Department of Public Works on its 2014/2015 Annual Report

NCOP Economic and Business Development

26 January 2016
Chairperson: Mr E Makue (ANC; Gauteng) (Acting)
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Meeting Summary

The presentation covered the mandate of the Department, the Ministerial priorities, a historical perspective and the strategic realignment of the Department, a high level look at the performance highlights of the Department, the performance of the various programmes of the Department and lastly a look at the financial statements of the Department.

The Ministerial priorities of the Department were:
- the creation of six million work opportunities for poor or unemployed people over a five year period through labour intensive delivery of public services and infrastructure;
- making the Property Management Trading Entity (PMTE) operational and transforming the core property business component of the Department;
- establishing a Governance, Risk and Compliance branch to drive anti corruption and to drive the second phase of the turnaround strategy;
- instituting a policy review which would result in a Public Works Act; and a programme of action to transform the built environment.

From a historical perspective, a Treasury report in 2012 had noted the following critical areas: allegations of fraud and corruption; that Treasury approval for PMTE had not been implemented; that there was a lack of service delivery to user departments; that the Immovable Assets Register (IAR) was incomplete; a lack of stability in leadership positions; and negative audit outcomes. To address this, DPW had developed a seven year turnaround plan and developed a strategy to operationalise the PMTE.

The performance highlights was an improved audit outcome in 2014/15 to an unqualified report with a reduced number of items concerning emphasis of matters. There was substantial improvements and the Immovable Asset Register was nearing completion to meet the March 2016 deadline as the Department needed to comply with Generally Recognised Accounting Practice (GRAP) requirements. There had also been progress towards establishing a credible lease database which would assist the Department in not overpaying for leased property. There had been successful completion of the accounting transactions around the transfer of functions to the PMTE and 1.1 m work opportunities had been created.

The Department’s financials were broken down into two separate sets of financial statements, that of the Department and of the PMTE which were prepared on different bases. The former was prepared according to the modified cash basis while the latter was on the accrual basis. The appropriation budget for the Department was R6.1b. The PMTE had current assets of R3.3b and non- current assets of R78.4b totalling R81.7b and with total liabilities of R8.1b. There had been unauthorised expenditure of R5.5m on schools capital expenditure arising out of contractual commitments in the current year as well as R255.6m stemming from prior years, a total of R261.1m.

Members asked when the property asset register would be completed. Was the PMTE operational and fully functional? Could the Department expand on its job creation initiatives with regard to the disjuncture between jobs created and skills development? What was the Department doing to regulate foreign workers in the construction industry who were being employed because they were cheaper to employ? Members said that lease agreements were concluded in the Northern Cape for periods of ten years which were against the law. Were these lease agreements in the Northern Cape investigated? Members asked when the register would be at the point where assets were known and was there a plan to renovate or sell the DPW houses in Hartswater and Jan Kempsdorp? Members said that on an oversight visit to Port Elizabeth, the Committee had observed the state of DPW buildings. What was the Department doing regarding allegations of fraud and corruption and what progress had been achieved? What was the Department’s view on the stability of its leadership positions? Only 180 projects out of 542 had been completed, which was not even 50% but DPW was not suggesting what should be done so that these matters are resolved. What was the Department’s strategy to reduce water usage in its buildings? Was the Department unable to resolve the financial disclaimers of earlier years? Members asked if the 2015/16 PMTE finances would be regularised.

The Chairperson said that his province, Gauteng, had requested a copy of the asset register. He said there was a six page progress report concerning the immovable asset register. Furthermore there was a CD with the data on it. He asked the Department whether it was in order to share this data with the Committee members whilst recognising that the data was not the final product.

The Department replied that for security reasons, information on national key points should not be distributed. The data on the CD was also unaudited data and was subject to change. The deadline for the completion of the asset register remained 31 March 2016.
 

Meeting report

Briefing by Department of Public Works
Mr Paul Serote, Head of the Property Management Trading Entity (PMTE), lead the presentation.

The Ministerial priorities of the Department were:
- the creation of six million work opportunities for poor or unemployed people over a five year period through labour intensive delivery of public services and infrastructure;
- making the Property Management Trading Entity (PMTE) operational and transforming the core property business component of the Department;
- establishing a Governance, Risk and Compliance branch to drive anti corruption and to drive the second phase of the turnaround strategy;
- instituting a policy review which would result in a Public Works Act; and a programme of action to transform the built environment.

From a historical perspective, a Treasury report in 2012 had noted the following critical areas in the DPW: allegations of fraud and corruption; that Treasury approval for PMTE had not been implemented; that there was a lack of service delivery to user departments; that the Immovable Assets Register (IAR) was incomplete; a lack of stability in leadership positions; and negative audit outcomes. To address this, DPW had developed a seven year turnaround plan and developed a strategy to operationalise the PMTE.

The performance highlights was improved audit outcomes since 2011/12 when DPW had received a disclaimer. This had then improved to an unqualified report with emphasis of matters in 2013/14 and in 2014/15 to an unqualified report with a reduced number of emphasis of matters. These were the restatement of corresponding figures, material impairments and material under spending. In this period there was also a transfer of functions as the Department was redefined to include the PMTE.

Turning to programme performance, in Programme 1: Administration, all investigations into 39 fraud and corruption allegations were initiated within 30 days and 1 075 beneficiaries participated in the Department’s skills development programme.

In Programme 2: Immovable Asset management, information on 32 677 properties out of a targeted 56 871 properties had been completed on the IAR. There were substantial improvements and the IAR was nearing completion to meet the March 2016 deadline as the Department needed to comply with Generally Recognised Accounting Practice (GRAP) requirements. There had also been progress towards establishing a credible lease database which would assist the Department in not overpaying for leased property. 180 projects out of a total 542 had been completed within the minimum prescribed variances. There had been 9 429 retro-fitting installations geared towards energy efficiency and 11 buildings were retro-fitted for water savings. The presentation also noted various projects that had been completed for client departments.

In Programme 3 covering the Expanded Public Works Programme (EPWP), it gave a breakdown of the work opportunities created in provinces and municipalities as well as their expenditure of disbursed EPWP integrated grant funds.

In Programme 4: Property and Construction Industry Policy Regulation, the expropriation Bill had been completed and submitted to Parliament for consideration. A revised business case for the Independent Development Trust (IDT) had been developed and was under consideration by stakeholders. There had been successful completion of the accounting transactions around the transfer of functions to the PMTE and 1.1 m work opportunities had been created.

Mr Cox Mokgoro, CFO, spoke to the Department’s spending against its budget. It was broken down into two separate sets of financial statements, that of the Department and of the PMTE which were prepared on different bases. The former was prepared according to the modified cash basis while the latter was on the accrual basis.

Historically there had been underperformance in financial reporting since 2009/10 as reflected in the audit outcomes of these years but there had been a turnaround intervention since the beginning of 2012. This had resulted in moving from a disclaimer to a qualification with a reduced number of issues in 2012/13, and unqualified outcomes in 2013/14 and 2014/15 which was a major achievement and a clean audit was achievable within a year or two.

The appropriation budget for the Department was R6.1b. An explanation of the virements that had occurred as well as explanatory notes on variances to programme budgets was given. 98.9% of the EPWP budget was spent, 92% of the Property and Construction Industry Policy Regulation budget was spent and 100% of the Auxiliary and Associated Services budget was spent.

On the financials statements of the PMTE, he said that since the establishment of the PMTE in 2011/12 where it had received a disclaimer it had made improvements and in 2014/15 had received a qualified audit outcome. PMTE had current assets of R3.3b and non- current assets of R78.4b totalling R81.7b and with total liabilities of R8.1b.

There had been unauthorised expenditure of R5.5m on schools capital expenditure arising out of contractual commitments in the current year as well as R255.6m stemming from prior years, a total of R261.1m.

Discussion
Mr Makue noted that the Expropriation Bill had been considered by the National Assembly but still needed to be considered by the NCOP.

Mr S Mthimunye (ANC, Mpumalanga) asked when the property asset register would be completed. He said this question had also been raised the previous year where it was reported that it was 95% complete. Was the PMTE operational and fully functional? He said there was a disjuncture between jobs created and skills development. Could the Department expand on its job creation initiatives? He said that in the construction industry, foreign workers were being employed because they were cheaper to employ and what was the Department doing to regulate this.

Mr W Faber (DA, Northern Cape) said that lease agreements were concluded in the Northern Cape for periods of ten years which were against the law. Were these lease agreements in the Northern Cape investigated? He also wanted more information concerning the asset register because there were DPW houses in Hartswater and Jan Kempsdorp that were given to police members. The houses were in a state of disrepair and nothing had been done to them for the past five years. How long would it take before they were repaired? He wanted to know when the register would be at the point where assets were known and was there was a plan to renovate or sell the houses in Hartswater?

Mr B Nthebe (ANC, North West) said that on an oversight visit to Port Elizabeth, the Committee had seen the state of DPW buildings. What was the Department doing about allegations of fraud and corruption and what progress had been achieved? Regarding the Treasury approvals of 2006 which had never been implemented, DPW did not speak about consequence management and how the Department was averting such situations going forward. What was the Department’s view on the stability of its leadership positions? The presentation noted the initiation of 39 investigations within 30 days, but when would these be concluded? Only 180 projects out of 542 had been completed, which was not even 50%. The Department should improve on this performance. The Department was not saying what should be done so that these matters were resolved. What was the Department’s strategy to reduce water usage in its buildings? There appeared to be an emphasis in the presentation that the financial disclaimers were because of historical issues. Was DPW unable to resolve these financial disclaimers of earlier years? He used material impairments as an example because these issues should not be carried over year after year.

The Chairperson said that his province, Gauteng, had requested and received a copy of the asset register. There was a six page progress report concerning the immovable asset register. Furthermore there was a CD with the data on it. He asked the Department whether it was in order to share this data with the Committee members whilst recognising that the data was not the final product.

Mr Serote said that for security reasons information on national key points should not be distributed. He added that the data was also unaudited data and was subject to change. The deadline for the completion of the asset register remained 31 March 2016. The Department was also logging the GIS information of its assets. There had been a lot of progress made, given that the Department had to deal with 33 000 land parcels and around 110 000 structures.

On the question on neglected properties, Mr Serote replied that DPW had gone around the country to account for these assets and had a maintenance programme across all the asset classes and was spending R3b on this programme. The programme included an initial assessment of the property and its possible use by government as well as what would be invested into it. It was a big project given the amount of assets that had to be accounted for. The research unit would start its work by 1 February to advise government on the assets in its portfolio. This initiative was also part of the broader turnaround strategy of the Department.

On the progress made in operationalising the PMTE, the Department had managed to resolve a lot of issues and was now dealing with improving efficiency levels. One aspect of the operationalising of the PMTE was the proper transfer of functions to PMTE and that it operated in a professional manner. While it was not acceptable to be operating at 50%, it was still a relative performance improvement year on year.

An area that needed to be addressed was to have proper functional structures. This had been done. The Minister had signed off in November on the new structures and DPW was moving to complete placement of the majority of the top level management positions. The positions of Head of Construction and Head of Investments were still not filled, with the latter position being very difficult to fill. At the level below top management, the Department was targeting property management experts and was also in the market for engineers.

DPW desired a quicker turnaround time regarding the maintenance of its property assets but the quantum and extent of its assets was quite large. The Department wanted to change the manner it was procuring leases. It was reviewing leases and in over half the cases it had overpaid significant amounts. There was no reason why DPW should pay more than the market rate.

Mr Mokgoro referred to slide 33, saying that the restatement of corresponding figures and material impairments were cases of emphasis of matter. An emphasis of matter was not necessarily negative; it was to bring matters to the attention of the department. The matter had arisen because there had been a transfer of functions from the Department to the PMTE which had created certain accounting complexities. Where there were transfers of functions, the prior year's figures had to be restated and because these figures were so large, it had been restated so that it could be put in context.

On receivables, the Auditor-General (AG) was indicating that the receivables had been impaired and it let the Department show the true receivables that could be collected. These were issues DPW had raised and were not corrections by the AG.

Mr Makue asked if the 2015/16 PMTE finance’s would be regularised.

Mr Mokgoro replied that the accounting environment of the PMTE would be stabilised, but that it was a journey within a complex environment and likened it to fixing a car as it was being driven.

On the question on work opportunities versus training, Mr Stan Henderson, DDG: EPWP, said there was no separate funding from Treasury for training, it came from the Department of Higher Education or from SETAs. The total amount of R394m had been procured over the five year period and there were several competing priorities for its use. The Department’s approach was to focus on long term development and artisan development so that it could provide meaningful development. The Department was also exploring partnerships with the private sector companies.

Mr Samuel Thobekgale, an official of the Department, said he acknowledged that the performance of the construction branch was low but improvements had been made but not at the rate it should be. There were two considerations to look at, the Department’s capacity in terms of skills and the number of Department project managers vis a vis the number of projects being implemented. The project implementation management was tied to internal control processes. The control processes had prompted the need to have a specific project called the Construction Turnaround Project to improve the performance of the construction branch. One issue was capacity. Young professionals were being brought into the Department and the Department was able to attract retired professionals. In addition DPW was reviewing its own internal processes. DPW was interacting with other implementing agents like the Development Bank of South Africa, the IDT and Coega. Other challenges had been the migration of projects to the PMTE and communication with clients.

On the employment of foreigners in implementing its projects, the Department tracked the local labour that was used by requesting SA identity documents. In the case of foreigners, the Department verified their status within the country.

Mr Imtiaz Fazel, DPW Deputy Director-General: Governance, Risk and Compliance, responded to the questions raised on the investigations initiated into leasing, on the 39 cases processed in the year under review 2014/15 as well as the overall strategy of the Department to combat fraud and corruption.

On the 39 cases that had been brought in 2014/15 as a part of the overall strategy to combat fraud and corruption, 23 of the cases had been finalised, five were at the internal reporting stage, seven at the fieldwork stage and three were reported to the Special Investigating Unit (SIU). All these cases resulted in 30 disciplinary actions, of which four had been finalised, two had resulted in dismissals, there was one case of suspension without pay, two were found not guilty and one case was not pursued because there had been a lack of evidence.

Looking at the turnaround strategy and the statistics since 2012, there had been a number of inherited cases creating a significant backlog of investigations. To date 330 cases had been investigated of which 214 had been finalised, 18 were at the reporting stage, 36 at the reporting stage, 38 were reported to the SIU and three to the SA Police Services (SAPS). An analysis of the cases showed that 100 cases concerned fraud and corruption, 92 were for tender irregularities, 23 were concerning the abuse of the variation order system and 18 were concerning leasing irregularities.

The 214 finalised cases, resulted in 196 disciplinary matters, of which 103 was finalised, there had been five dismissals, 24 written warnings, 11 final written warnings, 15 suspensions without pay, 17 were found not guilty, 36 were not pursued through lack of evidence and there were 93 disciplinary actions currently pending,

The SIU had a number of proclamations which related to the Department. The leases mentioned by the Committee member came within the ambit of the proclamation of the SIU. All leases concluded since 2003 up to August 2014 were being looked at. There were other proclamations which concerned general procurement and prestige renovations in the Western Cape. In this regard, 40 matters had been concluded by the SIU, 42 disciplinary actions had been referred by the SIU, four senior officials had resigned, five senior officials had received written warnings, six were dismissed, 27 matters were still pending, 19 were referred to SAPS for prosecution and there were eight civil matters to recover over R300m. The Department’s own internal anti corruption unit recorded 34 matters which were referred to SAPS for criminal investigation and two were found guilty of corruption.

The Department’s overall strategy was to pursue a holistic approach to corruption which included focusing on prevention and detection. The Department was beginning to measure fraud risk in the new Annual Performance Plan. It had a more intensive relationship with SAPS and the SIU and with its own internal labour relations unit.

Mr Makue said there was a concern that municipalities were not pulling their weight in creating EPWP jobs When the EPWP had been presented to the Committee the previous year, there had been a lot of interest in it. Now there was an interest in the construction sector.

The Committee agreed that the Department should make a presentation on the sector the next time they presented to the Committee.

The meeting was adjourned.

 

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