The Department focused on the key aspect of the variances between the projections and actual expenditure, as well as the reasons for under-spending the budget. The variances included money not transferred to other institutions due to outstanding documents; unfilled vacant posts; delays in procurement of services and contractors; late receipt of invoices from service providers; and invoice and memorandum of agreement finalisation. The underspending also included the outstanding bonuses and pay progressions for senior management. The first quarter analysis report outlined a projected spending of R1.9 billion, but the Department overspent by R101.978 million amounting to actual spending of R2.002 billion.
Members’ questions included why the majority of the delegation was in an acting capacity; the causes of delays in invoice finalisation and transfers; funding for vacant posts; the implications and impact of not achieving the performance targets; whether the clean audit received by the Department translates into effectiveness in delivering projects on time; progress in the Vaal Waste Water Treatment Works (Sedibeng Water Sewage Scheme) and the R10 billion attached to it; why the implementing agents that do not perform and deliver continue being used by the Department; whether there are means for monitoring the money the Department transfers, mechanisms in place to ensure that the money transferred is used for the intended purposes; and the status of those projects that were allocated funds.
Fourth Quarter Analysis Report: briefing by Department of Water and Sanitation (DWS)
Mr Sifiso Mkhize, DWS Acting Director-General, took the members through the fourth quarter 2015/16 analysis report and highlighted the following;
The Department had a budget of R15.747 billion, and spent R15.557 billion, leaving under-spending of R189.558 million. The under-spending is mainly due to:
- Programme 1: R1.886 million was not transferred to other organs due to outstanding documents
- Programme 2: Unspent R15.629 million is a result of unfilled funded vacant positions
- Programme 3: Unspent R107.693 million due to delays in procurement of services and contractors by implementing agents (IAs).
- Programme 4: Unspent R55.099 million is due to late receipt of invoices.
- Programme 5: Unspent R9.249 million is due to delays in Water User Association (WUA) invoice finalisation and transfer to Water Research Commission (WRC) because of delay in finalisation of memorandum of agreement
Under-spending in Compensation of Employees and Goods and Services is mainly due to:
- Outstanding performance bonus and pay progressions
- Outstanding salary increases for senior management staff; and
- Outstanding invoices for office accommodation and utilities, international travel, and for work done on various projects.
Although DWS is underspending in Compensation and Employees and Goods and Services, there were areas of overspending in transfers and subsidies, where payments related to employee social benefits could not have been anticipated. For Capital, the previous financial year’s invoices for Regional Bulk Infrastructure were only paid during the current financial year.
With regards to provincial and municipal conditional grants, the municipalities and provincial implementing agents spent less of the transferred conditional grants. For the Municipal Water Infrastructure Grant, only 47% was spent. Water Services Operating Subsidy spent just 34%, whilst Rural Households Infrastructure Grant spent 53%. The significant variance between funds transferred and spent is due to the different financial years between the Department and municipalities or implementing agents.
First Quarter 2016/17 Analysis Report
The projected budget expenditure for the first quarter was R1.9 billion, but the actual spending amounted to R2.002 billion. This left DWS with an overspending of R101.978 million. This was due to the same reasons as outlined for Quarter 4. The conditional grants to provinces and municipalities are due in the second and third quarters which are in line with the National Treasury approved payment schedule.
Ms M Manana (ANC) commented that she is not impressed that the majority of the delegation are acting in their positions. She worried if the delegation would be able to attend to the questions appropriately. She asked for clarity on page 9 about the R1.8 million and R9 million not transferred to the other organs due to outstanding documents, and the delays in invoice finalisation. She expressed her concern about the delays in invoices amounting to R77 million in total, which means those contractors who provided services to the DWS were not paid within the 30-day period. She asked for more details about the vacant posts, how are they funded, as well as the number of posts available. She asked for clarification about the overspending of the budget as well as the over-achieved and under-achieved expenditure on slide 3.
Dr C Madlopha (ANC) stated that it cannot be good for DWS that key positions are filled in an acting capacity, because this puts a strain on achieving the mandate of DWS. On programme 3, there is R107 million not spent due to delays in procurement of services and contractors. What is the cause for the delay in the procurement of services? How long have the unfilled positions not been filled, and how many of these posts are not funded and what is the DWS doing about this? Also, is the staff (and vacant posts) in line with the mandate of the DWS? On slide 3, there is a challenge around the 50% less expenditure indicated, what are the implications and impact of not achieving the performance targets?
Mr N Gcwabaza (ANC) asked for an explanation for the pie chart depicting the analysis of annual performance, as well as for subsequent slides 4, and 5. He asked the DWS to translate the percentages in money terms, because there could be a lot of things hidden behind the percentages. He asked about the organs of state that have not yet been paid, and what the DWS has done to obtain the outstanding documents. What type of posts have not been filled because it was the same song sung last year and a couple of years ago. On slide 10, how did the unpaid bonuses of senior management happen? About the Umzimvubu Dam Project, the Committee when conducting oversight was told that this project is suffering a delay due to environmental reasons, and the full implementation is deferred to 2023. Why is this the case, whilst people in the Eastern Cape still continue struggling for water? When is the technical investigation going to be completed? He asked DWS to convince the Committee that the clean audit received translates into impact of the money being spent properly the previous financial year.
Mr A McLoughlin (DA) said there is nobody in the delegation to provide the information that the Committee actually requires. He asked why the department is intervening in municipalities; that is the job of the provincial department to intervene in municipalities. This is deeply worrying because it creates a gap for the provincial department. With regards to the Vaal Waste Water Treatment Works (Sedibeng Water Sewage Scheme), it has been over ten years since the project was set up and there was a R10 billion budget attached to it, however, now there is no mention of it and where is the money now? This is holding up all development in the South of Gauteng. People cannot get permission to build infrastructure due to the incapacity of the sewage system existing in that region. On slide 9, what is the DWS paying universities to do? Why are implementing agents that do not perform continue being used by the DWS. Does the DWS have the means for monitoring the money that it transfers, and what mechanisms are put in place to ensure that the money transferred is used for its intended purpose? Is a team sent out to monitor if the money being transferred is used for its purpose. Lastly, why was there an over-spending on water infrastructure?
Ms S Shope-Sithole (ANC) said that DWS has come to present but the delegation cannot be asked questions, as it will be a fruitless ritual due to the delegation being in an acting positions. DWS needs to be invited again with the Minister. This matter of acting key positions is taking the Committee backwards.
The Chairperson highlighted that the Committee is not happy, and is frustrated because there is no value for money in the projects that the DWS is doing. Therefore, the delegation must address the Committee with direct answers.
Mr M Fick (DA) added to the disappointment noted by members. It is clear that DWS is failing, if some people in the country are getting drinking water for only half an hour a day, and this has been happening since January this year. In some parts of the country people have not had drinking water for ten days, because of a burst pipeline. In Storms River every time it rains there is an electricity cable running under the river which shocks the water and subsequently takes water away from the people. On the money spent on projects, what is the status of those projects given that the money allocated for them has finished.
The Chairperson stated that the delays in procurement and contract management has affected many of the DWS projects. DWS made a commitment in April about remedial measures to mitigate the delays, so what is the progress on these remedial measures? Secondly, a key aspect missing in the presentation is the service delivery implications for missed targets in terms of the National Development Plan (NDP) and Medium Term Strategic Framework. He asked DWS to outline where it is in terms of the NDP.
Mr Mkhize, DWS Acting Director-General, replied that there was a permanent DG. but she resigned this year in June. He is currently the permanent CFO for DWS but present in an acting capacity for the key position of Director-General. Most of the delegation are permanent staff of DWS, and they are familiar with the issues raised by the Committee and will attend to them accordingly. He pointed out that the department became a new department when the function of sanitation became a mandate of DWS, and consequently the mandate changed as well as the structure which necessitated a review.
Ms Zandile Mathe, DWS Deputy Director General: Water Resource Infrastructure, stated that the problem in most cases is that the DWS does not have control over the procurement processes. Some municipalities have monies already gazetted to them that DWS does not have a say over, because the municipality has now became an implementing agent. With implementing agents there is always a challenge with procurement processes, because DWS cannot intervene in their procurement process. However, DWS tries to intervene where it can to ensure that the delays are kept at a minimum, and where their performance is not appropriate then it is easier to intervene. It is worth noting that DWS has been engaging with Treasury to change the gazetting of the grants to implementing agents. However, due to the administrative nightmares that will surface as a result, it was recommended that the gazetting be changed at the beginning of the next financial year.
She said Umzimvubu Dam Project has been in the pipeline for far too long, and this is due to South African laws making it impossible at times to move forward, because the DWS has to wait another three months to do a variation order. Ideally DWS would have liked to commence at the beginning of September. The new law provides that you can longer do an internal variation order if the amount exceeds R20 million. Unfortunately DWS has to wait for three as Treasury instructed. The designs for Ntabelanga Dam are complete, but in the current financial year DWS had to start with the staff houses and roads in order for people to see that the work has commenced. The construction of the Dam will commence in the next financial year. The variation order has been approved. As far as the completion date is concerned, it is difficult to provide an accurate prediction or estimate because, the contractors did not furnish DWS with the construction schedule and also most of the projects are affected by the climate or weather. If there was enough money available then some projects would move a lot quicker, so funding also plays a crucial role in the speediness of the projects. The project will be executed over five years but DWS is engaging with the contractors to see if the construction cannot be completed within a shorter time span. On the Lalini Dam, it is still under design and DWS is pushing to have it completed before five years in hopes that the weather will not affect the construction plan. The EIAs for construction of both dams were approved last year.
On the Sedibeng Waste Water Treatment Works, there have been delays with a very long and protracted court case between the service providers. Unfortunately, when the matter is in court, there cannot be any progress until the case has been settled. The interdict has now been lifted, so the work can commence. Thus when the matter is with the court, it is difficult to move forward, and that affected the progress. More efforts need to be put in place in terms of monitoring the money transferred to the implementing agents. Currently DWS is looking at developing a system that will ensure the money is going to be ring-fenced at municipality level and for DWS to be able to check how the money is being spent. At the moment DWS is not doing enough, and it is aware of that. However, we are sending people to go out and monitor in cases where there are issues with the money with implementing agents and municipalities. The reality is that there are over 670 projects that DWS is busy with, which are too many. Hence, DWS is coming up with a systematic programme to make it a lot easier to monitor all the money allocated for the projects.
With regards to Nooitgedacht Water Scheme and the Hazelmere Dam, the money is only limited to a particular time frame. Hazelmere Dam is supposed to be completed by the end of the next financial year, based on the previous estimations. The money was finished in the first quarter, and there are some challenges with the encase which is just a normal construction glitch when dealing with an old infrastructure (which is more than 100 years old). The constructor understated the amount that will be needed for the raising of the Dam, so there was a two month delay. DWS had to import an expert from the UK to help determine who is liable between DWS and the constructor, and how best the anchoring can be handled. There was also a challenge with the waterproofing of the anchors. This is about to be resolved, DWS is engaging with the bid evaluation committee to try and assist in the approval of the variation order, which is 20% less than for the project. If it were not for the two month delay, the project would have been impounded last year December, which would have been an over achievement. Now the impounding will commence next year July. Nooitgedacht is still under design but the implementing agent, Amathole District Municipality, has appointed a contractor, and it will take about approximately 24 months.
With regards to the Mopane Project, it was an intervention and unfortunately DWS got behind schedule for construction. The Minister and the President assigned a team to go there and fast-track things. It is important to note that this project was not budgeted for, so DWS had to move money from other projects that have been quite stale in order to quickly attend to the people’s complaints and inability to access water around those areas. The project is very successful, and it is now a precursor to another nearby dam which will commence construction in the next financial year. DWS is currently meeting with the leaders of that area and have communicated to them that the diversion of the road and bridge, which is the precursor to the construction of the dam, will be taking place by December. The designs have already been received, so if everything goes according to plan the construction of the dam should commence in April, next financial year.
Mr Mpho Mofokeng, Acting CFO, Main Account, and CFO: Water Trading Entity, stated that DWS had about R2.5 billion that was appropriated but the budget reflected a R1.7 billion later as R1.5 billion was agreed to be transferred to the main account. Some of the projects have been completed through actual expenditure, hence, the amount is higher.
Ms D van der Walt (DA) said in terms of ‘non-achievements’ and ‘over-achievements’ she can only speak to non-financial indicators. She gave an example that if say one of the implementing agents was tasked with installing ten water tanks, but instead it installs 15 water tanks, so that is then classified as an over-achievement? Otherwise, if the number of water tanks installed was less than the target then it would be classified as a ‘partially-achieved’ target?
Mr Mofokeng replied that not all the targets will fully represent the budget. There are other expenses which come together with the set targets in the APP. These expenses are necessary for DWS to achieve the targets. If you take the whole budget of DWS, there is a portion of it that is linking to the targets, and then there is a portion of it that does not necessarily link to the targets.
The Chairperson stated that if that is the case then DWS needs to go back to revisit its Strategic Plan, because that is not how it is supposed to be done. The Committee needed some clarity on whether the first quarter targets have been achieved or not. And most importantly, were the targets set actually achievable?
Mr Anil Singh, DWS Deputy Director General: Regulation, highlighted that historically we need to understand that DWS has gone through a lot of alterations and mandate changes, and there is an enormous task to deal with. Historically, local government makes provision for water and sanitation to local residents, but in recent times DWS has had to intervene and take necessary steps and measures to provide those services because some municipalities are badly managed and are going through administration. The Department is only mandated to provide support for the local municipalities as they carry out their mandate. So as far as the achievement of the clean audit, DWS ought to be congratulated because of where it comes from and the challenges that it had to overcome when its mandate changed.
There is a turnaround strategy in procurement and it has borne fruit with positive results. Even though DWS has tightened up controls for the procurement processes, litigation plays a crucial role in setting DWS back from achieving its targets within the set time frame. Litigation cannot be predicted and it can take as long as the courts decide it should until the matter is settled. These come from the lowest bidders that were not awarded the tenders, and so during the litigation process, the work is put on hold until the case is resolved. The NDP sets out its vision for 2030, and DWS has a national water resource strategy and it is probably the only document of its kind which sets out the goals of DWS to protect and preserve natural resources like water. The Storms River issue will be taken up with the implementing agents within that region. In the Nine-Point Plan, DWS is seen as a cross-cutter because it contributes towards every aspect of the Plan.
He said the Sedibeng Waste Water Treatment Works was quite a complex matter to say the least and it has been delayed due to litigation that the implementing agent (Rand Water) was facing at the time. However, the time has now been made up and it is looking at integration solutions for the entire South of Johannesburg.
Ms M Manukuza, Chief Directorate: Financial Accounting, stated that around December, drought was declared in several provinces across the country. As a result, DWS spent R502 million which was not in the APP and the budget. The Department had to re-prioritise budget, hence, some of the projects were affected and are only ‘partially-achieved’. In addition, at the end of the 2014/15 financial year, DWS had accruals of R1.6 billion and requested a roll-over and it was not approved, therefore, there was another re-prioritisation of the budget in the 2015/16 financial year. About R2.1 billion of the budget was spent on things that were re-prioritised, hence, they did not reflect in the APP. The money transferred to universities is for the Water Boards, and they are scheduled 5B transfers, because they are required to supply certain documents to DWS before it can make the transfers, and this is a provision in the DORA (Division of Revenue Act). The universities did not furnish DWS with the documents on time; hence, the transfers were not made because DWS would have been in contravention of DORA. The transfers are for bursaries to provide engineers and other technical staff for DWS.
The R77 million was not for invoices received that were not paid but services rendered at the end of the year, and the invoice delivered at a later stage when DWS has closed its books for that financial year. So when the financial year ended those amounts reflected as accruals, because the certificate of the service rendered would be exchanged, but the service provider would take a long time to deliver the invoice.
On the pay progressions and outstanding salary increases, the financial year ended on 31 March and that was when the reviews for performance were done, but by the time it was June, most of the reviews were still not completed. Hence for the first quarter, the outstanding bonuses and salaries were not yet paid. By now most of the processes have been finalised and people have started getting paid for their pay progressions. The social benefits, in the presentation, refer to the retirement benefits that are accrued to employees that resigned, and this is something that was not foreseen. Most people resigned during the first quarter; hence, there was an overspending in the first quarter. Most projects are ‘partially-achieved’ because the budget had to be re-prioritised towards the emergency projects such as the drought, and the projects that the money was intended for were then put on hold until Treasury approves the R600 million provision that DWS requested. Then all the projects that were put on hold will commence once re-allocated their funds.
The Chairperson stated that money is kept aside for disaster management by National Treasury, as in the case of DWS with the drought, and so DWS should have applied for such a provision in time. Departments are not allowed under the PFMA (Public Finance Management Act) to take money away from projects to finance others, this is serious non-compliance. As a result, she suspects that DWS will get an adverse opinion from the Auditor-General. Also, the money for pay progressions is budgeted for according to the PFMA, but now DWS submits as if the money comes from somewhere else. She warned that DWS must tread carefully on this because it is also a non-compliance matter.
The meeting was adjourned.