Independent Development Trust on its 2013/14 Annual Report

Meeting report

Briefing by the Independent Development Trust (IDT)

Dr Stanley Bhebhe, Acting Chief Executive Officer: Independent Development Trust, informed the Committee that although the financial sustainability issue remained unresolved, the entity was experiencing continuing growth in the programme portfolio, with an increase in the management fees charged. 20 out of the 22 corporate targets were delivered on target or exceeded. Only 2 targets were under achieved due to client budget deficits, delays in programme commencement, and internal capacity shortfalls.

Against a target of 30 000, the number of work opportunities created through the IDT portfolio was 26 937. Those created through the Expanded Public Works Programme (EPWP) were standing at 48 920. The percentage of women contractors participating in the Contractor Development Programme was at 67%, against a target of 65%. Against a target of 270, the IDT had supported 330 EPWP cooperatives, non-profit organisations and community-based organisations.

Its performance overview indicated that on compliance with relevant legislation and regulations, the entity achieved 100%. Regarding risk management and sound governance, it achieved approximately 140% respectively. For human capital management, it scored 100%.

A look at the portfolio’s expenditure revealed that 51% went to the building of schools, followed by health care with 15 %. 9% went to the criminal justice system’s facilities and 8% went to poverty relief and the EPWP. Water and sanitation, welfare support and facilities, environmental intervention and food security shared the rest of the pie. Sports, arts and culture received only 1%.

On regional programme expenditure, the IDT had achieved 94,76%. The biggest beneficiaries were the Eastern Cape and KwaZulu-Natal, because of infrastructure backlogs. (Tables and graphs were shown to illustrate performance ratings and programme expenditure).

Mr Ian Ellis, Chief Financial Officer: Independent Development Trust, took the Committee through the financial report. The entity achieved a qualified audit report for the 2013/14 financial period, after eleven successive unqualified audits. It had received a qualified financial report on three issues. Firstly, under “other income”, the tender deposit income of R5,8 million could not be confirmed by alternative means by the Auditor-General. Secondly, the leave pay accrual of R14,3 million could not be adequately verified by the Auditor-General from the employee leave records. Thirdly, on funds due from programme principals, the Auditor-General was unable to determine whether any adjustment was necessary due to gaps in records resulting from the system’s upgrades.

Management fees for the year under review amounted to R402.8 million. This translated to a 113% increase, compared to the total of R188.9 million raised in the 2013/14 financial year. Based on the programme expenditure for the year, management fees billed averaged 6,1%, a marked increase from the 3,3% average rate achieved in the previous year. (Tables and graphs were shown to illustrate figures).

The audit action plan had been prepared and approved by the audit and risk committee to address the issues raised by the Auditor-General. Systems and procedures would be enhanced where necessary to mitigate against a recurrence of the issues identified in the audit. An internal control dashboard had been prepared quarterly for review by the audit and risk committee.

It had been concluded that the IDT remained in a financial problem situation. The issuing of Instruction Note 4 of 2014/15 by National Treasury empowered the IDT to negotiate for, contract on, bill and collect cost recovery-based management fees from client departments. The intensification of in-housing of professional programme management and built environment expertise was continuing. There had been supplementary funding of R200 million from National Treasury for the financial years 2013/14 to 2015/16.

Discussion

The Chairperson commented that there was excellence in the organisation because for eleven years it had achieved an unqualified audit. There had been areas of weaknesses that manifested themselves during the 2013/14 period which had resulted in the organisation getting a qualified report. The entity had failed to make a succession plan for the replacement of its CEO, who had been at the helm for ten years.

Dr Bhebhe explained they were in the process of appointing a new CEO. Interviews were being conducted. This issue had been delayed because of the elections, and that had been the decision of the Board.

Mr J Masango (DA) asked what was informing the regional allocations, because the expenditures were not in line with targets. They fluctuated. Secondly, he asked for clarity on the issue of R14 million leave accruals which the Auditor-General had raised.

Dr Bhebhe said that targeting was based on contracts signed for programmes with provincial departments, or with a national department operating a programme in a province. It was based on commitments made by the province. The actual expenditure sometimes exceeded what needed to be done, or was less because of certain matters that arose during the execution of work in those provinces. At other times, work got put on hold.

Furthermore, the platform of empowerment varied from province to province. The KwaZulu-Natal and Eastern Cape had infrastructure backlogs, so more was needed to be done there. In a province like Northern Cape, where the population was low, the expenditure was less, or less was done. Once the development contract was secured, the entity started to engage women and youth companies to do the work.

Concerning the leave accruals, he said not many were paid out. This was also a kind of contingency fund to take care of the situation the entity found itself in at the moment. For example, in case the organisation shut down, that money would go to retrenchment packages.

Mr S Jafta (AIC) wanted to know about the regression from an unqualified audit to a qualified one. Secondly, he asked about the type of jobs the entity had created, and whether the organisation had a way of dealing with political interference in the nature of work it was doing.

Dr Bhebhe stated that the audit regression was a result of the volume of work and some other matters that had not been thoroughly considered. The issue of technology around the work volume had not been taken into account. There had also been complications around the leave policy. Inconsistencies had arisen over the way the leave process had been computed. In order to rigorously address the situation, a plan and time frames had been put in place so that the issue was resolved before the end of December.

With regard to jobs created, he explained they were of a short term nature and consistent with the EPWP. They varied between three to eighteen months.

The Chairperson, on the issue of political interference, told the entity it is important to come out clean and not speak in parables, because the main point was service delivery. The entity must not be afraid to state if issues like political interference impeded their work.

Ms P Adams (ANC) enquired if the termination of work contracts by employees was a result of uncertainty about the future of the entity. She wanted to find out how the entity determined the portfolio expenditure.

Dr Bhebhe said the terminated work contracts were full time contracts, but there were also contracts that reflected what the entity did. If the entity got a client, resources allocated were aligned to the life of the programme the IDT had to do for the client. Another issue was management attrition. When the organisation was repositioned, resources were allocated in the direction one wanted the organisation to take. The entity was now focusing on social infrastructure development. This meant some initiatives were receiving less funding because they were not in line with what the entity wanted to do.

On the issue of portfolio expenditure in relation to programme expenditure, he said the IDT did not determine where to spend. It was the portfolio that determined how much the entity must spend. The entity was an enabling arm of the government on where it wanted to do development.

Ms K Masehela (ANC) asked how many people had been trained, and in what areas. Were there plans in place to reach the national target of 2% in the employment of the disabled? Were the buildings of the computer laboratories in schools secured enough? She questioned why there was an increase of 18% in the expenditure of the entity, which was less than in previous years.

Dr Bhebhe said the IDT was training plus minus 5 000 people every year in life and technical skills. Regarding disability, he indicated they were struggling in that area because their infrastructure was not conducive for that, but whenever an opportunity arose, people with disabilities would be considered. Concerning the safety of computer laboratories, he mentioned that when schools were designed, security measures were considered for the computer labs. They were secured better than other places in the school, because their roofs were made of concrete slabs. On the issue of 18% increase, he informed Members it was a consequence of the exponential growth of the entity, though it was vulnerable. Supplementary income from the National Treasury contributed. It had also been agreed not to increase the workload, as the organisation could not cope with it.

Mr F Adams (ANC) enquired why so much money had been spent on consultants and big performance bonuses, yet there were many vacant and acting posts.

Dr Bhebhe said that the use of consultants had declined over the last two years. Sometimes it was impractical and expensive to employ certain skills. If there was no capacity internally, consultants had to be used for the sake of time and delivery. The issue of performance bonuses had been determined by the Board after looking at the performance of the whole entity.

Ms Masehela wanted to know about the type of schools that were being built these days.

Dr Bhebhe said they were building comprehensive schools, which included new facilities like an administration block, library, and computer lab. They were doing away with mud classrooms and inappropriate structures.

The meeting was adjourned.