Minister and Department of Water and Sanitation on its 2014/15 Annual Report; Audit outcomes by Auditor-General

Water and Sanitation

14 October 2015
Chairperson: Ms J Maluleke (ANC)
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Meeting Summary

The Minister of Water and Sanitation was present at the meeting and gave a brief introduction in which it was acknowledged that the Department of Water and Sanitation (DWS) had underspent, but she said that there were signs of improvement, and that it was important to look at the entire value chain from source to tap. DWS was committed to dealing with regulatory compliance, particularly licences. The Department was planning to move to having multi-purpose dams. Its task was sanitation as a whole, not only bucket eradication, and in respect of the eradication, it was aimed primarily at formal settlements. It was dealing with a policy review of sanitation and water resource management. It was collaborating with the Department of Public Service and Administration, establishing the Corporate Services section, looking closely at capacitation and better job and skills matching, and collaborating with the Department of Cooperative Governance because responsibility for reticulation and supply was in its area. There was still much that the DWS had to achieve.

The Auditor-General South Africa (AGSA) noted that there was overall stagnation in audit outcomes. The Department got a  qualified opinion with findings. Water Trading Entity, Water Research Commission, Trans Caledonian Tunnel  Authority, and Breede-Gouritz Catchment Management Agency received an unqualified opinion with findings. Inkomati-Usuthu Catchment Management Agency got an unqualified audit opinion with no findings. Two of the entities had to correct material misstatements, four reports were considered reliable and useful and six entities submitted on time. However, both the DWS and the Water Trading Entity (WTE) scored only 33% on usefulness and reliability of information. There was lack of compliance with legislation on many aspects. Three entities including the DWS had regressed on management of strategic planning and performance and human resources and consequence management. Some improvements were seen in the functioning of audit committees, except in the Trans Caledonian Tunnel Authority. The DWS had underspent by around R2 billion, with R1.3 billion having to be returned to National Treasury, and there was R1.5 million fruitless and wasteful expenditure, whilst there was almost R88 000 irregular spending. The main causes were the slow management response to addressing the root causes of the poor audit outcomes, vacancies and instability in key positions, and lack of consequences for poor performance.

The DWS then gave a detailed overview of its results, programme performance and audit matters. The vacancy rate for engineers and scientists increased to 17.44%, and the Department was having difficulty attracting the right skills to fill the posts. Allocation of funding was sometimes done without assessing whether projects were ready to be implemented, and that led to low spending of the infrastructure grant. A number of projects were under-achieved, across environmental impact assessments, research, acid mine draining,  eradication of buckets, compiling the Blue and Green Drop reports, and other plans. It was noted that the Department had not managed to spend 15% of allocation of R12 billion. Some condonation had been given. Operational expenditure had increased, for reasons outlined. Budget was moved from non-performing projects to fund projects that required additional funding, and the Ministerial water intervention projects.

The report on the Water Trading Entity noted that plans for reducing debt had not been achieved, and many municipalities were still not paying, and the DWS could not simply cut off water because of the impact on communities, but was requiring them to come up with defined plans for payment. The under-achievement on many of the projects was cited, including creation of jobs, delays in dam projects and development projects, which involved delays or revisions in plans, funding models, and valuations. The Water Trading Entity achieved 27% of targets.

The financial statements for both the DWS and WTE were presented, with explanations of the shortcomings. Grants represented 70% of the budget, but 15% had been under-spent. The delays for underspending in each programme were explained. Similarly, for the Water Trading Account, the breakdown of the finances was given. The operating expenditure here had  increased due to increases in finance costs, depreciation, impairment, and amortisation. The finance cost increases were attributed to timing of the future cash flows and adjustments on the internal rate of return. The employee benefits costs increased by 3%. The surplus did not translate to cash available as revenue had not all been collected, and there was an increase in debtors, year on year. Budget was reallocated from non-performing projects in order to fund other projects. To achieve a turnaround the DWS was going to develop process maps and implement reporting and procedural models and centralise all procurement.

Members asked if AGSA had the power to look into specified municipalities and questioned why the sanitation grant programme had shown difficulty. They wanted to know the exact reasons for under-spending and how the vacancies impacted. Members were worried about the capacity of the DWS. Some Members felt that the AGSA report had not highlighted all points, and questioned whether the Department was in fact making any progress. A Member felt that perhaps the National Assembly needed to discuss the role of AGSA, and particularly whether it should audit service delivery. They questioned the two entities that did not submit financial statements, and asked for a report on litigation and also asked why the indicators could not be better defined.

Members asked the DWS to put more effort into building capacity and strengthening monitoring and evaluation. They asked for specifics on how money was to be recovered from municipalities, what would be done to reduce fruitless expenditure, and said communities were not being told about changes in projects. They were critical of the lack of achievement in risk management, and queried the assertion that this was a new Department, saying that it had existed, albeit under a different name, for many years and all the basics should be in place, and the sanitation function shift should not have made a key difference, as policies had not changed. They were critical of the failure to submit reports and cooperate better with AGSA and its slowness in addressing issues, including disciplinary matters. They asked about ego-technical assessments and how these increased the costs, said that the Committee had still not seen the Blue and Green Drop reports that were promised months ago, and cited numerous instances where services were not reaching the people. They were also concerned that many of the issues were recurring year after year.

Meeting report

Minister of Water and Sanitation opening remarks
Ms Nomvula Mokonyane, Minister of Water and Sanitation introduced the Annual Report by noting that the Department of Water and Sanitation (DWS or the Department) was continuously improving. She said it was important to look at the value chain, from source to tap and tap to source. She noted that DWS is committed to dealing with compliance on the regulatory environment, especially on licences. It seeks to move away from single purpose dams to multi-purpose ones. She reminded the Committee that the Department was not just about bucket eradication, but about sanitation as a whole. The Department is currently focusing on the policy review of sanitation and water resource management.

The Department is also collaborating with the  Department of Public Service and Administration (DPSA) in its execution of work. As a fairly new Department, the DPSA helped the DWS to establish its Corporate Services section . In addition the DWS was going to look at capacitation, with people being better allocated to positions that are in line with their capabilities. Collaboration with Department of Cooperative Governance and Traditional Affairs (COGTA) has produced commendable results because the reticulation and supply of water rests with COGTA, and that had helped the DWS in making use of resources that are under-utilised by municipalities.

Although she said there were positives, it was also recognised that the DWS still needs to strive to do better. She pointed out that there had not been any regression in terms of the audit in this year.

Auditor General South Africa (AGSA) briefing on audit outcomes in the sector
Mr Steven Maluleke, Senior Manager,AGSA, informed the Committee there had been an overall stagnation in audit outcomes in this year. The DWS got a qualified opinion with findings. Entities like Water Trading Entity (WTE), Water Research Commission (WRC) Trans Caledonian Tunnel Authority (TCTA), and Breede-Gouritz Catchment Management Agency (BGCMA) received an unqualified opinion with findings. It was only the Inkomati-Usuthu Catchment Management Agency (IUCMA) which got an unqualified audit opinion with no findings.

With regard to quality of submitted financial statements and performance reports, two auditees avoided qualifications by correcting material misstatements during the audit process. Four reports were reliable and useful, compared to three in the previous year. Six auditees who submitted information did so in time for the audit. There is an ongoing concern about both the DWS and WTE as they scored only 33% on both usefulness and reliability of their reports.

Most auditees were found to have not complied with legislation in the quality of annual financial statements; prevention of unauthorised, irregular, fruitless and wasteful expenditure; management of procurement and contracts; management of strategic planning and performance; human resources; and internal audit and audit committee.

The Department, TCTA, and WTE were found to have regressed on management of strategic planning and performance and human resources and consequence management. There had been an improvement on internal audit and audit committees, with the exception of TCTA which received a finding. In relation to the prevention of unauthorised, irregular, fruitless and wasteful expenditure and management of procurement and contracts, the AGSA recorded stagnation or limited progress. The IUCMA required intervention in the area of management of procurement and contracts.

Commenting on the financial health of the Department, Mr Maluleke said the WRC and WTE had recorded regression. The Department had shown an increase on irregular expenditure, which amounted to R87 935 575 while its fruitless and wasteful expenditure decreased by R1  545 000. The WTE recorded a decrease of R2 954 000 and R581 000 on irregular expenditure and fruitless and wasteful expenditure respectively. The WRC exhibited an increase on irregular expenditure, as this went up by R3 192 678 while its fruitless and wasteful expenditure increased by R1 836.000. The TCTA demonstrated an increase of R11  023 067 on irregular expenditure and its fruitless and wasteful expenditure increased by R2 272 706. The IUCMA and BGCMA did not submit financial statements.

The AG identified the top three root causes for the poor audit outcomes and made recommendations. Firstly there had been a slow response by management in addressing the root cause of the poor audit outcomes. The Department and WTE recorded a stagnation of 33% for the year under review. The AGSA recommended that proper record-keeping systems should be implemented to ensure that the annual financial statements are supported by complete and proper records. The audit committees should strengthen action plans to ensure that financial reporting and related controls prevented misstatements, by engaging with the internal audit unit. Senior personnel should regularly review and monitor daily and monthly processing of transactions to ensure compliance with applicable policies and procedures. Secondly, he noted vacancies and instability in key positions. For the year under review the DWS, WTE, TCTA, and BGCMA recorded a high vacancy rate. The AGSA recommended that all critical positions must filled on time. Thirdly, there seemed to be a lack of consequences for poor performance and transgressions. The AGSA recommended that staff should be held accountable for poor performance and for any transgression.

Annual Report 2014/15: DWS briefing

Ms Babalwa Manyakanyaka, Chief Director: Monitoring and Evaluation: DWS, presented the overview of non-financial performance, focusing on the five programmes of the Main Account: administration, water sector management, regional implementation and support, water sector regulation, and international water cooperation.

For Programme 1: Administration she reported that in respect of training on workplace skills, DWS achieved 73% rather than the 90% anticipated. Lower attendance of training was mainly due to changes in the employees' working schedule and not allocating time-off training. The vacancy rate for engineers and scientists increased to 17, 44% from the baseline of 15%. Of the 215 posts that were advertised, 99 were filled, as the Department could not attract the required candidates. The allocation of the funds was done without the assessment of implementation readiness of the projects. This led to low spending of the infrastructure grant. In addition, there was an under-expenditure in the sanitation function due to late transfer of funds for the financial year under review, as well as lack of capacity on the part of implementing agents.

An 89% compliance was achieved versus the planned 100% compliance with the approved audit plan. The nine projects that were in progress could not be completed as a result of capacity constraints.

For Programme 2: Water Sector Management she reported that 10% of Environmental Impact Assessments (EIAs) were completed, falling short of the target of 20%, in respect of the Western Cape Water Supply system. There were delays in the procurement process. The scope of work to be done needed to be refined and resources needed to be mobilised so that work could be expedited. A 4% reduction versus the planned 6% reduction of projected demand for eight large water supply systems was achieved. Lack of water conservation and water demand management funding within municipalities resulted in under-achievement on this target. In respect of the progress on the revision of the National Water Amendment Bill (the Bill) the DWS achieved 40% rather than the planned 50% achievement. The publication of the Draft Amendment Bill for public consultation was delayed due to the pronouncement of the new Department of Water and Sanitation in May 2014.

None of the planned four river systems had determined resource quality objectives (RQOs) as only draft RQO reports were developed. During the course of the project, it was realised that the draft numerical limits of the upper, middle and lower Vaal needed to be aligned. After gazetting the classes, the stakeholders requested that both the resource and RQOs be gazetted simultaneously, hence the delay. None of the planned compulsory licences in Mhlathuze catchment area were issued, as 500 draft licences and record of recommendation were developed. Lack of dedicated personnel to undertake the task resulted in the under-achievement.

In respect of Programme 3: Regional Implementation and Support, 80% of the planned interventions to prevent water supply, water quality and effluent quality incidents were achieved. DWS is responding to water related crisis as and when the incidents occur. A total of 1 615, compared to the planned 2 441 job opportunities were created through the Regional Bulk Infrastructure Grant. The labour unrests and late issuing of appointment letters to contractors negatively affected the creation of job opportunities.

None of the EIAs for the implementation of the acid mine drainage (AMD) long term solutions in the Witwatersrand were achieved. Further research was to be done in terms of policies, regulation and technology to ensure that the approach of DWS for long-term mitigation of AMD is justifiable with regard to water pricing. Work is now under way to ratify the recommendations of the Long-term Feasibility Study.

There was a proposal for an environmental levy for the mining sector, but only 30% of the targets for this, instead of the planned 50%, were achieved. The determination of a mechanism for a specific environmental levy for AMD had been delayed.

There were plans to replace 88 127 buckets in formal settlements with proper sanitation. Only 20 581 were replaced. Lack of adequate bulk infrastructure in projects, cash flow challenges by implementing agents, difficult soil or hard rock conditions; and service delivery protests all proved to be a hindrance in carrying out the planned work. None of the planned 92 000 existing bucket sanitation systems in informal settlements were replaced with adequate sanitation services. She stressed that the Department was focusing on replacing bucket sanitation in formal areas rather than informal areas.

In Programme 4: Water Sector Regulation the DWS had planned to assess a number of water systems for drinking water supply standards, and achieved 32% as against the planned 55% completion of the Draft 2013/14 Blue Drop Report. The finalisation of the Blue Drop Report was delayed as verification audits had to be conducted in Free State, Gauteng, Limpopo, Mpumalanga, and Western Cape. These negatively impacted on undertaking the targeted 300 assessments.

The planned 50% completion of establishing a proto-national Water Infrastructure Agency and Approved Agency Bill was not achieved. A new proposal on the establishment of the water infrastructure agency that would align with the new DWS was being developed and would be included in the 2015/16 financial-year.

There was a target for establishing economic regulation, and here 53% versus the planned 55% completion was achieved. The implementation strategy on the economic regulation chapters, and the gap analysis have been developed, but the implementation strategy on the economic regulation has not been finalised due to the final phase of consultation.

Another target related to assessing wastewater treatment collector systems for compliance with effluent standards, 20% versus the planned 50% completion on the 2013/14 Green Drop progress was achieved, with the finalisation of the Green Drop report being delayed because verification audits had to be conducted in Limpopo, which negatively impacted on undertaking the targeted 250 assessments.

In Programme 5: International Water Cooperation, two instead of three new strategic partnerships were established with countries in Africa. The signing ceremony was postponed by Zimbabwe. Eight of the planned nine existing strategic partnerships were implemented with countries in Africa. Uganda requested for a postponement. Seven of the planned ten strategic engagements with international and multilateral organisations outside Africa were attended. The SA-EU Joint Cooperation Council had been postponed, and the planned BRICS Urbanisation Forum was postponed.

Overall, the Main Account achieved 59% of what was planned. 14% was not achieved. Partial achievement was at 27%.

Water Trading Entity Performance Report

Ms Manyakanyaka continued with a description of the progress of the WTE. The reduction in paying debt over 60 days was not achieved, and in fact the number of days had increased by 38% instead of the planned reduction to 40%. The non-payment by both Water Boards and municipalities resulted in the increase in the number of debtor days. Water Boards raised the issue of municipalities defaulting in payments and not honouring intergovernmental relations framework.

12% versus the planned 15% completion on project plan of Greater Letaba River Water Resources Project (Nwamitwa Dam) was achieved, with shortfall in relation to the approved Environmental Management Plans and tender documentation for the engineering geological investigation. The appointment of the Approved Professional Person (APP) and professional team took longer than expected, due to the scarcity of APPs for Category 3 dams.

A total of 149 job opportunities were created through Dam Safety Rehabilitation programme, falling short of the target of  315 job opportunities . Delays in three of the Dam Safety Rehabilitation projects were due to outstanding environmental authorisations, contractual challenges and supply of material, which prevented the creation of job opportunities.

Another non-achievement was seen for the planned 5% completion on project plan of Olifants River water resources development project phases 2B and 2D . The delays were as a result of the funding model not being finalised. In relation to Mdloti River Development, the designs were being revised, and that meant that only 5% versus the planned 13% completion was seen. The study on the stability of the dam wall is under way and 50% of affected properties were evaluated. The design could not be finalised as a result of the delay in the appointment of the contractor. In addition, the valuation of the affected 50% remaining properties is still pending, as there is a dispute between the Department and valuator.

Overall, the Water Trading Entity achieved 27% of what was planned. 42% was not achieved. Partial achievement was standing at 31%.

Financial statements: Main Account for DWS

Ms Rebecca Nkomo, Acting Chief Financial Officer for Main Account, DWS, informed the Committee that major findings from the audit report pointed out that the indicators were not SMART because there were no specifics on deliverables and there were no lists to support the numbers. The findings indicated that data collection was done in an inconsistent manner. There were no standard operating procedures. Findings also revealed there were errors in calculation, the Portfolio of Evidence was irrelevant, and documents were unauthenticated. This was a result of poor monitoring and evaluation. DWA had resolved to revise some document, include lists, develop standard operating procedures for all indicators, and establish a dedicated Monitoring and Evaluation unit which would look at monthly and quarterly reviews and verify reported performance.

She reported that grants represented 70% of the budget. Of the R12 billion allocated for the year, the Department had under-spent by 15% (R2 billion). Unauthorised expenditure was still awaiting condonement. R87 million on irregular expenditure was under investigation. R1.545 million was incurred in fruitless and wasteful expenditure. The Department had two qualification areas for the year under review.

She moved on to given more details on the under-spending. In Programme 1, underspending of R68 million (7%) was mainly due to delays in receiving invoices of R46 million in respect of office accommodation and municipal services such as electricity, water, sewage and waste removal, and the imported equipment relating to Data Storage Infrastructure, for which the invoice of R16 million would only be delivered in the 2015/16 financial year.

Programme 2: Water Sector Management had underspent R35 million (7%) in this programme, mainly due to the purchase of laboratory analyses instruments for the national surface water quality programme and an inductively coupled plasma optical emissions spectrometer instrument, which were projected to be procured in the 2014/15 financial-year but could not be procured as planned. These instruments would be delivered during the 2015/16 financial-year.

Programme 4: Regional Implementation and Support also saw under-spending of R1.890 billion (21%), as a result of an allocation of R225 million for the implementation of various water supply projects which included construction of pipelines, steel and concrete reservoirs, and connection of bulk water supply system in the Interim, Intermediate Water Supply programme. The funds could not be spent because of prolonged signing of service level agreements, and the delayed delivery of materials by suppliers. An allocation of R918 million could not be spent because of the delays in the finalisation of the implementation plan by the newly appointed implementing agent and the delays in the delivery of ordered material needed for implementation of various regional bulk infrastructure programmes that would ensure provision of water supply to various regions and municipalities. Another allocation of R389 million could not be spent on replacement of bucket toilets with full waterborne sanitation, with a water and sewer connection to a reticulation network, due to the insufficient infrastructure to support the Bucket Eradication Programme. Cash flows experienced by the implementing agents and severe hard rock and adverse geo-technical soil conditions delayed the excavation process.

In Programme 5: Water Sector Regulation, the under-spending of R33 million (21%) was attributable to the delayed implementation of a R15 million project on implementation of drinking water quality and waste-water management, and the period it took for the draft pricing strategy to be consulted with key stakeholders before it could be approved for gazetting for public consultation. A further R5 million could not be spent on the envisaged African Forum for Utility Regulators conference, which was postponed to June 2015.

Programme 6: International Water Cooperation had 4% (R1 million) underspend, due to the outstanding invoice relating to the participation of the Department in the activities of the 7th World Water Forum which was held in South Korea.

(Tables and graphs were shown to illustrate expenditure per economic classification, irregular expenditure annual movements, fruitless and wasteful expenditure annual movements, and accruals)

Water Trading Account overview

Mr Mpho Mofokeng, Chief Financial Officer, Water Trading Account, DWS, reported that the revenue from exchange transactions had increased by 13% due to increases in volume consumption and annual tariff and interest charged. The revenue from non-exchange transactions increased from R2.08 billion to R2.72 billion due to an increase in augmentation from the National Treasury to fund social portion of capital projects, additional external projects awarded to the internal construction unit, and assets received from the Water Users Associations.

During the year under review, the operating expenditure increased to R9.49 billion. This 25% increase was attributed to increases in finance costs, depreciation, impairment, and amortisation. The finance cost increases were attributed to timing of the future cash flows and adjustments on the internal rate of return. The employee benefits costs increased by 3% to R696 million during the year under review, as a result of the annual salary increase.

He explained that the WTA  operating surplus does not translate to cash available as the higher revenue had not all been collected, and this linked back to the increase in debtors of R1 384 million year-on-year. The increase the figure for debtors year-on-year was due to the interest of R626 million being charged during March 2015, which has not been collected. The increase in revenue from the sale of water is responsible for the balance of the increase in debtors.

During the financial year under review, the budget was reallocated from non-performing projects in order to fund the projects that required additional funding as well as the Ministerial water intervention projects. These funds were taken from the Mokolo and Crocodile River Water Augmentation Project, Groot Letaba Water Augmentation Project-GleWAP, Raising of Clanwilliam Dam, and Raising of Hazelmere Dam, and taken across to ORWRDP-DeHoop Dam, ORWRDP-Bulk Distribution, and Water Services Projects.

In order to turn things around in the Supply Chain Management (SCM) unit, he said DWS is going to develop process maps and Standard Operating Procedures, develop reporting dashboards to track all SCM activities and Regulatory Reporting Requirements, and train all SCM practitioners and line function officials. All procurement had now been centralised to SCM, and procurement below R30 000 which was done by end users at Head Office.

(Tables and graphs were shown to illustrate financial performance as of 31 March 2015, 2014/15 revenue analysis, 2014/15 expenditure analysis, comparison of debtors year-on-year, debtors analysis, cash collection, trend analysis on the audit report, trend analysis on fruitless and wasteful expenditure, and funded projects)


AGSA Presentation

Ms M Khawula (EFF) wanted to know if the AGSA had the power to look at municipalities like Mkhanyakude, Makana and Ilembe, who were wasting money of taxpayers, to make sure that money is channelled in the right direction. She further wanted to know if the AGSA was able to physically go and see if money was being used appropriately, because theory does not assist people on the ground.

Mr Maluleke informed Members there is a sanitation programme grant audit that the AGSA carried out. It can be made available to the Committee. It covers all the project management issues. However, at the time of this audit, the sanitation grant programme was still under the Department of Human Settlements Department. He also enlightened the Committee that when AGSA did an audit, it would try to follow through the money or grant, so officials would visit the project to find out, firstly, if it existed, and if the spending was apparent. These officials could only audit what had been brought to the attention of AGSA.

Mr L Basson (DA) wanted to know the reasons for under-spending. He remarked that whatever the Department did not spend had been lost, as well as the fruitless and wasteful expenditure. Infrastructure projects that were supposed to have been started did not happen. The Department had many vacancies. It appeared that this Department was unable to spend and the situation could not be allowed to continue where money was taken back to National Treasury every year.

Mr Maluleke said, in relation to under-spending that R1.3 billion was part of an accrual. The Department had to do verification before payments were done. The process would be stalled because the Department had capacity challenges around project management. The current Director-General is addressing the matter. He agreed that unfilled vacancies do have an impact on service delivery, because when posts were not filled, other existing resources were being stretched to the limit and quality would be compromised.

Ms T Baker (DA) commented that the Department had consistently indicated it needed intervention on matters related to finances. There was regression in irregular expenditure. Basic errors were reported. She said she was very concerned about the capacity of the Department.

Mr S Shabangu, Senior Manager, AGSA, stated there was an improvement in the Department especially when looking at the qualifications it had received during 2012/13 and 2013/14 financial years. This improvement was due to interventions that were done. The second part of irregular expenditure related to non-compliance.

Mr D Mnguni (ANC) remarked that the AGSA report was not broad in highlighting the  misstatements. He asked what advice the AG would give to the Department when projects were started and developed; and wanted to know if the AG did monitoring at municipal and provincial level. Entities were audited by outside companies yet the AGSA audited the Department.

Mr Shabangu reported that AGSA did engage with the Department every year, but that there were times when they did not get interim financial statements from the Department. AGSA engaged with it and asked it to update the AGSA on what it had been doing, but if no documents were submitted, there was basically nothing that AGSA could do, and it would discover that issues had never been resolved. This happened every year. In regard to municipal and provincial monitoring, he noted that regulatory audits were carried out at these two spheres of government, to look at the value chain. Monitoring is the responsibility of the management.

Mr T Makondo (ANC) stated there was no change in the Department, other than the negative move towards a disclaimer and he felt that the AG was economic about information.

Mr Shabangu agreed that the Department has been reporting on the same issues, and it did not appear to be moving in any direction. There was progress, but it was very slow.

Ms N Bilankulu (ANC) indicated that the AGSA has identified three root causes for the poor audit outcomes. Now she wanted to find out if the AGSA did make time to sit down with the audit committee and senior management of the Department to iron out these problems.

Mr Shabangu explained that all players had a role to play. AGSA did meet with senior management, accounting officers and executive authority. AGSA interacted with these bodies and reported on findings.

Mr M Galo (AIC) expressed concern that the AGSA did not audit service delivery in its scope of audit work. MPs' main interest was around on service delivery, and he thought that this was something to discuss in the NA. When the Committee visited sanitation programmes in the Amathole District, it found that the work that was done was shoddy. If service delivery was not audited, every year the same comments would be made. People needed quality service delivery. The mandate of the AGSA had to be extended to audit service delivery.

Mr Shabangu explained that there were different types of audits carried out. The current type i a regulatory audit, and this is an annual audit that looks at the performance, finances, and compliance issues of the Department or entity. Performance audit looked at the quality of the service rendered in terms of efficiency, effectiveness, and economic value. AGSA did have a unit that looked at the performance audit, and it was quite specialised. He was not sure if the mandate had to change for AGSA to consider that type of audit.

Mr R Cebekhulu (IFP) remarked that there must be a monitoring mechanism to see to it that projects were carried out, and this had to be accompanied by accountability. If officials were failing to deliver, they must be fired. Communities needed quality service. It appeared that the Department had perhaps reported incorrectly, in the financial statements, to hide something from the AGSA.

The Chairperson asked why nothing was said about IUCMA and BGCMA on irregular and fruitless expenditure.

Mr Shabangu said those two entities did not submit their financial statements.

Mr Basson remarked that the Department had requested a rollover of R1.3 billion. There was also predicted to be a shortfall in the new financial year.

Mr Maluleke said the correct figure was R2 billion. The accrual figure had been qualified but AGSA is not happy with that. There were still invoices that still need to be paid.

Mr Mnguni commented that the report of the AGSA also did not deal with litigation, and indicators were not properly shown. In the next presentation he would like to see a list of what projects AGSA had visited.

Mr Maluleke said there was a reason why indicators are not well defined. For example, he said that if the Department said it aimed to do XYZ on construction, and that XYZ amounts to 60% of the work to be done, AGSA needed to know what was encompassed in that 60%.It was difficult to know why that work would not be 65% or 55%. That remains a challenge.

DWS Presentation

Ms Bilankulu commented that the issue of unfilled vacancies seemed to be the major problem of the Department and was affecting service delivery. More effort was needed to build capacity within the Department so as to meet the targets. Monitoring and evaluation also needed to be strengthened. She asked how the Department was going to recover the money owed by municipalities and wanted to know if communities were informed about projects to be done and change of plans when funds were shifted. She also enquired how the Department planned to address fruitless expenditure.

Ms Margaret-Anne Diedricks, Director-General, DWS, said that in relation to recovery of money from municipalities, it had been found that some of the municipalities had no revenue but they needed water services. National Treasury had been given a list of municipalities that owed the DWS money, and they must tell National Treasury how they intended to repay. The DWS was reluctant to cause problems in provision of water to communities, but the municipalities must come up with plans for settling debt. Some of these municipalities service very poor communities.

Mr Mofokeng answered on shifting of funds, and said the communities were not informed about the changes in the projects. In relation to fruitless expenditure, he believed consequence management would help the Department address that speedily.

Mr Makondo indicated that partial achievement in risk management should be seen as no achievement. He further stated that 62% was very high in relation to those needing to be addressed on consequence management, and this would seem to indicate that the right people were not in place, and that screening was not thorough. He remarked that the financial status of Water Boards would remain unchanged if they could not persuade municipalities to pay them. Even if it was true that the sanitation function had contributed immensely to under-spending, he wanted to point out that officials who were in place even when the sanitation unit was still under Department of Human Settlements should implement policy as soon as the function came to DWS.

Ms Diedricks informed the Committee that risk and internal audit was one unit now, in order  to leverage existing capacity. There were high-risk areas, but those areas were given attention.

Mr Mofokeng spoke to the money owed to Water Boards and said the DWS had spoken with National Treasury on the matter. This was an intergovernmental problem, and it was growing at an alarming rate.

Mr Mnguni expressed dissatisfaction with the report of the Department, especially after looking at the AGSA report. The Department failed to cooperate with the AGSA on keeping of records and forwarding financial statements. He was not happy with the slow rate of the Department in addressing misdemeanours and giving out work to service providers without following the right SCM processes. The Department was good at giving excuses for not doing things, but it does not appear to have plans for eventualities like strikes. He wanted to know who set the targets of the Department because the achievement of 65% meant the Department had not met targets.

Ms Nkomo answered that the financial statements and records were submitted at the end of May and re-submitted again later, because they did not provide evidence to support the figures for financial statements.

Mr Mofokeng, speaking to who set targets, said that the Department itself did so, but the main problem lay with monitoring and evaluation. That problem was noted and addressed.

Ms Baker questioned the statement that the Department was “new”, pointing out that the Department had been in existence for a very long time, and taking the view that it was new did not help the report and was disappointing. Mechanisms like filing systems, invoicing, quoting systems and many basic things should have been in place a long time ago. She said she was surprised by the assertion of the Minister that people would be allocated to positions based on their capabilities; this should surely be a standard procedure. She further wanted to know why the EIAs were not done thoroughly, in order to know the geo-technical challenges particularly with hard rocks, in the eradication of buckets programme. She questioned the R6 million cost for demolishing houses. Lastly, she wanted clarity on the additional verification processes for the Blue-Drop report.

Ms Diedricks agreed with Ms Baker that the Department was not new because it had been in existence prior to 1994, but it had had a number of name changes. The Public Finance Management Act (PFMA) was promulgated in ’96 for the making and implementation of plans. Monitoring and evaluation did not exist before September 2014. There were two people who were planning for the Department. The fact that the Department had not met the targets did not mean necessarily that the Department is not doing its work. There are systematic weaknesses in the Department that have been there for decades, and she urged that the complexities be appreciated. Weaknesses had arisen as a result of lack of systems. Most of these systems were never in place previously and that was why it was now said that the Department was moving forward, albeit at a slow pace, as the systems were now being put in place.

Another official from DWS addressed the issue of the Department discovering hard rocks during the attempts to eradicate the bucket system. Geotechnical analyses were not always accurate. For example, drilling at points A and B might discover no hard rocks but it would later be found that between those two points there was a seam of hard rock. In relation to the demolition costs, she said that the contract involved the protection of graves, upgrading of existing access points, and destroying the existing sewerage system. The completion of the project was earmarked for 2017.

Mr Anil Singh, Deputy Director-General: Regulations and Compliance, DWS, responded to the Blue Drop question, and explained that the Department relies on municipalities for report assessments. That was why the Department needs to verify the authenticity of the reports.

Mr Basson commented that the AGSA indicated that problems that occurred in the previous financial year had recurred again during this year, and these sometimes related to basic systems. The Department was allocated money, but it had failed to spend R3 billion, and National Treasury had refused a rollover. If the Department did not spend money, that meant it either does not have capacity or does not have programmes to spend the money on. The end result was that communities had lost out on projects meant for them.

Mr Basson then commented on the Green Drop/Blue Drop report, and stated that the Committee had not seen that report, although the Committee had been given numerous dates as to when it was supposed to be submitted. At one stage, September was to be the final date – yet the report had not been tabled yet so that the Committee could see which municipalities were not complying.

Ms Diedricks said that under-expenditure was standing at R2 billion, not R3 billion. There had been a delay in the appointment of implementing agents in the bucket eradication programme. That was something the Department inherited from Department of Human Settlements. There were many complexities to the bucket eradication programme. It was indicated there must be no implementing agents on the bucket eradication programme, so consideration had to be given to how it must be achieved. The underspending was the result of many complexities the Department was encountering. Another reason was that the Department had to plan thoroughly and not rush into doing things, in order to work out exactly how much replacement of each bucket would cost.

Ms Nkomo added that the rollover request was for R1.6 billion but the Department did not get the rollover as requested. She told the Committee the Department would respond in writing regarding the request for rollovers.

Mr Singh, on the issue of the Blue Drop/Green Drop report, reported that the report was completed by the end of September and it had been delayed due to capacity challenges internally. However, the Minister had first to decide how it must be presented to the public, and Cabinet had to get a presentation on it.

Mr Basson pointed out that during the oral questioning of the Minister, the Minister said the report was completed and had read it. However, this seemed now to be a different story.

Ms Khawula remarked that in Mkhanyakude there were water pipes that had been “dropped aimlessly”. In Mkhanyakude and Mathole, people were given work by these municipalities but failed to deliver on the ground. At Ilembe, people were still drinking dirty water and that problem had not been given attention. Municipalities were given money but service delivery was not happening. In the Eastern Cape, toilets had been built but people did not want to use them. She thought that oversight visits were actually not producing anything.  The Deputy Minister was too lenient on municipalities who failed to deliver water to ordinary people. Black people in Parliament were deceiving other black people; she herself had vowed not to speak English in Parliament because this language was not achieving anything for the people who had voted her in.

The Chairperson mentioned that the AGSA indicated there was progress in the Department. People who criticised the Department made it grow, and it should be achieving more, with people being made accountable. She believed that with proper monitoring the Department would go far.

Mr Mnguni remarked that the Director-General should have been upfront about problems in the preamble. He was impressed by the acknowledgement, and understood that people make mistakes but they must be not so obvious that it appeared that money was just being used without plans or consequences. The Department must stick to management functions.

Ms Khawula commented that during the oversight visit Members discovered that service providers were given water and sanitation projects, and would immediately spend the money on buying expensive vehicles, or opening taverns, and nothing had been done to try to get the money back when projects had been left incomplete. In certain wards, people lost their water meters and were now left without water. The better life promised to people must be delivered.

The Chairperson noted that water meters were the responsibility of the municipality, not of the Department.

Ms Khawula said that is a clear sign that municipalities do not want to work.

The meeting was adjourned.

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