomously and became accountable to the provincial legislature. The challenge AGSA was having currently was that it had a national body that complied with the PFMA when it transferred money -- for example, transferring of the Urban Settlements Development Grant (USDG) grant to metros -- and metros, which were at local government level. There should be a marrying of projects in terms of oversight, monitoring and accountability.

The piece of legislation that governed this was the Division of Revenue Act (DORA), which would give them certain responsibilities in terms of what the transferring officer should do and what the receiving officer should do, and certain process should happen so as to ensure that they were keeping an eye on the funds that had been transferred. DORA stated that even though they had operated autonomously, as soon the money had been moved they should be able to monitor it and proper internal controls should be in place. Therefore, the question that needed to be asked was how the Department satisfied itself before it gave the money away -- whether there were internal controls in order to monitor its intended purpose.

With regard to the frequency of the transfer of funds, this was also related to the provisions of DORA. For example, if the Department was allocated a R32bn budget and 98% of that budget was transferred to provinces and municipalities, and whatever was remaining could be used for administration such as research, policy management, monitoring, etc. However, a number of years ago the powers that be decided that sanitation was quite a big issue for them, especially the pit toilets. So that function had been transferred from the Department of Water Affairs to Human Settlements and when that had happened, the issue that arose was that they did not want the National Department of Human Settlements to transfer the money to provinces, and provinces to transfer to municipalities, but rather the National Department should be responsible for implementation, so that service delivery could happen faster. However, the 98% of the budget was highly regulated in terms of DORA, and when there was an issue of under- spending they would find it more at the implementation level, not at the national level.

With regard to the issue of usefulness of information, it should be noted that when somebody says performance information, one thinks of three things -- compliance in terms of having a plan, usefulness with regard to the achievement of the plan, and how reliable the information was that was being reported in relation to what they wanted to achieve. In the Department, there were challenges with regard to the planning unit, and the head of the planning unit had been vetted at the beginning of the financial year. However, currently there was a challenge with the PFMA which stated that the Department should report against what it had planned, and if they did not know what they had planned their reporting would be unreliable.

Ms Corne Myburgh, Business Executive: AGSA, said that in regard to late payments, AGSA analysed the spending trends and saw that money was spent late in the year, and that this had happened for the last two years. Last year they had identified some payments that were made when goods had not been received, but had been received late.

AGSA would sympathise with the Department over the addressing of vacancies, because many of the vacancies advertised by the Department were for specialised skills, like engineers, etc. This meant they had to compete with the open market, and there were budget constraints for the Department, since it could not compete with salaries paid in the private sector.

The Chairperson thanked the delegation from the AG Office for the presentation and responses. The Office of the AG would always be available to assist with answers on questions from the Committee so that all the issues they needed to understand were clarified going forward.

Briefing: Financial and Fiscal Commission
Mr Eddie Rakabe, Programme Manager: Financial and Fiscal Commission (FFC) said that the the Commission was an independent, permanent, statutory institution established in terms of Section 220 of Constitution, which should function in terms of the FFC Act. The mandate of the Commission was to make recommendations, envisaged in Chapter 13 of the Constitution, or in national legislation to Parliament, provincial legislatures, and any other organ of state determined by national legislation. The Commission’s focus was primarily on the equitable division of nationally collected revenue among the three spheres of government, and any other financial and fiscal matters, legislative provisions or executive decisions that affect either provincial or local government from a financial and/or fiscal perspective, which included regulations associated with legislation that might amend or extend such legislation. The Commission must be consulted in terms of the FFC Act. The current research strategy focused on developmental impacts of the Intergovernmental Fiscal Review (IGFR).

Mr Rakabe said that on the policy framework and evolution of housing delivery, with regard to the mandate of the Department and its strategic goals for 2013/14, the aim was to facilitate the creation of sustainable human settlements and improve the quality of the lives of households. The mandate was to determine national policy, including norms and standards; determine national housing delivery goals; monitor performance of provinces and municipalities; and assist in capacity building where necessary. With regard to the Departmental strategic goals, the focus would be on accelerated delivery of housing opportunities, access to basic services, efficient use of land for human settlements development, and an improved property market.

The Medium Term Strategic Framework (MTSF) for 2014-2019 sought to achieve sustainable human settlements and improved quality of life and had the following priorities:
- Prioritise adequate housing and improved quality of life, with approximately 1.4 million more households in new or improved housing conditions;
- Residential property market, with a target of 110 000 new housing units delivered in the affordable gap market;
- Enhance institutional capacity, with a target of 49 municipalities assigned or accredited with the housing function;
- Provide title deeds for all 563 000 new subsidised housing units and address the backlog of 900 000 title deeds; and
- Expanding informal settlement upgrading to cover 750 000 households.

Mr Rakabe said that in terms of the human settlements and the economy, the macro-economic outlook plays a significant role in the human settlements sector. The 2008-2009 recession had resulted in a residential market contraction, an increased level of indebtedness (reducing housing affordability and ability to borrow/access to mortgage bonds), and a reduction in the delivery of subsidised housing, as the rate of increase in allocations fell. The housing market would remain under pressure into a foreseeable future.

The Commission had held two sets of public hearings on the housing financial report in 2011 aimed at developing a common understanding of challenges within the sector through research. In 2012, it intended to share the outcome of the research on alternative financing options for housing. The Commission used a model to analyse various housing finance and policy options per housing circumstances (existing and new supply-side interventions, demand-side interventions and investment interventions).

The recommendations noted that effective monitoring systems for verifying housing projects delivered in all provinces should be developed. This improved the credibility of reporting and could be used to determine whether objectives were met. Government should consider investing more resources in scenarios that are likely to stimulate additional funding from the private sector, as well as household contributions towards housing delivery. These included investment incentives, using tax rebates; upgrading of backyard rentals (with incentives); and housing vouchers.

Mr Rakabe said that with regard to the performance of the Human Settlements Development Grant (HSDG) grant generally, there had been good performance over the past five years. Of concern were Limpopo, where a consistent decline in terms of spending had been experienced, and Mpumalanga (particularly in 2013/14). Limpopo results showed material under-spending, with 60% of reduced funding. Mpumalanga preliminary results showed material under-spending of 10%. Funds were withheld from Limpopo and Mpumalanga due to procurement irregularities and poor business plans. Limpopo’s R1.3bn was withheld by the Department following a forensic investigation conducted in relation to the awarding of a tender for the construction of low cost houses for the financial year 2013/14. There were slow procurement processes, poor cash flow management and non-availability of suitable land for human settlements developments.

The findings of the Auditor-General noted that in 2013/14 there was material under-spending on programme 2 – spending only 14% of allocated funds, mainly due to vacancies. This was of concern, as the programme continued to materially under-perform. It had under-spent by 31% in 2012/13, mainly due to not filling vacancies, which had also been a key driver of under-spending in 2011/12. There was also a delay in invoicing. Poor performance of program 3 continued, from under-spending of 36% in 2012/13, to 55% in 2013/14, mainly due to delays in the implementation of the National Upgrade Support Program in both financial years.

The Department’s overall performance had been good over the last four years, with an average spending over 98% of allocated funds. Some targets set for 2013/14 had been achieved. Of concern was Program 3, where under-spending was 36% in 2012/13 and had increased to 55% in 2013/14. It was difficult to assess fully whether targets had been met in some instances, as targets were not clearly determined. Where the Department had under-performed, reasons were not always provided. Some of the reasons for under-performance in 2013/14 were similar to 2012/13.

The 2015/16 recommendations noted that municipalities -- especially metros -- should invest in forward-looking processes and systems that would enable such municipalities to understand and disaggregate housing demand accurately. Metros should focus on planning for rental flats and creating new (or transforming existing) neighbourhoods in the intermediate suburbs, which have lower densities than in the inner city. Government’s housing subsidy prioritised the most vulnerable groups, which include poor female-headed households with children below the age of 20 years, and households containing adults who were permanently out of the labour market. Targets and indicators should be put in place and closely monitored annually. The National Department of Human Settlements should report on households benefiting from government housing programmes based on gender and by age group, on a yearly basis.

Discussion
Mr Gana asked whether the FFC, when compiling the report, had been looking at what the Department was reporting on, or was there some level of verification that was going on in provinces and municipalities to check what had been delivered.

Mr Gana asked why the spending by municipalities was going in an opposite direction in 2013/14 because percentages ranged from 61% to 47%, and so on. There had been no 100% expenditure, but in the presentation the FFC had mentioned that municipalities were on track in terms of spending the money.

Mr Shelembe asked what exactly the intervention was with the non-compliance of the conditional grant which had to be attended to and improved, because it had not been mentioned in the presentation.

Mr N Capa (ANC) asked whether it was possible that if the money was transferred to municipalities in March that they could have spent the money when their financial year ended in June. Where poor performance had been attributed to service providers, was anything done or action taken against those service providers?

Ms L Mnganga-Gcabashe (ANC) asked what the FFC was telling them if it had not been able to detect the spending on the USDG grant and the under-spending on programme 3, goods and services.

The Chairperson cautioned that this question should be noted for the Department when it came and presented to the Committee.

Mr Rakabe said that they needed to break down the last question, which related to goods and services, to explain what it meant. Part of the reason was that there had been an attempt to contain costs from the Minister of Finance’s presentation of the budget and the Medium Term Budget Policy Statement (MTBPS) last year. They had needed to break down actually what was involved, because some of the expenditure included consultants, caterers or supply chain management. The FFC needed to disaggregate that so that if it was consultants, they should reduce the number of consultants, and when they reduced the number of consultants they would need to have capacity internally. The Commission was trying to get into that, but if the Department was not using measuring tools, it would be very difficult to do so.

Responding to the question about the level of verification that was going on in provinces and municipalities to check what had been delivered, he said the Commission’s duty was to verify.
The FFC went to look at what actually happens at a municipality. This was important to note in the context of what the AG had said about how the FFC could deal with the constitutional challenge surrounding the autonomy of the three spheres of government in regard to executive decision-making. The bottom line was that in terms of the DORA, they would have a transferring officer and a receiving officer, because when they transferred money from the national department, they could come to the FFC and show how much had been transferred, but they could not prove that the money had actually been spent. As a Commission, it was part of their responsibility to ensure that where money was transferred from the department to a province or municipality, it was actually spent. It was also their responsibility and mandate to ensure that where there was no capacity to spend that money, it should be moved elsewhere where it could be spent and capacity should actually be built.

Mr Rakabe said that if the Department transferred money in March, then the question would be how much of it had been transferred for the municipality to spend by the end of its own financial year, which was June. If they transferred all of it in March, obviously they would choke the municipality because there was no absorptive capacity. Municipalities could still be on track with their spending, even if they were only at the 40% level by the end of March, as planning might have taken longer and they could still spend the 60% balance on implementing infrastructure projects before the June fiscal year-end.

The issue around Limpopo involved the fact that Limpopo and Free State had been placed under administration following an intervention by the national government. Therefore, in December 2011, those two provinces had been under administration, and Limpopo in particular was run by the national government.

The Chairperson thanked the delegation from the FFC for the presentation and responses.

Briefing: Public Service Commission
Mr Ben Mthembu, Chairperson: Public Service Commission (PSC) said their presentation would focus on the capacity of the DHS to spend the budget allocated according to their business plans and annual performance plans.

Dr Richard Levin, Director-General: PSC, said that the Commission was required by the Constitution to provide an evaluation of the extent to which the values and principles governing public administration, contained in section 195, were complied with. The PSC was requested to brief the Committee on the capacity of the DHS to spend the budget allocated according to their business plans and annual performance plans. In its briefing, the presentation would focus on the constitutional values and principles. The PSC had used data from the annual reports for the 2011/12 to 2013/14 financial years, and other data such as PSC tools, AGSA, the Department of Planning, Monitoring and Evaluation, National Treasury and the Vulindlela rural housing project.

Dr Levin said that for the 20112/13 financial year, the DHS had received an unqualified audit, with findings. The AG had noted that invoices received amounted to R22.4m for office accommodation, whereas the Department had not occupied the building, and there was material under-spending of the Rural Household Infrastructure Grant. For the 2013/14 financial year, the Department also received an unqualified audit with findings. The AG had noted that only 14% of the budget had spent on the programme implementation facility, and consequently the objectives of supporting human settlements projects had not been achieved. 81% of the RHIG budget had been spent. R106.7m allocated for municipalities was transferred only in March 2014. As a result, a significant portion of these grants had been unspent at 31 March 2014.

Except for 2012/13, spending had been within the generally accepted margin of 2% set by National Treasury. Although almost the entire budget had been spent over the past four years, the achievement of predetermined outputs remained fairly low, at 67% on average. With regard to reporting on performance information in 2013/14, the AG had found that material changes had been made to indicators and targets reported in the annual performance report, without these changes being approved. 28% of the reported indicators and targets were not consistent with those in the approved annual performance plan. The required performance for 26% of the targets could not be measured. 58% of the targets were not specific, as prescribed by the National Treasury’s Framework for Managing Programme Performance Information (FMPPI).

Major reasons for under-spending included delays in the filling of vacancies, delays in the migration from Novel to Microsoft, funds for the Special Investigating Unit (SIU) not being fully used, and a delay in the implementation of the National Upgrading Support Programme, which took up 30% of the Programme 3 budget.

Dr Levin said the Development Indicators 2012, launched by the Presidency in August 2013, reflected the following in respect of households with access to sanitation:
- 3 308 sanitation service points (toilets) were installed for informal settlement dwellers;
- 14 539 additional households were provided with sewer connections;
- The backlog in the provision of basic sanitation services was 1 438 895.
- 21 860 additional households were provided with electricity connections.
- 1 728 600 households were provided with access to free basic electricity.
- The backlog of electricity connections to consumer units was 971 879.
All of these were achieved through the Urban Settlements Development Grant (USDG).

With regard to accountability, and the filing of performance agreements (PAs) by heads of departments (HoDs), the executive authorities and HoDs should visibly support performance management processes and ensure that this cascades down to other levels in the senior management service (SMS), if the principle of accountability was to be achieved in the public service. The submission of the performance agreement by the HoD should be done by the due date. The current HoD had been appointed on 22 April 2014, and did not qualify for evaluation in the 2014/15 financial year.

The Department had indicated that it had initiated the process for validation of performance agreements by SMS members against annual performance plans, including verification of individual performance against programmes and organizational performance, as per the Performance Management Development System. The Annual Report Guide for National and Provincial Departments prescribes that information regarding the signing of PAs by SMS members, the reasons for not complying within the prescribed timeframes, and disciplinary steps taken, should be presented. This information was, howeve, omitted from the 2013/14 annual report. The Department paid performance rewards to 19.5% of SMS members (17 out of 87), amounting to R556 000.

With regard to professional ethics, the National Anti-Corruption Hotline (NACH) received cases and forwarded them to the national and provincial departments, in accordance with agreed protocols, for investigation. The strategy to refer cases for investigation to departments was premised on the assumption that departments had the capacity to deal with cases. The figure showed that the feedback and closure rate remained unsatisfactory.

Precautionary suspensions should not exceed 60 days and extended periods of suspension had a negative effect on service delivery, the management of discipline in the workplace and also on the employee, who had a right to work. It was noted that although the number of employees on suspension had increased, the periods of suspension did not exceed 60 days.

Dr Levin said that in terms of the Financial Disclosure Framework, all members of the SMS were required to disclose the particulars of all their registered interests (e.g. companies and properties) to their respective executive authorities by not later than 30 April each year. EAs had to submit copies to the Public Service Commission (PSC) by not later than 31 May of each year. According to the report on the e-Disclosure System, only 19 SMS members from the Department had submitted their disclosures to the Ethics Officer.

The Department’s web site was user friendly and most documents were easily accessible. The Promotion of Access to Information Act, 2000, Act 2 of 2000 (PAIA), gave effect to the Constitutional right of access to information held by the State and any information that was held by another person that was required for the exercise or protection of any rights. Section 14 of the PAIA stipulated that the information officer of a public body must compile a manual containing prescribed information. PAIA was available on the web site. This was an improvement from the previous financial year. The annual reports (ARs) were key accountability mechanisms, but they only served to promote transparency if they were comprehensive and easily accessible. The AR for the 2013/14 financial year was available on the Department’s web site. However, as already indicated, the AR did not reflect all the human resources (HR) information required. As at 6 October 2014, the strategic plan and annual performance plan could not be located on the Department’s web site. The AR should, amongst others, reflect information on the Department’s Service Delivery Improvement Plan and a report on consultant appointments, using appropriated funds. The 2013/14 AR indicated that 271 consultants were used in 55 projects at a cost of R84m.

Dr Levin said the Department did not have a Human Resource plan in place, as required. The vacancy rate for 2013/14 financial year stood at 20.75%, with the highest vacancy rates occurring in the critical occupations – engineers and related professionals, economists, financial and related professionals, and senior managers. The promotion of sound and fair labour relations in the workplace was an essential aspect of human resource management. Given the importance of human resource management, which was pivotal to effective public administration and service delivery, it was essential that grievances were well-managed.

In terms of employment equity, public administration should be broadly representative of South African people, with employment and personnel management practices based on ability, objectivity, fairness and the need to redress the imbalances of the past to achieve broad representation. The Department was still grappling with the employment of women at the SMS level, and people with disabilities.

Dr Levin concluded that the Department had maintained its record of unqualified audits over the past two years. Effective spending of the Rural Household Infrastructure Grant remained a challenge. The spending trends as at August 2014 pointed to inadequate financial management and a need to put mitigating strategies in place to ensure spending in line with predetermined objectives and targets. Similar to the previous financial year, the Auditor-General had made findings in respect of the usefulness and reliability of performance information reflected in the annual report. In addition, not all the required information in respect of Human Resources had been reported. There was therefore a need for the Department to improve accountability. The PSC had noted achievements in respect of access to sanitation and electricity. The Department would have to put measures in place to eliminate the backlogs reported.

There was concern regarding the maintenance of professional ethics in the Department. There had been no improvement in the Department’s ability to deal with cases reported to the NACH, and no financial disclosure forms had been submitted to the PSC by the due date. The latter impacted negatively on the EA’s ability to monitor and deal with potential and actual conflicts of interest. Although the Management Performance Assessment Tool (MPAT) results showed improvements in some areas of compliance, areas around the submission of financial disclosure forms, having a human resource plan in place, the filling vacancies and employment equity, required immediate attention. It was of concern that since the last report to the Portfolio Committee, there had been no improvements in these areas.

Discussion
The Chairperson asked whether the posts on slide 5 of the presentation were funded.

Mr Gana asked about the non-submission of financial disclosure forms. What became the role of PSC when senior managers of the Department did not comply with financial disclosures.

Ms Ntobongwana asked how many officials were on suspension with full pay, and how much it cost the Department.

The Chairperson said that Ms Ntobongwana should also ask that question to the Department because it was going to present to the Committee in the afternoon.

Mr Mthembu said that when departments did not comply, what the PSC normally did was to alert the departments through an SMS so they could be able to submit or write letters, and remind those concerned so that they could comply. That was all they could do. If they did not comply with the Public Service Act, they expected the executive authorities to take disciplinary action. They also asked the executive authorities how many of these officials had been disciplined and if they had not, they then informed the portfolio committees. What they were doing was to arm the Committee, because their role was to recommend, and provide advice that they should comply with the Act.

Dr Levin said that the information they used on vacancies they had drawn from the Vulindlela project, which obviously draws financial and personal information from other sources into their management information system. They would need to go into the original records to establish what proportion of vacancies were not funded. They probably needed to work with the Department as well, but they would come up with the information and submit it to the Committee once they had done that. However, the table inn the report showed that they were talking of scarce skills in terms of availability in a number of areas, which would explain the high vacancy rate for such a long time. Therefore, they had a level of sympathy for the Department.

The only additional information they had at the moment was what had been presented in the report for the 2013/14 financial year, which stated that only 19 SMS members from the Department had submitted their disclosures to the Ethics Officer. For the 2012/13 financial year, the PSC would be able to go into the original files. Although they had all submitted disclosures late to the PSC, this did not mean disclosures had not been made -- they could work out what happened. It was a delicate area, because sometimes officials did make them on time, but they were submitted late by the EAs. They needed to look at the facts and compile a report to submit to the Chairperson, which would give them a true picture of how many of them had been submitted and how many were not.

Dr Levin said that there was an information problem regarding suspensions, taking account of the costs to the Department reported in its annual report. Even if they looked at the trend of costs, they did not make any sense. Although the five involved could very high ranking people, still the figure of R2 million was inaccurate, because they had been able to settle their cases within 60 days, as required. Therefore there was something wrong with the information for the 2013/14 financial year. Maybe the Department would be able to clarify that issue when it came before the Committee.

The Chairperson thanked the delegation from PSC for the presentation and responses.

The meeting was adjourned.