Deputy Minister and Department of Public Works on 2013/14 Annual Report; Committee Oversight Reports

Meeting report

Department of Public Works 2013/14 Annual Report
Mr Jeremy Cronin, Deputy Minister of Public Works, thanked the Committee for the opportunity to present the Annual Report of the Department of Public Works (DPW or the Department) and introduced the delegation.

Mr Cox Mokgoro, Chief Financial Officer, DPW, gave an overview of the key strategic interventions. Some of these interventions were Operation Clean Audit, Operation Project Overhaul, Asset Register Enhancements Projects, the Lease Review Process, Fraud and Corruption, and Property and Facilities Management Prescripts. Key operational issues included the adoption of the Infrastructure Delivery Management System (IDMS) that would serve as a catalyst to improve infrastructure delivery, training of officials on supply chain management processes, and continued efforts to deal with capacity constraints. The DPW had also made significant efforts to operationalise the Property Management Trading Entity (PMTE).

Mr Mokgoro said that his section of the presentation linked non-financial performance with financial results. The Clean Audit Turnaround Project (R134 million) resulted in an improved audit opinion and improved financial controls. The DPW trained young graduates, some of whom were absorbed into the Department. DPW spent R1 million on the ongoing Limpopo intervention and the national Department continued to provide support to Limpopo whilst it was under administration.

The DPW had reviewed 1.3 million transactions between 2009/10 and 2013/14, and approximately R35 billion was detected as irregular expenditure. R1.1 billion of this was identified as transactions conducted under dubious circumstances and these had been referred to investigative authorities.for further investigations. 34 cases were referred to the Special Investigating Unit (SIU); 13 of the investigations had been concluded and reports issued. The SIU was currently dealing with 21 investigations, and of these, 17 had been finalised and were in different stages of reporting.

The Lease Review Report was produced with a Lease Management and Policy Strategy, an Operating Model and a re-engineered Business Process. The Immovable Asset Register Enhancement saw the physical verification of 99  140 properties, resulting in 95% of the scope completed. The augmentation of the PMTE project resulted in a modern and professional client-centric and revenue-focused entity to ensure lowered service delivery costs, sustainability and growth. The three projects were allocated budgets of R12 million, R39 million and R906 million respectively and all three had spent 100% of the allocated budgets. A budget of R36 million was allocated to Inner-City Regeneration. The Prestige budget, for the provision of residential and office accommodation for the executive, amounted to R66 million, of which R58 million was spent. PMTE projects included the development of prisons for the Department of Correctional Services (DCS), magistrates offices, police stations, and museums on behalf of the Department of Arts and Culture. An amount of R2 billion was allocated, of which only R1.4 billion was spent. Mr Mokgoro also gave an overview of the Extended Public Works Programme (EPWP) and said 261 municipalities reported on EPWP targets, with 1  012  664 work opportunities reported through EPWP.

Mr Imtiaz Fazel, Acting Deputy Director General: Governance, Risk and Compliance, DPW, said the lack of capacity to deliver on the Department’s mandate effectively and efficiently was attributed largely to the lack of appropriate property management and construction professional and technical expertise. To redeem the brand value and integrity of the Department, the Minister had prioritised and championed the "Fighting Fraud and Corruption" project. Because of its strategic importance and that fact that the investigations pointed to the Department’s weak governance systems, a structured approach was developed to achieve specific deliverables. This included the Anti-Fraud and Corruption Communication Campaign. He emphasised that supply chain management was at the heart of DPW activities, as it was responsible for provisioning of goods and services to all business operations of the Department. Over time, the supply chain area became progressively more dysfunctional and became a key focus area of the previous audit outcomes. The four discrete areas now identified for tailored procurement regimes were construction projects, property management, goods and services and prestige services.

As the PMTE account constituted 75% of the work and the budget of DPW and it was the largest property portfolio in South Africa, putting the PMTE into good operation had been identified as one of the Minister’s key five priorities for this Administration. The PMTE business model had been revised to address the issues raised by the Auditor-General (AG) and a business case for establishing the PMTE as a government component had been developed and, in principle, approved by Cabinet.

Mr Fazel gave an overview of the audit findings and the corrective action taken by the Department to address the findings. Material under-spending of allocations would be addressed by improved project planning. Concerns around the reliability of reported information and strategic planning and performance management would be addressed by increased oversight and accountability. The proposal on a framework for condonation of spending was presented to the Office of the Accountant-General, and feedback was anticipated by end of December 2014. Irregular expenditure would be addressed by providing the Auditor-General with all supporting documentation for the opening balances. The concerns about the inadequate systems to identify and record all accruals would be addressed by the implementation of the procured billing and accounting system, including the purchasing module.

Ms Mandisa Fatyela-Lindie, Acting Director-General, DPW, emphasised that to address the governance concerns, DPW established a Governance and Access Committee. In order to improve on the accountability for tax payers’ money, a Condonement Committee was also established, to oversee expenditure in the Department.

Discussion

The Chairperson emphasised that DPW managed a huge budget (R6.1 billion) and this turnaround strategy was very important.

Mr E Makue (ANC, Gauteng) said cities tended to deteriorate over time and the media had recently reported how the city of Port Elizabeth had deteriorated. He asked for clarification on the plans DPW had for deteriorating government-owned buildings in inner cities, especially given that it only had an allocated budget of R36 million. Where privately owned buildings in areas like Yeoville and Hillbrow in Johannesburg had fallen into disuse, they became havens for criminal activity.

The Deputy Minister agreed that R36 million would not regenerate the metros of the country, but for the moment that budget was almost completely focused on turning around the Tshwane inner city and basically to create a government precinct in Pretoria. Pretoria did not, at the moment, look like the capital city that it should be. There had been no decision made yet at Cabinet level around the debate to relocate Parliament, but it was a factor that DPW also considered. Other inner cities across the country, to differing degrees, were also not looking good and these problems were part and parcel of the integrated urbanisation of South Africa. DPW’s inner city regeneration plan needed to be part of a much bigger integrated urbanisation approach which involved public transport planning, human settlements planning, and other matters. DPW was the owner of significant amounts of property in the cities and this needed to be used intelligently. The primary reason for setting up the PMTE was to support a more strategic approach to this massive asset.

Mr Makue asked if the EPWP included any plans for artisan training and skills development as academically recognised parts of the programme.

Mr Cronin said that EPWPs provided training to participants in varying degrees and there was a need to review whether the emphasis, in artisan training, should largely rest with Technical Vocational Education and Training (TVET) Colleges, or Sector Education Training Authorities (SETAs). The danger of too much focus on training was that the bulk of the budget would have to go into training and not into giving more people the opportunity to gain work experience. DPW wanted to shift slightly away from training and concentrate on creating sustainable livelihoods.

Mr Makue noted that DPW claimed to be have completed 95% of work on the asset register and he asked if it included international assets.

Mr Peter Chiapasco, Acting Deputy Director General: Asset Investment Management, DPW, said that until 1999 the foreign property portfolio was under the custodianship of DPW, but had since then been formally handed over to the Department of International Relations and Cooperation (DIRCO). These assets were disclosed entirely on the books of DIRCO, and handled by that department, except when it came to disposal. If foreign property was identified by DIRCO as being surplus to its needs, only then would that property be handed over to DPW, who would take over custodianship and, if necessary, disposal.

Mr W Faber (DA, Northern Cape) said the report was very good, but there was not a lot of information on the Northern Cape Province in particular. He asked what DPW’s supply chain management policy stated in regard to lease terms. He reminded the DPW that a previous Minister of Finance, Mr Pravin Gordhan, had ordered that the ten year lease of a new building in Kimberley should be cancelled, because lease agreements could not exceed two years. In the Hartswater and Jan Kempdorp areas there were old police houses that belonged to DPW, but these once-beautiful houses were dilapidated and were being invaded by hawkers. Despite numerous enquiries to municipalities and the Northern Cape DPW, nothing was being done. In Warrenton, on the N12, millions had been spent on an old school hostel to transform the building into some kind of centre. Unfortunately, under MEC John Block, the whole project seemed to have stalled and nobody seemed to know what was going to happen to the incomplete building. He asked Mr Cronin to look into these cases and provide written updates.

Deputy Minister Cronin said that DPW was appreciative of this kind of direct contact and reporting between MPs and communities. Over the last period as part of the turnaround strategy, DPW had reviewed 1.3 million transactions going back five or six years, and had physically verified 99  140 properties in the last year. A massive effort was being put in just to understand where the problem was. DPW took note of the properties mentioned by the Members, and would provide feedback after investigation.

Ms M Dikgale (ANC, Limpopo) asked whether the EPWP could not provide some sort of skills transfer from retired employees, or those planning to retire, to new employees.

Ms Dikgale asked if the Condonement Framework could be clarified.

Mr Mokgoro said the process of condonement prescribed specific processes guided by National Treasury. In essence, he explained that where internal processes of a department prescribed that in order to buy a loaf of bread, three quotations were needed, any purchases of the bread without obtaining those quotations would be deemed to have deviated from policy, and the expenditure would be regarded as irregular expenditure. If there was only one shop or bakery in the community where the bread was obtainable, and it was bought from there, the expenditure, although it did not comply, could be condoned because special circumstances dictated that the deviation from prescribed processes was acceptable. However, he emphasised that if deviations had no valid reasons, different disciplinary actions could be taken.

Ms Dikgale acknowledged that most of what the Minister promised was definitely happening and Members especially appreciated the work done in the Parliamentary Villages.

The Deputy Minister said that, in terms of legislation, there was a Parliamentary Village Management Board made up of primarily of Members of Parliament (MPs). A lot of the signing off on policy around security and priorities was challenged by the difficulty in achieving a quorum, largely due to the work and travelling schedule of MPs, but this problem would have to be addressed, because it was very important that the consultation take place.

Mr M Khawula (ANC, KwaZulu Natal) asked the Deputy Minister to also provide an update on the plans for an unfinished building in Richmond, toward Ndaleni, on which no work had been done for over ten years.

Mr Khawula asked for clarity on the figures; he asked if DPW paid the Auditor-General R59 million in audit fees, and if the R66 million allocated to the Prestige Project included work done on the private residences of the Executive.

Mr Mokgoro confirmed that the R59 million was paid to the Auditor-General in payment for the audit function. National Treasury had confirmed that various departments had complained that the audit fees were quite high and had promised to look into them. The Prestige Project expenditure included work on security upgrades for the executive, but the bulk of this expenditure went to the upgrading of Parliamentary Villages.

Mr S Mthimunye (ANC, Mpumalanga) asked what plans were in place for the next five years, in terms of phase 3 of the EPWP, and how many jobs had been created by DPW so far, and what progress was shown against the target of 6 million jobs.

Mr Stanley Henderson, Deputy Director General: EPWP, DPW, said more than 27  000 youth had been trained over a five year period. As the EPWP moved into Phase 3, training would be upscaled. There was a detailed plan in place for this phase of the EPWP across all provinces. There had been a clear paradigm shift to Phase 3 and clear targets for each province had been set. For 2014/15, the target had been 1  045  000 work opportunities and the performance against that target currently was 630  700 (60% of the annual target) work opportunities created.

The Deputy Minister added that DPW was well on course to reach the target of 6 million job opportunities over the five years of this administration. The number of jobs was important, given the levels of poverty and unemployment, but the impact of the jobs or training on individuals and communities needed to be assessed. At this point, there were no clear answers, because the focus to date had always been on the quantity of jobs provided, but the Department was now working hard to monitor the developmental impact in a variety of ways.

Mr Mthimunye wondered if the DPW had internal mechanism to deal with the ‘hijacking’ of DPW land and buildings. He asked if the Construction Industry Development Board (CIDB) impacted on black economic empowerment (BEE) and job creation in the country.

Mr Cronin said that for several years, DPW had a programme entitled ‘Bring Back’, calling on members of the public that illegally occupied DPW buildings and property to ‘bring it back’. In consultation with the Minister, it was later decided it would be changed in name to "Operation Take Back’. The transformation of the construction sector was hampered by monopolies, and the huge collusion cases that had come up had shown that the sector had been basically dominated by seven or so major construction companies. This paved the way to high levels of collusion and this needed to be stopped, because monopolisation of any sector blocked new entrants and posed a challenge to development. The CIDB became an important tool for government to implement the policy that would see these companies that were involved in collusion being fined, but there needed to be reparation as well. Reparation could include a number of interventions, such as a commitment to training or commitments to socially responsible investments. It was necessary to ensure that there was more and stronger competition and that would greatly advance more black-owned companies, with the CIDB seen as one of the instruments of government to achieve these goals.

Mr Chiapasco added that the Asset Register currently comprised of approximately 36  000 land parcels and over 80  000 improvements or structures on each of these land parcels. The management and control of assets on these estates was a property management function within the 11 regional offices configured in the Department. The lack of a credible asset register and lack of certainty on which custodian in government was responsible for which assets had been contributing factors to the challenges faced. One of the key turnaround projects had been the Immovable Asset Register Enhancement project. DPW had been doing a lot of work in provinces to determine who was responsible for which assets, and had also been meeting with the 11 national custodians so that everybody was now very clear on their responsibility. The Department was nearing the end of the physical verification process, and one of the tests was to determine who was in occupation. DPW had a very clear understanding as to the extent of the ‘hijacking’ or illegal occupation existed. Operation ‘Bring Back’ had been reliant on the honesty of those perpetrating the misdemeanours. However, this had been reviewed and amended to a ‘Take Back’ approach. The Asset Register Unit and other property management divisions within DPW would be responsible for the detection of the assets that had gone astray. This would be coupled with an investigation phase and a retrieval phase, as both national and provincial ventures. The plan was to launch this project at the beginning of the new financial year. Vacant assets that were prone to being illegally occupied were being addressed, in part by reducing the lease portfolio overall to increase the occupation and usability of assets. This would also be achieved by fixing up presently vacant assets, to become meaningful assets.

Ms Fatyela-Lindie said that the CIDB had a new Board, inaugurated at the end of August 2014, and a committee had been established to specifically look at the transformation of the construction sector. Perhaps the CIDB should make a presentation to the Committee on the outcome of the review and what was being implemented to address the challenges. The Construction Sector Charter Council (CSCC) was also busy realigning the codes to promote black economic empowerment.

Mr B Nthebe (ANC, North West) asked to what extent DPW’s asset register was accurate, noting that the Committee had been told previously that occupants of DPW buildings often left without notifying the Department, and those building were then ‘hijacked’ by illegal occupants. He wanted to know why some targets were still not being achieved if the Infrastructure Delivery Management System (IDMS) was in place. He asked if the word “condonement” in terms of the Condonement Framework was the right word, because it did not resonate well.

Mr Mokgoro agreed that ‘condonement’ was perhaps not the best word, but this word was used in the regulations.

The Chairperson asked when the drafting of the DPW Act would be finalised, if there were any pieces of legislation the Department was currently pushing and to what extent capacity was a challenge for the Department, especially in terms of monitoring such a big portfolio.

The Deputy Minister said DPW had no founding legislative framework and relied upon two White Papers, both of which now dated back some years. There were no plans to produce the DPW Act in the next few months and instead the target had been set for the end of this administration, because it needed to be properly drafted. From a strategic point of view, a lot needed to be framed into legislation, and the focus was on getting the strategies in place so that they could be included in the legislation. The Expropriation Bill and the Agrèment South Africa Bill would be introduced to Parliament in 2015. The DPW team currently in place was just beginning to gel. Comments about the capacity of DPW did not necessarily speak to the need for more funding, but rather the need to effectively use the resources already in place, and to instil discipline, deal with corruption and have a clear, strategic understanding of what needed to be done. The PMTE was a big step in the right direction. Other critical areas were projects and construction, and DPW was looking into transforming the Independent Development Trust (IDT) into a government component.

The Chairperson asked why so many construction companies were struggling to get beyond Grade 1 listing.

The Deputy Minister confirmed that in excess of 70  000 companies were listed as Grade 1. The requirement for that listing was that the company should basically simply need to put up R500  to be listed as Grade 1, with no other requirements or evaluations done by the CIDB. This listing enabled the companies to have a ‘foot in the door’. If they wished to progress to Grade 2 and upwards, then companies needed to show that they had some experience. DPW was committed to the development of the sector and to addressing the monopolisation of the sector.

Mr Clive Mtshisa, Deputy Director General: Corporate Services, DPW, said that the Department needed to be properly capacitated to drive programmes between provinces. The turnaround strategy compelled the Department to review its structure, because the core programmes of DPW were inadequately capacitated. The organisational structure put into place during the past year enabled a response to core businesses. The organisational structure was currently being reviewed by the Department of Public Service and Administration (DPSA) and the implementation of that organisational structure would cost R2.6 billion, although the current allocation was R1.6 billion. Through certain policy pronouncements, DPW was able to prioritise key projects, like the operationalisation of the PMTE and governance structures. Work was under way, however, to have 80% of what was regarded as the core business of DPW moved to the PMTE, and the budget would have to reflect that.

The Chairperson said the Committee Members may also wish to follow up on this meeting with written questions. He said that the concerns about the Parliamentary Village Management Board would be addressed. He asked the Deputy Minister to provide Committee members with booklets, by January 2015, detailing the achievements of the Department so that information could be circulated within the constituencies.

The meeting was adjourned.