Department of Human Settlements 2014/15 performance: Auditor-General, FFC & Public Service Commission briefing

Human Settlements, Water and Sanitation

13 October 2015
Chairperson: Ms N Mafu (ANC)
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Meeting Summary

The Financial and Fiscal Commission said they were concerned that the Department of Human Settlements was not implementing their recommendations. They believed that its under-spending and under-performing rate was due to a lack of capacity.

The Human Settlements Capacity Grant had been under-spent due to it being transferred late. The Commission strongly recommended against discontinuing the grant. They also recommended that the housing function be shifted to capable municipalities, and that those municipalities be accredited.

The affordability of houses for low income households remained a glaring challenge. The FFC were unable to enforce their recommendations. There was also a moratorium on filling posts, which had led to high vacancy rates, and a new decentralised structure would be introduced. Financial disclosure forms had not been submitted to the Commission for three consecutive years, which was a concern. There were also two employees who had been suspended for 499 days, but had since been reinstated. An investigation into the late submission of invoices had revealed some corrupt behaviour, with officials were taking fees in return for paying contractors on time.

The Auditor General reported that the Department’s financial and performance reports still needed material changes before being unqualified. Despite being unqualified, the Department had had the same findings for three years running. The Committee indicated it was not happy with the Department’s performance, especially the under-spending and under-performance in crucial programmes. 

Meeting report

The Chairperson welcomed all present and acknowledged the presence of the Minister, Ms Lindiwe Sisulu. The Deputy Minister, Ms Zoe Kota-Fredericks, joined the meeting at a later stage

Briefing by Financial and Fiscal Commission

The Financial and Fiscal Commission (FFC) delegation consisted of the acting CEO, Mr Bongani Khumalo, Commissioner Mr Sipho Lubisi, Fiscal Policy unit manager, Mr Eddie Rakabe, programme manager of macroeconomics and public finance, Dr Hammed Musa, and researcher Ms Nomonde Madubula. Mr Khumalo led the presentation.

Housing policy regime and delivery since 2009

 

Mr Khumalo said the FFC reported on the housing policy regime and delivery three years prior and three years ahead of the reporting period. There had been a change in policy resulting in the Department dealing with human settlement functions, and some functions being shifted out -- like the transfer of the sanitation function to the Department of Water and Sanitation. These shifts had brought about uncertainty challenges.

 

The FFC’s observations from the overall assessment revealed that in relative terms, there had been a decline in completed housing units in comparison to the budget allocation. This could be due to costs of delivery increasing, or the tighter environment in adhering to norms and standards. Secondly, continued under-spending in Limpopo had resulted in money being shifted to other provinces. There had been no improvement in delivery in Limpopo. It was recommended that if money was withheld due to under-spending, the capacity of the province must be beefed up to absorb the money.

He said the challenges of the division of revenue stemmed from uncertainty around the accreditation process. The result was that certain transfers to municipalities had been stopped, although already assigned. It was important to put in place policies to address uncertainty. The recommendation for accreditation dated back to 2006 and work had been done since then. Most importantly, he noted the relative improvement in performance.

Human settlement and economic performance analysis.

Mr Rakabe said that the property market had remained buoyant, and reported a decline in the application for residential buildings. He predicted that this trend could lead to a total slump in the residential property market if the economy did not improve. Prices were steadily normalising but inflation pressure was likely to push prices down, which would benefit consumers who wanted to buy houses. Prices and interest rates remained high in relative terms, making housing unattainable to the poor. Low income groups were unable to access bonded houses and there was insufficient stock for houses below R500 000. The challenge was that there was no well-located land, and building costs were high. The average price of a house was R1.3 million and was predicted to increase over the next five years. This was above the threshold of many households. Also, 75% of households in South Africa were highly indebted, which impaired their ability to access financing.

Budget allocations

The nominal and real growth of the Department of Human Settlements (DHS) allocation was declining. The DHS had experienced a 3% growth rate in allocation, reflecting the economy’s growth trend. The Housing Development Finance (HDF) grants totalled 97.6% of the allocation. Average expenditure performance had been 98% of budgeted allocated funds, and had been for the past five years. Spending performance per programme averaged 98%. In the case of programme 4, concerns of under-spending in the Eastern Cape and the Limpopo had been raised in 2011/2012. In 2012/2013, 67% of Limpopo’s allocation had been redirected to other provinces and few houses had been built. The FFC had been seriously concerned and had recommended that the DHS work closely with these provinces. The Department had accepted the recommendation but had not implemented it. The province was at risk of under-spending again in the current financial year.

The Urban Settlement Development Grant (USDG) had spent only 50% of its allocation by March 2015 and was at risk of under-spending. The FFC recommended that municipalities that demonstrated the capacity to deliver houses be accredited with the housing function. The municipal Human Settlement Capacity Grant (HSCG) had been introduced for this purpose but due to problems with transfers, it had been seriously under-spent. The DHS had wanted to do away with the grant completely, but the FFC was concerned about municipalities that had already appointed people for this function. If the grant was discontinued, the municipalities would have to take money from elsewhere in their budgets. This would create uncertainty in planning.

Performance outcomes

Mr Rakabe said that there was no great difference between the planned and delivered sites and units, and referred to the financial performances of the Social Housing Regulatory Authority (SHRA), the Housing Development Agency (HDA) and the National Housing Finance Corporation (NHFC). The agencies had performed well, but SHRA had spent only 14% of their allocated funds.

Auditor General (AG) findings

Mr Rakabe said the AG had highlighted material under-spending in Programme 3. The reasons needed to be identified and addressed as this compromised the delivery outcomes of the Department.

He emphasised that the Housing Accreditation policy uncertainty was the FFC’s main concern. He believed the results could be dire for both the municipalities and the DHS. The FFC supported shifting the housing function to the metros. When grants were introduced and terminated abruptly, it created uncertainty. Provincial and municipal offices were neglecting maintenance on assets related to this function due to this uncertainty. If left too late, he believed large maintenance backlogs would be left behind. He demonstrated the large under-spent allocations due to uncertainty in the past financial year. The City of Johannesburg municipality had not spent any of the grant allocation. The Committee should follow up on this matter.

In conclusion, Mr Rakabe said that the Department had performed well and targets had been narrowly missed. He again highlighted that only 8.5% of the HSCG grant had been spent due to its late release, and the Commission did not support discontinuing the grant. They recommended shifting the housing function to capable metros.

Discussion

Mr H Mmemezi (ANC) commented that it was depressing to see the indebtedness of the county’s people and the high housing prices. He asked what could be done to assist them. He said that if the FFC agreed that housing availability was out of reach for many, he would like them to suggest some solutions. He had noted the fact that no corrective measures had been taken for Limpopo and the Eastern Cape, even though they had been advised.

Ms T Gqada (DA) asked what the follow-up process was when recommendations made in the previous financial year were not implemented.

The Chairperson wanted to know about the interaction between the FFC and the Department once a recommendation had been made.

FFC response

Mr Khumalo said recommendations were made on an annual basis, and recommendations were made as per the Department’s request. Any organ of state was able to request recommendations on finance and fiscal matters. Recommendations were made to Parliament, the provincial legislature and organised local government entities. The FFC and the executives would reach certain agreements. However, it remained the responsibility of Parliament to follow up on the implementation. He gave the example of the 2006 recommendation to the DHS, that municipalities that were capable of delivering houses be accredited. The recommendation had been accepted and the next step was to ensure that municipalities had the capacity to be accredited. Around 2011/2012, the Department had approached the FFC to look at the financial implications of shifting the housing function to metros. Some municipalities had been advised to proceed, even though the capacity numbers were not finalised. A decision to review this recommendation had happened and the Commission had not been brought back into the loop. The Commission had expected Parliament to come back and update them, instead of having to read about it in the newspapers. The Commission could not force implementation of its recommendations -- it was Parliament’s responsibility to ensure implementation.

Mr Khumalo thought it more appropriate for the DHS to answer how to help people to afford housing. In 2012, the FFC had conducted a detailed assessment of the forces at play in the housing function and human settlement delivery. The assessment had reviewed how to deliver to the poorest of the poor and the approach to ensure that those most in need were prioritised. They had suggested segmenting the market on the basis of need and priorities. It was considered that backlogs were inherited, and that people moved after benefiting from a house and reapplied in a new area. The Department was looking at eliminating duplications caused by relocation. To address the issue of indebtedness, government was looking at an amnesty for certain debts, although he did not know the outcome of this.

The Chairperson said the municipal accreditation matter needed bigger interaction with the FFC. A meeting between the portfolio committee and the FFC was necessary, as they were big role players. The Committee would also want to hear their views on the capacity grant at that meeting.

The FFC were released from the meeting.

 

Briefing by Public Service Commission

The Public Service Commission (PSC) was represented by the Commissioner, Ms Lulu Sizane, the Deputy Chairperson of the Commission, Adv Richard Sizane, Chief Director Ms Fienie Viviers, Director Ms Carmen Domingo-Swarts, and Parliamentary Officer Ms Nosiphiwe Gwaza.

 

Adv Sizane preceded the presentation by informing the Committee that the PSC had been requested to do a full audit of department’s human resources and integrity in the public service, and to include their findings in the annual reports of the departments. The PSC had also consulted with departments on checking documents and checking facts as opposed to receiving secondary information.

Ms Fienie Viviers led the presentation. She indicated that the PSC had had three years of unqualified audits, with findings. The findings included under-spending in Programme 3 (Programme Delivery Support -- 70.6% of budget spent). The human resources plan had not been in place and a special audit of the Rural Housing Infrastructure Grant (RHIG) had raised general management issues, especially in the areas of oversight and the quality of houses.

The Department’s spending had been within the 2% generally accepted margin of the National Treasury, with the exception of 2012/2013. The achievement of objectives had been low, despite targets being met. Under-spending had been due to the late submission of invoices that had been paid in the following financial year, and a delay in filling vacancies. The expenditure versus performance for each programme had revealed that Programme 2 had the lowest achievement due to the high vacancy rate. The Auditor General’s findings highlighted that when reporting on performance, important targets were unreliable when compared to the source of information. This was due to a lack of standard operating procedures in the Department.

Expenditure trends over the first five months averaged out and were closer to the norm by August. Reasons for under-spending had included spending less on internal investigations, late invoicing and advance payments to the government communication information system.

Service providers’ invoices older than 30 days that had not been paid had amounted to over R 4 million and had been carried over from the previous financial year.

Ms Viviers said that accountability could be achieved if the heads of departments (HODs) visibly supported performance management. It was not evident that the HODs were performing evaluations. Performance assessments had been submitted by 93% of senior management service (SMS) personnel, and 90% of the employee’s assessments had been finalised.

Professional ethics

The national anti-corruption hotline had closed 17% of their cases, which Ms Viviers described as unsatisfactory. The Financial Disclosure Framework required all SMS members to disclose all registered interests to the PSC. For the past three years, no submissions had been received. 22% of SMS members had submitted their forms to their department seniors through the e-disclosure electronic system, but these had not been received by the PSC. Precautionary suspensions should not exceed 60 days. The Department had suspended two employees in the 2014/15 financial year for an average of 499 days.

Transparency

The Department’s website was user friendly and documents were accessible, in compliance with the Promotion of Access to Information Act. A manual containing prescribed information was available in all 11 official languages on the website. The Department’s annual financial reports are also available on the website. Although the AG had found no human resources plan, the Department had submitted a 2012 - 2017 plan, which they had re-issued in October 2015. Their Service Delivery Improvement Plan had not been submitted, but the Department did have a draft. Although the use of consultants had increased, there had been no significant increase in cost.

Human Resources practices

Ms Viviers said the vacancy rate was at 16.5%, which was above the 10% threshold. She explained that this was due to a November 2014 moratorium on filling vacancies after a budget cut. There had been an increase in grievances since 2011. Lodged and resolved numbers included cases which had been carried over. The Department should continue to strive to resolve cases as quickly as possible. The nature of grievances had increased in the performance management area, which had been a general trend in the public services sector. There was a culture of entitlement for merit awards amongst employees, who were then dissatisfied with the assessment outcomes.

Employment equity

The 50% target for women in SMS level posts remained a challenge. In addition, the Department struggled to retain women, given the drop in number of women in SMS level posts since 2013/14. There had been an improvement in the number of persons with disabilities in the past three years. The Department now had eight people, making the percentage 1.8% -- still short of the 2% target.

In conclusion, Ms Viviers reiterated that the Department had received three consecutive unqualified audits. There had been a 5% deviation from spending targets. Although spending on the Rural Households Infrastructure Grant had been a challenge, it had been transferred to the Department of Water and Sanitation. The AG’s findings had been on the usefulness and reliability of the performance information. The Department had had an inability to deal with all National Anti-corruption Hotline cases, and the lack of submissions of financial disclosure forms remained a concern. Employee equity and vacancies needed attention. Lastly, the PSC believed that the Department would be able to spend their budget if the concerns raised were dealt with.

Discussion

Mr Memezi (said it was not acceptable that the PSC allowed for non-submission of disclosure forms. He wanted to know what the PSC was doing about this.

Mr S Gana (DA) requested clarity on how the PSC had arrived at the expenditure performance numbers. He wanted to know how much detail they went into when assessing the achievement of targets. The annual report showed critical aspects of the human settlement function were seriously underperforming. He asked if, for example, a 70% achievement rate meant 70% of reports had been submitted or 70% of targeted work had been done.

He also asked for clarity about the two employees who had been suspended for an average of 499 days, and especially how the PSC had arrived at the 499 days. If the average days were 499 for two people, he asked if this meant the total suspension days were 1 000.

Mr Gana queried whether the PSC believed that the R54.7 million reduction in the budget for employee compensation had been the only reason why the Department’s vacancies could not be filled. He asked how many employees would have been employed if it had not been reduced.

Ms L Mnganga-Gcabashe (ANC) noted that the late submission of invoices was a general problem in the public service sector. She wanted to know if the Commission had discussed this with the National Treasury and how they planned on improving their submission. She pointed out that it was a recurring problem and asked whether National Treasury was helping entities to improve. She added that it impacted on the economy and small business -- it was linked to not meeting contractual obligations, and was putting small businesses out of business. She appreciated that the Department had been able to submit a human resources plan.

The Chairperson reminded Adv Sizani that he had mentioned that the PSC had had in-depth discussions with the Department, and were happy that they had been cooperative. However, she said the cooperation had not translated into a positive report. She asked if the DHS had been cooperating for the sake of it, or whether they went back and dealt with the issues raised in the meetings. She pointed out that there had been three years of non-submission of financial disclosures, and the meetings had been going on for three years.

PSC’s response

Adv Sizani responded that the Department had had a change of leadership and had inherited some problems from their predecessors. It now had an acting Director General. They had been cooperative in that they had given him full access to the current Minister and permission to interact with advisors and the Deputy Director General. They had, indeed, discussed the financial disclosure forms and he had written to the Department, but with disappointing results. The response was that the forms had been filled out, but not filed. He had requested proof and asked for corrective action to be taken. The Acting Director General had noted his response. He assured the Committee that he did not find it acceptable that the forms had not been submitted to the Commission.

On the issue of late invoice submissions, he said the Commission was working with National Treasury and the Department of Performance Monitoring and Evaluation, although they had still found no progress in the last report. He acknowledged that it was small businesses which were suffering, especially black business owners. When the Commission went to the municipalities, they found that they refused to pay interest for late payments. He had written to the provincial offices and municipalities, but with no success. He had also submitted a report, and the President had come out strongly that this was unacceptable. He had no indicators on how to achieve results, but they had asked for reinforcement. He said that because of corruption, they had seen contractors who had their invoices paid on time with a 10% payment to officials. He assured the Committee the problem had been noted, but not resolved.

Ms Viviers explained that the 499 days of suspension meant the employee had been suspended for longer than one year.

Commissioner Sizani addressed the question about vacancies. She said that the Department had had a moratorium on hiring. The audit had taken place after the decision had been taken. The report simply reflected the state of affairs and as it was, with vacant posts. The non-achievement of targets was attributed to the number of vacancies.

Ms Domingo-Swarts said the decrease in the number of females at the SMS level reflected the vacancy rate.

Ms Sizani indicated that there had been a variance between expenditure and performance. She had attended a summit a few weeks ago where the Department had shown how it would remobilise activities to increase spending. Shee was confident that the Department would meet its targets going forward if these plans were implemented.

Ms Sizani drew the Committee’s attention to precautionary suspensions. She said departments had suspended employees for up to five years while paying the salaries. The employee was able to work elsewhere and get two salaries. She urged the Committee to monitor this issue closely.

Mr Gana asked about the cost of the suspension.

Ms Sizani responded that suspension was on full pay. The figures were not in the presentation but the department had provided them to the PSC.

The Chairperson concluded that the Committee did not share the enthusiasm that the theory would be put into practice.

Briefing by Auditor General

Mr Ahmed Moola, Senior Manager, Auditor General (AG) introduced his colleagues. Mr Rehaan Mohammed Ali and Ms Tshegofatso Mahuma were the audit managers for this audit. He briefly explained the scope of the audit before handing over the presentation to Mr Ali.

Mr Ali presented a five year overview of the audits, and said when looking at the bigger picture, it looked like the results had regressed. He further explained that in the past, the AG had audited only the financial statements, and this had been the first year of a full audit.

The Department had had an unqualified audit result this year, as it had for the past five years, but with the same findings for the last three years.

Mr Ali explained that there were six key focus areas of their audit.

- Quality of financial statements: misstatements were flagged and the department was given a chance to make corrections. There had been none this year, but there had been findings in the same areas.

- Quality of performance report: The Department had improved in this regard. They had addressed the usefulness aspect from the previous year, but not the issue of reliability. The Department did not have a standard documented procedure on how the indicators were collected and reviewed.

The report had reflected no findings on the Community Schemes Ombud Services (CSOS) entity but as a new entity, it had had limited operation, so it was not a true reflection of events. The Committee would get a better picture in the next year.

- Compliance with legislation: the AG had reported on material findings in this regard. The human resource plan had not had implementation plans submitted annually for the last three years. The National Home Builders Registration Council (NHBRC) had had a non-compliance finding on irregular expenditure, but it had been a decrease from the previous year. The DHS had had findings on how they accounted for their performance information. The CSOS findings were regarding submission of quarterly reports and posts not being filled until year end. Mr Ali explained that most of the CSOS issues stemmed from their being a new entity.

- Financial health: Mr Ali highlighted the CSOS funding model. In their budget for the coming year, they had accounted for money they would be receiving from levies, but levies had not been legislated yet. The concern was that if the levies were not legislated, CSOS could have problems meeting their objectives.

- Human Resource management: The DHS had long outstanding vacancies due to the reduction in the employee compensation budget.

- Information Technology: CSOS policies had not been approved by year end. The NHBRC and DHS had not approved their security policy and disaster recovery plans. The NHBRC were in a transition period to a new system, which explained why their policies were not yet finalised.

Mr Ali went on to elaborate on the findings in the key performance areas.

- Quality of financial statements: the financial statements of the DHS had contained material errors before the AG had recommended changes and without the changes, the financial statements would have been qualified. The NHBRC had been in the same position last year, but had been able to improve.

- Quality of performance reports: the DHS had improved the usefulness of the performance report, but both the Department and the NHBRC had struggled with regard to the reliability of the reports due to poor system designs. The CSOS had had no material findings on usefulness or reliability.

Findings in the area of non-compliance were from the NHBRC, where contracts had been extended by unauthorised persons. This had led to an irregular expenditure finding. They also had had a significant reduction in irregular expenditure, especially from previous year’s contracts.

Ninety-nine percent of the unauthorised, irregular, fruitless and wasteful expenditure had been from the NHBRC, but it was reducing each year and the method of detection was improving too. Most of the fruitless expenditure had been from penalties to SARS.

- Combined assurance model: This model sets out the responsibilities of each role player to ensure credible financial and performance reports in the entities. The levels of assurance are the management assurance role by senior management, the oversight assurance role by the internal auditor and the audit committee, and the role of the independent assurance level by the AG and the Portfolio Committee. The assessment of assurance providers was that action plans had not been effective in addressing findings, since there had been the same findings for the last three years. The Internal Audit Committee recommendations had not been implemented and action plans had not been reviewed for effectiveness.

The leadership needed to ensure a culture of honesty and accountability. The AG had issues with ensuring repeat findings were addressed.

The AG had flagged community schemes as a warning area, as they were aware that the process of filling vacancies was in progress, but needed monitoring. The AG realised that some policies needed to be updated.

There had been a risk management finding at CSOS due to the lack of an internal audit unit. An audit committee had subsequently been set up.

Mr Ali discussed the root causes of the findings. There had generally been a slow response to addressing audit outcomes by the NHBRC and the DHS. The instability in key positions in CSOS and NBHS had subsequently been addressed by filling the positions. Consequences for poor performance had been addressed and were no longer a significant finding in the current audit report.

The AG had made recommendations to address the root causes. They had recommended that the entities stick to action plan timelines and also assess the implementation of action plans. They should fill key positions as soon as possible, giving priority to the Chief Financial Officer. The lack of consequences had been a significant finding, and they recommended that the executives should perform assessments more frequently and ensure consequences for poor performance.

There had been no movement in the entities not audited by the AG. The Estate Agency Affairs Board (EAAB), the Social Housing Regulatory Authority (SHRA) and the National Urban Reconstruction and Housing Agency (NURCHA) had had the same audit findings in the current audit report as the previous audit report.

Discussion

Mr Mmemezi asked what the responses of the agencies had been for the repeat findings.

Mr Gana asked if the AG waited until they received the reports from the departments, or if there was an ongoing conversation to check if the departments were willing to fix problems like the credibility and HR plan. Did the AG take into account the audit outcomes of the metros, as 90% of financing was transfers to the metros. He believed it would give a fuller picture to know how provinces themselves were doing, as the bulk of the money went to them. Lastly, he recalled that the transfers schedule had been raised in the FFC report, where a grant had been transferred only one month before the financial year end, and he was not picking this up in the AG’s report as a point of concern.

The Chairperson said the audit outcomes depended on the quality of the financial and performance reports. If the AG had not given the Department the opportunity to correct them, they would have had a qualified outcome. She asked whether the opportunity to correct included training departments to understand what the AG needed them to submit. She commented that if the executives had a problem with assurance, the outcomes would not improve.

AG’s response

Mr Ali responded that the DHS makes the allocations to the metros, and the AG then measures the output of houses against targets. He explained that they could not audit all aspects at one time, and in this audit they had looked at grants and a few other issues covered in the presentation. However, they did have reports that would look at how provinces were spending money. This was also included in the audit outcomes of the individual provinces and in the consolidated report. The report was due to be released in the next two months. Schedule payments were audited by means of a test for the most significant grants. But Mr Gana’s suggestions would be taken into consideration for the next audit cycle.

Ms Mahuma explained that the AG did interim audits, during which entities were given the opportunity to correct and resubmit reports. They had engaged with the accounting officer who had said the DHS had a HR plan but that it was not relevant anymore. They had committed to developing a new plan.

To address repeat findings, the AG briefed the departments on how to account for financials and within two weeks of receipt, they gave recommendations on how to implement systems that improved findings. The AG also looked at action plans to see if they would address the findings.

Mr Moola concluded by saying the AG could opt to audit certain entities. They monitored audits over entities which they did not audit, and consulted on appointed auditors. Their role was to provide guidance and to attend some audit committees. The long term strategy was for the AG to audit all the entities.

Presentation by Department of Human Settlements

The Department of Human Settlements (DHA) delegation was led by the Acting Director General, Mr Mbulelo Tshangana.

He started by presenting the Department’s overall performance, where 70% of the annual performance plan had been achieved (102 out of 146 targets). The Administration programme had achieved 74% of its targets. The Human Settlements Policy, Strategy and Planning (HSPSP) programme had achieved 52% of its targets. Programme Delivery Support (PDS) had achieved 80% of its targets, while the Human Settlements Development Finance (HSDF) programme had achieved 86% of its targets. Departmental expenditure of allocations, according to their programmes, showed that Administration had spent 98%, HSPSP 98%, PDS t 71%, and HSDF 99% of their allocations.

Mr Tshangana highlighted the qualitative performance achievements, including community outreach programmes and a publication on the Department’s progress. Strategic support achievements included finalisation of the medium term strategic framework, evaluation of the key focus areas, drafting of the White paper on the Human Settlement Act had commenced. Provincial policy deviations had been addressed by writing to the provinces.

The DHS had delivered a total of 12 533 people’s housing process units. They had also entered into collaboration and partnerships with rural municipalities, small business agencies and youth programmes. The DHS international relations programmes had gone as far as Denmark, Cuba and the rest of Africa.

National Upgrading Support Programme (NUSP)

Mr Tshangana said that there had been expenditure challenges in Programme 3, but the NUSP programme had performed well. The Department had taken on an aggressive approach for municipalities to adopt NUSP plans. They had invested in packaging programmes and have given R20 million to the Housing Development Agency for upgrading. Knowledge of products and services had been provided, as standard operations procedures were documented and courses are provided.

Medium Term Strategic Framework (MTSF) targets

The MTSF targets had been broken down into five-year and annual targets. The DHS had delivered 120 000 adequate housing units -- 80% of the target. They had achieved 49% of the annual informal settlements upgrade target. 84% of the individual units for subsidy housing target had been achieved. The target for affordable housing loans had been exceeded, as well as the target for informal settlements assessed. The Master Spatial Plan had been created to identify well-located land for affordable housing. Delivery of title deeds remained concerning. The biggest challenge was funding and the capacity of municipalities to manage it properly. The Department had secured 2 000 hectares of well-located land for poor and middle-income households. Six municipalities had been targeted for housing function accreditation. Consultation with stakeholders had been completed. The MEC had required more time to study the process before accrediting the municipalities. The department had not performed well in delivering affordable rental housing options.

Most provinces had spent 100% of their Human Settlements Development Grant, and over-expenditures were not significant. The Eastern Cape and Kwa-Zulu Natal had performed well in delivering units. Limpopo had started with an adjusted budget after R6 million had been shifted. 2 000 units had been delivered. Gauteng had received the largest share of the allocation -- R 4.4 billion. Some of the money had gone to disaster recovery and the rectification of some houses due to hailstorms and other disasters. This had affected Gauteng’s performance. The Finance Link Individual Subsidy Programme (FLISP), targeted at lower and middle-income households, was under-performing. Some provinces were spending a significant portion of their budgets on rectification. The Department prefered prioritising building new houses over rectification.

Mr Tshangana presented the Urban Settlement Development Grant (USDG) expenditure for the metros. He pointed out that Ekurhuleni and the City of Cape Town municipalities had massive roll-overs. He commented that it showed poor planning when municipalities had large acquisitions at the end of the year. The Department was concerned about the Buffalo City municipality’s spending on support functions. He believed the City of Cape Town and Ekurhuleni municipalities needed urgent attention.

The USDG grant had been approved before the policy was approved. The grant framework should be informed by the policies. The USDG policy was going to Cabinet and it could affect the dispersion of the capacity building grant, as the two informed each other. It may not be necessary to have this grant, as there was a recommendation that 5% of municipal grants should be for capacity building. There had been a significant increase in the utilisation of consultants, meaning departments were not building capacity.

Human Resources

There had been two suspensions of more than two years. The total number of vacancies was 178, including the office of the Director General and the Chief Operations Officer. The HR plan was valid until 2017, but it needed to be aligned with the MTSF. The Department was reviewing it. Mr Tshangana explained that losing R54 million in compensation grants had created a shock in the system. It had become difficult to fill positions, so a moratorium had been introduced and a prioritisation of positions. National Treasury had supported the idea. He believed there was a correlation between poor performance and high vacancy rates. They wanted to fill vacancies according to the new structure. Critical positions should not be left vacant for more than a year. The CFO, internal auditor, and others had been shortlisted. Some managers were acting in positions to fix the budget.

Audit opinion

Mr Tshangana said an unqualified audit was not sufficient. The Department was aspiring for a clean audit with no material findings. They were working towards making the significant important targets more reliable. The financial statements had two errors that had been avoidable. Poor planning and poor procurement processes had led to under-spending. The Department had improved on this.

Mr Tshangana highlighted the department’s current challenges. There was a lack of capacity. They would find capacity in either their agencies or departments. Investments in project packaging were a problem, more especially the planning. Stakeholder engagements needed to include their beneficiaries and trade unions too.

Motivation for regionalisation

The need to improve monitoring and evaluation had led to the decision to regionalise. This would allow for real time intervention in problem areas. The new structure had three regions. Region one consisted of Gauteng, North West and Free State. Region two had KwaZulu-Natal, Limpopo and Mpumalanga. Region three had the Northern Cape, Eastern Cape and Western Cape. Each region had a manager. This structure reduced the gap between national government and its implementing partners.

The Department had an action plan and deadlines in place, and believed the structure would be running before the end of the current financial year.

Discussion

Ms Mnganga-Gcabashe said that not attending to the AG’s concerns was a worrying trend. She said the implementation of the regionalisation of monitoring should be concluded as soon as possible. She agreed that the late submission of invoices was putting small businesses out of business. She asked why there was a lack of capacity in so many departments. The brain drain needed to be dealt with and succession plans developed in different branches. She believed the skills transfer would help to maintain performance when people resigned.

Lastly, she said the FFC had indicated that they were concerned about delays in accreditation for municipalities for the housing function. She suggested that the Department should invite the FFC to discuss their decisions. The FFC should not be getting updates and information from the newspapers.

Mr K Sithole (IFP) noted that it was not the first time that Gauteng and Limpopo had under-spent their budgets, only to have them almost depleted by the financial year end. He asked what mechanisms were in place to monitor this behaviour and to capacitate these provinces.

He wanted to know what the department was planning on doing regarding the poor performance of the Community Residential Units.

He also raised the issue of the shocking expenditure on rectification by the Eastern Cape Province. He asked how the Department was planning to help in the Eastern Cape.

Mr Sithole said he was very unsatisfied with the monitoring and evaluation of houses by the NHBRC. He had visited the Eastern Cape and the constructed houses were registered, yet very poorly built. He showed the Committee pictures on his cell phone. He said it had come to his knowledge that the NHBRC were taking up to six months to visit sites.

He asked that the Department assist in capacitating officials, as there was a substantial budget for it. The results showed that municipalities were underperforming and under-spending because they had no capacity.

Lastly, he said the vacancy rate was an ongoing concern.

Mr N Capa (ANC) noted that the Department had been able to highlight problems in the human resources area, but said there should be clear indications of resolutions. There was a link between poor performance and capacity. He asked what the skills retention strategy and the performance management assessment plans were. He believed that if an official did not perform, then their job should be at stake.

Mr Gana believes the biggest challenge was that money was being spent, but it was unclear what it was being spent on. He noted that the delivery of houses was going down. He reminded the Department that they were dealing with people’s livelihoods so when they were unable to deliver 80 000 houses, it translated to 80 000 people who could not be adequately housed.

He said that Gauteng had spent R 31 million on rectifications and had been unable to deliver their targeted units due to fixing asbestos roofing. He asked where they were recording the asbestos rectifications. Provinces should not have high top structure deliveries and high rectification bills. The Department needed to investigate this, as they were spending too much on fixing the houses that had been built.

Mr Gana queried the quality of targets set. He asked if the achievement of targets was in the report writing and submissions, even if the content of the reports showed a lack of success in making a difference in the lives of people. He was concerned about the fact that two-thirds of houses did not have title deeds and this was adding to the existing backlogs. He also requested a brief on the nature of the 499 days of suspension of the two employees.

Mr Mmemezi felt the Department needed to do better in delivering houses. He had noticed the inclusion of private home loans in the project figures, and asked for clarity on why they had been included.

He said Gauteng was historically a well-performing province and wanted to know what interventions were planned. The reliability of the explanation had not been good. He asked for evidence of expenditures, and for the expenditures to be quantified.

Even though the Limpopo allocation had been redirected, the problem was not fixed. He recalled that the Department had sent someone to assist at the province, but with no impact. The people of Limpopo could not be compromised forever and there needed to be consequences.

Regarding rectifications, he asked why the contractors assigned were not fixing the houses out of their own pockets when they built faulty houses.

Lastly, he said he felt strongly about suspensions that had no hearings within a month.

The Chairperson asked if the Department foresaw meeting their targets by the next audit. She looked at Programme 1, and said even though 98% of the budget had been spent and targets met, issues that spoke to audit outcomes had not been done. For example, the audit committee had still not been fully implemented.

She asked for an update on the anti-fraud and corruption policy that they were going to put in place. She expressed concern about Programme 3, as it was the backbone of the Department, yet it was the most under-performing programme where informal settlements were affected. She said the under-performance of the NUSP programme was what would impact local elections.

She said the White paper had no timeframes. It was continuously in progress and the Committee needed to see progress. The Department needed to make sure that a better story was reported on in their next report. She believed the audit outcome would improve if they improved on the human resources issues at the management level.

Mr Tshangana responded to the question regarding the trend of not responding to AG issues. He said they did get recommendations on a quarterly basis and would put them into action in future.

He assured the Committee that the issue of late submissions was being discussed at management meetings. The big issue was that small contractors were not able to sustain themselves. Project level verification needed to be done on time, but the matter was being dealt with.

He explained that the “brain drain” problem was across all municipalities and needed the collaboration of all three spheres of government. The private sector was reluctant to work with government because of how long it took to approve matters. The new regionalised structure would help to speed up processes and with accountability.

He agreed that it was fair that the FFC be briefed, especially when the Department took a decision to change approaches. He said they had overlooked the step of informing the FFC.

Mr Tshangana said there was a task team in place in Gauteng. The challenge in Gauteng was that they were finding it difficult to recover from previous contractual obligations, as well as a cash flow problem, in order to upscale. Contractors could not be asked to upscale if they did not have the funds to do so. Also, Gauteng was spending a significant amount on asbestos rectification and hailstone damage. They were doing an asset verification exercise. He believed Gauteng would turn the tide and he recently had spent time with them to find out how far the undelivered 30 000 houses were.

He was confident that this year Limpopo would not have redirected funds. The service providers doing project packaging had struggled with procurement in 2012. In 2013, they had made late procurements. He had checked last year to see if they would spend their entire budget, and had found that R500 million had not been spent and a roll-over had been applied for, so he thought the Department had done the right thing by reallocating the budget. New contractors had been appointed. Another challenge was that the contractors were going for small deliveries and the Department had encouraged them to go for big deliveries.

He said the Community Residential Unit (CRU) performance would improve with the standardisation of project policies, cost and scale of units.

He said that there was a backlog of rectification units in KwaZulu-Natal and the Eastern Cape. Some units had been developed before the NHBRC was established. He explained that where units were not built properly, the contractor was responsible. If they could not fix the units, they were blacklisted. The NHBRC had a comprehensive report on rectification.

He said the PSC had looked at the vacancy rate before the sanitation component had been moved out of the Department, and had not factored in the rate without the sanitation component. He admitted that it was still very high.

He told the Committee that the Department did have a performance management plan where the performance assessments of individuals were done after assessing the branch and chief directives. He agreed that the performance of the director general and the branch should talk to each other. Where they found no performance, they wrote exception letters when it was an acting arrangement. He said the Department was striving towards perfecting good performance agreements.

He said that the National Treasury wanted the Eastern Cape to focus on areas with large backlogs, yet their allocation had not been aligned with where there was a need.

He assured the Committee that they understood that they were contracting to achieve the organisational goals, and their core business was housing delivery.

Mr Tshangana said he would report on the impact of the people seconded to Limpopo, as he was going to monitor the situation the following week.

He conceded that the NUSP programme had not been performing for some time. He believed it was criminal that there was under-spending on the programme, especially with informal settlement upgrades, and now the budget was being reduced. He said the biggest challenge was slow procurements. There was a mismatch of skills and the Department would tighten up HR issues.

He said the fraud prevention plan was in place and had been signed off.

Mr Neville Chainee, Deputy Director General, added that the title deeds now had a steering committee delegated to it as the provinces had not done enough. Last year the title deed backlog had increased. The steering committee had done a clean-up operation and found that the problem did not lie with the Deeds Office, but with the Department. He said that the suspended employees had been reinstated.

Mr Tshangana added that the suspensions had been delayed because there was a case within a case. The employee had challenged the process before the case could start.

The Chairperson reminded the Department to submit financial disclosure forms to the PSC. She asked that next time the Department met with the Committee, they must report on what had happened to the bursary scheme.

The meeting was adjourned. 

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