Department of Public Works Turnaround Strategy: progress report with Minister

Meeting report

Department of Public Works (DPW) Turnaround Strategy: progress report
Mr Mziwonke Dlabantu, DPW Director-General, indicated that DPW’s key mandate – custodian and manager of State’s immovable assets – directly impacts the efficiency and effectiveness of client departments and their ability to deliver services. In 2011, adverse audit findings and the then new Minister’s engagements with DPW confirmed that Department was in dire state, with many areas of dysfunction. Corruption, mismanagement and poor performance led to DPW failing to deliver on its mandate. Prior attempts at change failed due to leadership instability and ineffective change management.In November 2011, the Minister commissioned a rapid diagnostic on the state of affairs. The report findings, presented in January 2012, detailed problems of mismanagement and misalignment. The report also pointed to the need for fundamental reorganisation and immediate interventions to stabilise the Department.

The diagnostic findings assisted the Department to identify and set priorities for stabilisation actions, including leadership instability, asset management, prestige and property and facilities management – with state properties underutilised whilst private sector leasing-in was expanding; below market rates for leased-out properties; over-expenditure on maintenance; maintenance backlog; aging properties; lack of professional property management skills; poor lease management systems; a large number of bad debtors; and a lack of client relations management. The most notable achievements of the Turnaround Strategy included:
- Stabilisation in management and leadership
- Property Management Trading Entity (PMTE) mover from a disclaimer to qualified opinion
- The Department moved from a disclaimer to unqualified audit opinion
- Organisational structures reviewed / First PMTE Functional Structure developed
- Transferred functions and immovable assets from DPW to PMTE
- Significant progress with regards to PMTE operationalisation
- Fraud prevention plans incorporated;
- Fraud and corruption investigated: 330 investigations conducted and 214 finalised (190 disciplinary cases and 24 criminal cases referred to South Africa Police Service (SAPS)
- Appropriate action taken to deal with wrongdoing.

Mr Paul Serote, Head: PMTE; stated that National Treasury approved the operationalisation of PMTE in 2006 although this was subject to specific conditions. Budgets were devolved to user departments and PMTE became the vehicle to effect user charges on accommodation.In 2012, the Minister launched Turnaround Strategy with the operationalisation of PMTE at the core of strategy. In 2014 Cabinet approval led to the phased Implementation Plan to establish PMTE as a government component. The Cabinet approved operationalisation of the PMTE and approved transfer of PMTE functions and budget – 2014 and revised 2015. The Strategic Plan and Annual Performance Plan (APP) of PMTE was approved and in implementation. The priority at the moment was on the capacitation of the PMTE top-management structure – with only two outstanding appointments: Construction Management and Investment Management. The first PMTE functional structure was developed and signed by the Minister and submitted to Department of Public Service and Administration (DPSA) for approval.

In pursuit of a clean audit opinion, the Department has prioritised these key objectives:
- Enhancement of the financial management function for both the National DPW and PMTE to improve audit outcomes
- Enhancement of the supply chain management (SCM) function
- Analysis of the challenges in delivering infrastructure projects
- Development and implementation of a change management strategy
- Implementation of a skills transfer programme for existing staff – no unilateral delivering of outcomes (with comprehensive involvement of staff in all deliverables)
- To appoint unemployed graduates to assist with the implementation of this project. A clearly structured skills development plan for these unemployed graduates must be in place (out of 96 who were part of this programme, 41 are in permanent employ in the department and 55 have been absorbed in the industry).

Mr Serote highlighted that the Department was still experiencing challenges in the lack of lease-in management systems which contributed significantly towards: negative audit outcomes / fraud and corruption. There are stabilisation interventions focussed on an audit of lease-ins and the reengineering of the lease-in business process. From the diagnostic, it became apparent that there were systemic challenges within the lease-in business process (especially in regard to SCM). A significant number of leases had expired and were on a month-month basis (resulting in a significant irregular expenditure). In response, all leases from private landlords going back to financial year 2011/12 were reviewed (a total of approximately 5 300 leases. The review was to determine if the lease payments made were aligned to the lease agreement. In addition, Treasury granted a special dispensation for the renewal of expired leases under specific and stringent conditions. Of the total lease payments from 2011/12 to 2014/15 of R13.3bn, R527 million were identified as overpayments and R 341 million as underpayments. Engagements with landlords revealed that subsequent amendments to original leases agreements were not appropriately documented.

On fraud and corruption cases, a total of 214 cases out of 330 have been finalised as of 25 January 2016. Of these, 38 cases have been referred to the Special Investigating Unit (SIU), 18 to the Business Unit and 3 to SAPS. A total of 18 cases are currently under the internal reporting stage and are to be completed as soon as possible. A total of 94 cases were related to fraud and corruption, 92 to tender irregularities and 23 to irregular expenditure. There are 9 cases that are suspected to be related to nepotism, fronting, collusion or favouritism. The SCM policy is aligned with the current procurement regulatory framework. There is training on policy conducted across the entire DPW family. There is a new SCM structure to align with core business areas of DPW. SCM operational processes have been reviewed and improvements have been effected in the following areas: an acquisition framework for both bid administration and quotations has been developed with checklists, templates, and registers. to ensure compliance and a proper audit trail of SCM processes.

Mr Serote mentioned that the focus on the Turnaround Strategy going forward would pay more attention to the Service Delivery Improvement Framework (SDIF). The DPW adopted an Infrastructure Delivery Management System (IDMS) as a service delivery model. In order to achieve the institutionalisation of SDIF and IDMS in implementing the Business Improvement Plan, the following are critical: mainstreaming and streamlining of departmental programmes in line with Service Delivery Improvement Framework (SDIF) and IDMS component; and Service Delivery Improvement Plans (SDIP) enabled by the IDMS. In conclusion, a total of R150 million was reprioritised to fund the acquisition of Telkom Towers and R76.9 million was reprioritised in the 2016/17 and R81.5 million in 2017/18 in order to compensate the filling of vacancies.

Discussion
The Chairperson welcomed the presentation. He asked if there was integrity in the information to be provided by Ernst & Young as a consultancy to deal with the challenge of the immovable assets register, especially when considering that this is a private company.

Mr Serote responded that the issue was more than just looking at the service provider but ensuring that there are measures in place to deal with the security clearance and the procurement process. The priority is on ensuring that the agreements and contracting that are in place are able to safeguard important information. There is a possible risk that confidential information is sitting on someone else’s laptop.

Mr Cox Mokgoro, DPW Chief Financial Officer, added that the Department has introduced stringent contractual obligations with respect to issues of confidentiality. The members of Ernst & Young team that are working on the immovable assets register are forced to go through a security clearance procedure. The database of immovable assets is currently located in the Information Communication and Technology (ICT) unit within the Department and safeguarded from any possible threat. The Department was also aware that it was difficult to control human behaviour but all the measures are put in place to minimise a compromise of confidential information. The information that is provided by Ernst & Young will be subjected to the audit process and the Department has already provided the Auditor-General of South Africa (AGSA) with 70% of its own information in order to be audited.

The Chairperson wanted to know those stringent measures put in place to minimise the risk of potential compromise of the database of the Department.

Minister Thulas Nxesi responded that the reality is that the risk for the database to be compromised was possible since the Department was dealing with the serious and most lucrative business interests in the sector. People are capable of hacking systems with a highly protected database, including banks, and the best that could be done is to put measures in place that would mitigate these risks.

The Chairperson said he had served as the Minister of Energy for 10 years and there is a unit that the Department had that deals with specialised highest sensitivity measures. Everyone that is assigned to deal with tenders or the procurement process is firstly screened and compelled to use the Department’s equipment without bringing any laptop, recording device, cellphone or notebook. These are top security measures that should be implemented when dealing with highly sensitive and confidential information.

Mr M Filtane (UDM) asked if there had been progress in addressing challenges in the verification of the immovable asset register. It was disappointing to hear that PMTE had been seeking Treasury approval for operationalisation since 2006 as this was something that had negatively affected the operation of the Department. It had been indicated that the 8 years underperformance by the Department culminated in adverse audit findings and 2 consecutive disclaimers and this was largely due to failure to operationalise the PMTE. The question that should be directed to the Department was whether the 2 consecutive disclaimers were being taken seriously. It was also unclear as to whether there had been progress in ensuring that there was leadership stability in the Department in order to curb the problem of high rate of change of executive and administrative leadership. In relation to fighting fraud and corruption, what measures that had been put in place to circumvent fraudulent order scam that had resulted in a loss of close to R31 million.

Mr Filtane wanted to know if the Department was aware of the Public Works’ road infrastructure contract of R220 million in Ports St Johns. This had stalled since January 2016 because people are demanding jobs from the company, despite the fact that 200 people had already been employed by the company. This should be juxtaposed against the report that was recently published by Daily Dispatch that the Department was losing about R180 000 per day on poor management of contracts. The question that should be asked was who responsible for the handling of contracts in the Department as this was embarrassing. He wanted to know when the Department was planning to refurbish the Mthatha High Court as he had been raising the matter for almost two years. The consequences of not improving the security of judges, lawyers and advocates in Umtata High Court meant that justice was being denied. When would the High Court be allocated a budget to ensure that the security of people who are serving in the Court is not compromised?

The Chairperson confirmed that indeed Mr Filtane had raised the matter as early as last year and therefore the Department should at least have a status report on the matter.

Dr C Madlopha (ANC) welcomed the presentation and was pleased by the progress made by the Department on the Turnaround Strategy. The responsibility of Members of Parliament was to do oversight of government departments and its entities and therefore it would be important to get more information on the number of leases that were problematic before and after the implementation of the Turnaround Strategy. What was the progress made by PMTE in filling its top management structure with two outstanding positions in Construction Management and Investment Management? It would be important to know if there was any progress in clearing the lease backlog and the prevention of the accumulation of expired leases. She wanted to know the date when DPW had submitted the draft delegations and responsibilities of the departmental key account managers specified in the operationalisation of the PMTE. This was to determine whether the process was being stalled by DPW or the Department of Public Service Administration (DPSA).

Dr Madlopha said the Committee should appreciate the progress made in fighting fraud and corruption but it would be important to get accurate figures of the number of cases of fraud and corruption that had been resolved before and after the implementation of the Turnaround Strategy. The Committee should be provided with progress and timelines for the completion of precincts planning in order to assist Members when performing oversight visits. The Department together with its provincial departments should build government precincts like police stations and Home Affairs offices in rural areas as “one-stop-shops” as government services were mostly required in rural areas than in the cities. It was pleasing to hear that the Department was planning to significantly reduce the utilisation of consultants as this was one of the challenges of the Department before the implementation of the Turnaround Strategy. The reason that was cited as contributing to the high utilisation of consultants was that most of the personnel in the Department were not relevant to its mandate. How much had been saved from not utilising consultancies? The revival of the workshops in the Department was mostly welcomed but again the Committee should be provided with the timeline in which these workshops would be undertaken.

Ms S Kopane (DA) also wanted to know the targets and the timeframe for clearing the backlog on the leases that had expired. The AGSA report had indicated that there was no control in the Department around lease management and inaccurate information was captured on the Property Management Information System. What progress had been made by the Department on the recommendations made in the AGSA report on the matter? Was DPW able to finalise the reconciliation of all information contained in the information system accurately? The Committee should be provided with information on the progress in the Human Resource management of DPW, especially around the filling in of the funded vacant positions on time. In relation to PMTE, she wanted to know if there was any progress in the filling in of the vacant position for the Chief Director: Information Technology.

Ms E Masehela (ANC) asked for reasons why there were still 93 out of the total of 196 pending cases of corruption and fraud and the strategy in place to expedite the finalisation of these cases. The Department should prioritise the Expanded Public Works Programme (EPWP) as this was one of the programmes that assisted in job creation and fighting poverty.

Mr Dhaya Govender, Head: Business Improvement Unit, DPW, responded that there was indeed a backlog in the management of leases and DPW has approached National Treasury to work on a short-term solution for the clearing of the backlog in the management of leases. The Department was unable to renew all the leases and the bulk of those leases were the ones where the municipalities are in the process of reviewing their properties and therefore there was reluctance to renew those leases. The same problem was also prevalent in provincial government and there are few cases where the estates could not be tracked so as to deal with the trustees of those estates. The Department has a system in place that is able to track all leases up to the year 2020 so as to see when those leases are expiring in order to be renewed on time. This is an endeavour that is in house and it is not managed by any consultancy and it is already proving to be an efficient mechanism for DPW. The Department was currently renewing leases for the next two financial years and all the leases for Mmabatho in the North West province have been renewed for 2016/17. This means that DPW would not have any leases in North West that are to be expired in the beginning of the next financial year in April 2016. The target is to renew all the expired leases and 73% of the leases had been renewed as of 31 December 2015. DPW was on track to renew all the difficult and complicated leases in various municipalities and provincial government, although there are still some challenges.

In order to address the findings of AGSA, around the lack of control, management and lack of proper IT system, DPW has reported through the CFO and the DG that there would be a rollout of the enterprise system for PMTE. The rollout of the accounting and reporting platform was implemented and is currently operational and the system of managing leases was also operational. The pilot work was done for the master database and one was already completed and had been used for the last financial year’s audit. This is basically the information that has been used to manage a further clean up of our leases in the current financial year. The lease module was on track and ready to be operational as of 1 April 2016. The development cost for IE was quite astronomical and this was to be an enterprise solution but the issue of affordability was taken into consideration. A new system was developed taking into account of the business process and appropriate segregations and controls were put in place to manage leases. The information that is captured in the system is able to be verified in DPW Headquarters in Pretoria and this is able to solve the problem of lack of controls and management that existed in the past. The Department was currently working with the Office of the Chief Procurement Officer and the task team (together with the Project Manager and the Chief Director from the National Treasury Procurement Office) was established to review all the work that had been done to date and how the leases would be procured going forward.

Mr Serote replied that slide 5 provided context for DPW in terms of leadership change and the implications this had on the operation of DPW. It should be highlighted that everyone was within an organisation in change and therefore it would be important to provide assistance to people that are within the organisation. The entity was able to identify how the properties were being utilised and where they are located. Each and every property that has been verified is able to be tracked through a Global Positioning System (GPS) location.

Mr Serote replied that the Department was not familiar with all the details about the road infrastructure contract of R220 million in Ports St Johns as this would be in the competence of the provincial department in the area. The usual process in dealing with a similar circumstance would be to deal with the specific contracting in order to get into the root cause of the problem. There is always an evaluation of all possible risks in any contractual agreement and this is to ensure that the project is managed efficiently.

The process for the filling of the position in Investment Management was already finalised but the candidate was snatched by another company in the construction industry and this once again spoke to the scarcity of this particular skill in the market. There was a commencement of the process in trying to fill in the position with urgency. The focus was also on the filling in of the position of the Head of Construction Management. The submission of the PMTE structure to DPSA was done in December 2015 and this was once again one of the exercises of ensuring the success in the operationalisation of PMTE. There is an HR plan in place and there was a continuous evaluation of the HR in order to ensure that it meets the mandate of DPW. There is a committee that meets regularly and mainly focuses on the issues of HR. There is an individual who is on contract and mainly assigned to fulfil the role of Chief Director: ICT.

Mr Dlabantu replied about Mthatha High Court, saying DPW has finalised the user requirement and the procurement process was to begin in April 2016 and the refurbishment of the Court was to be done in the coming financial year.

Mr Dlabantu said that it had already been indicated that the grant that was disbursed to EPWP was only 50% in 2010 but there has been some improvements in this area as DPW was currently at 100% in terms of disbursing the incentive grant. The revival of the workshops was to focus on infrastructure upgrade and the main focus would be in Cape Town and Pretoria. The next step would be to get the necessary skills in the workshops in order to be able to facilitate the maintenance of the facilities.

The Chairperson asked when the workshops would start getting operational as it was not the first time the issue had been raised.

Dr Madlopha added that indeed the question had been asked even before the implementation of the Turnaround Strategy. There are cases where DPW was sometimes outsourcing people to be responsible for the operation of the workshops.

Mr Dlabantu responded that the workshops and the recruitment of people to be involved will commence in the next financial year.

Mr Serote added that the first phase of the workshop on refurbishment of facilities has already started in Pretoria. The priority at the moment was to revisit the principles of what was planned to be achieved by the revival of the workshops. The main focus was to ensure that the workshops are able to be linked to the maintenance programme and this was upon the realisation that there was a weakness in the maintenance programme of DPW. What was being done now was to finalise the maintenance planning and DPW was already familiar with areas that required the main focus. The programme is also primarily aimed at job creation and skills development.

The Chairperson expressed concern that these workshops were mainly based in Cape Town and Pretoria instead of being spread to rural provinces so as to resuscitate skills development in those areas.

Mr Mokgoro replied that indeed the operationalisation of PMTE was approved in 2006 with particular exemptions granted. The expiration of those exemptions was because of the change of leadership in DPW and this meant that DPW was still seeking the operationalisation even today.

The Chairperson interjected and made it clear that the change of leadership could not be forwarded as an adequate excuse for the failure to operationalise PMTE. This was not a good excuse precisely because the Minister was only responsible for oversight of DPW and the substantial work was performed by the Director General. The institutional memory was mainly in the DG who was suppose to take the responsibility of ensuring that DPW was able to operate efficiently.

Mr Mokgoro clarified that it was not just the change in Minister but also change in the Executive Management of DPW including the DG and Chief Operating Officer (COO). On the question of the asset register, the assets have also to be transferred to the PMTE as part of the transfer of functions. DPW has done all the evaluation required for the transfer of assets in terms of the audit. The Department was sitting with about R80 billion valued assets and the balance of 20% was to be completed before the end of the current financial year.

Mr Imtiaz Fazel, Deputy Director General: Governance, Risk and Compliance, DPW, responded that the labour relations unit of DPW has been making a tremendous effort to reduce the number of outstanding cases of fraud and corruption. The Department is forced to follow due process when seeking a conviction or dealing with cases. The report on the cases of fraud and corruption was of 25 January 2016 as indicated in slide 27 but another 43 cases have been resolved bringing the number of completed cases down from 94 to 46. The focus was to keep the number of unresolved cases as low as possible and DPW was moving towards this direction.

Mr Dlabantu responded that DPW has reduced the utilisation of consultancy but there are instances where consultancy was still being utilised. The Department has managed to augment its capacity by recruiting from the very same entities that are assisting DPW so as to ensure that the expertise is able to be transferred.

Ms Kopane asked if there was anyone that had been prosecuted or jailed in the 24 cases that had been referred to SAPS. It was pleasing to see that DPW had provided a number of people that had been suspended without a pay but the Committee could also appreciate to be provided with the number of those that had been suspended with pay and the value of money that was being lost. It would be important to hear if there were any steps that had been taken to recover the money that had been overpaid in the lease payments. What had been done to those that had been underpaid in the lease payment? What are the implications of the two key vacant positions at PMTE remaining unfilled?

Dr Madlopha commended DPW on the progress that had been done on the asset register but still wanted to ascertain if the assets to be completed at the end of the financial year included those in the municipalities.

The Chairperson asked DPW to provide the names and sentences of those convicted of fraud and corruption. It would be important for all government departments to have a register of convicted individuals so as to prevent the situation where unscrupulous individuals would be dismissed in one entity and remerge in another.

Mr Filtane expressed pleasure in hearing that DPW was planning to commerce with the refurbishment of  Mthatha High Court and pleaded that an update should be included in the first quarterly report of the new financial year. It would be important for Members to be provided with the copy of the contract of the road infrastructure contract of R220 million in Ports St Johns within two weeks as DPW was reportedly losing about R180 000 of taxpayers’ money a day.

The Chairperson suggested that DPW needed to find out about main issues pertaining to the road infrastructure contract in Ports St Johns and then report to the Committee instead of being provided with a contract that would say nothing substantial on the matter.

Mr Filtane accepted the suggestion of the Chairperson and then requested a timeline in which the Committee would be briefed on the matter. The handling of the operationalisation of PMTE was taking too long and DPW would need to find ways in which this process could be accelerated.

Ms Masehela asked DPW about the amount of money that had been lost on overpayment on leases. The Department did not provide any response to the question that had been asked on EPWP.

Mr Imtiaz responded that the suspension without payment was one of the first steps that were being taken by DPW and there are no cases of suspension with pay, hence this was not recorded. There was still difficulty in dealing with the matters of fraud and corruption with SAPS as most of the cases are often unduly delayed without any progress report. The capacity in SAPS in dealing with commercial crime appears to be very weak. The Department would need to try and find other measures that could be used to ensure that those who are found guilty of fraud and corruption are brought to justice.

Mr Mokgoro responded that there was roughly a R250 million potential overpayment of leases and this was a huge amount of money. The Department was going the extra mile in terms of engaging the landlords and find a solution going forward, although this was still a difficult exercise.

The meeting adjourned.