National Home Builders Regulatory Council; Community Schemes Ombud Services; Estate Agency Affairs Board & Social Housing Regulatory Authority on their 2015/16 Annual Reports

Meeting report

National Home Builders Registration Council (NHBRC) 2015/16 Annual Report briefing
Mr Abbey Chikane, Chairman, NHBRC, said that the current management had, when taking over on the NHBRC, acknowledged that there were a number of challenges. There had been a turnaround programme within the organisation. Fraud and corruption had been dealt with and consequence management was in place. Irregular expenditure had in the past arisen through the lack of a strong operational structure, policies and procedures.

Dr Awelani Malada, Head of Strategy,  NHBRC, said that most of the repeat findings within the entity were based on the fact that in the 2014/2015 financial year the Annual Performance Plan was based on turnaround times. In respect of Programme 3: Consumer Protection the turnaround times had resulted in findings on reliability. In 2015/2016 there was an improvement in some areas of the audit findings, with unqualified performance results in terms of the usefulness of protection mechanisms. However, the results on the reliability of the regulation function were not as good. Furthermore, workshops on provincial offices were established. The NHBRC had strictly specified the kind of information needed from provincial officials. Everything would be clearly aligned as in the annual performance plan.
Mr Songezo Booi, Acting Chief Financial Officer, NHBRC, said that many contracts had been declared as irregular because proper steps were not followed. Contracts were awarded for a specific time. There had been a decline in these numbers. There were only two instances of irregular expenditure in the last financial year. There were two cases in which employees did not act correctly. Consequence management was under way with these employees.
Dr Malada said NHBRC had reported on its contribution in terms of youth, military veterans, artisans, people with disabilities and females. 561 youth were trained. 1 623 females were given assistance. In the artisan programmes there were 75 males and 181 females and for people with disabilities there were 17 Males and 17 females. The number of women in total were 279.

Discussion
Ms L Mnganga-Gcabashe (ANC) asked what the entity was going to do about the repeat audit findings. She commented that the NHBRC had not apparently improved on the quality of the reports. results. She asked what the plans were on quality and by when these would be realised. She commented also on the targets, noting that the NHBRC had been sitting at 67% achievement of targets for some time but this year this dropped to 37%. This was unacceptable and she wanted to know what senior management was doing about the issue.

She added that if the problem started with performance plans, which then affected reporting, then the entity clearly needed to improve. She also noted that there had been a problem with procurement and contract management where NHBRC procured without proper quotations. This was embarrassing. She asked if the staff were trained properly. She asked what NHBRC was intending to do about the fact that there had been irregular expenditure of R13 million. This was, again, a supply-chain issue. With regards to Information technology, she noted that the formal policy was not in place and asked why this was so. This was a point raised already last year by the Auditor-General. She did not understand how it could take more than 24 months to develop a security policy and asked by when would this be completed?
Mr T Gqada (DA) said NHBRC seemed confused on what it had been asked to present to the Committee and he felt that a better presentation should have been given. He did not have any sense of confidence as to where the entity was, and where it wanted to go. Its performance did not appear to be improving and its answers were not convincing on the disciplinary measures in place, nor was he convinced on what they intended to do to reduce the problem.

The Chairperson noted the comment on the limitations in the presentation and said that perhaps she should shoulder  a large part of the blame as she had asked the NHBRC to present on specific named issues. This, however, did not mean that it should discount the points that were being made. NHBRC needed to be given sufficient time to present its programmes. There were still problems with rectification, which were hindering the Department of Human Settlements (DHS or the Department) although NHBRC had been given the task of lessening those rectification problems, which it had not managed to do.

Dr Malada noted that NHBRC had achieved 29% of performance targets in 2014/15. He repeated that at this stage, the targets were based on indicators around turnaround times and NHBRC had not realised that failure to meet that would result in adverse comment from the auditors. In 2015.16 the entity had moved its targets to level 2. Annual Performance Plans were not submitted to the Auditor-General. However, this had been done for 2016/2017 and the Auditor-General was satisfied that the targets were now S-M-A-R-T. Executives and managers were held accountable. Progress was measured now on a monthly basis. This would result in improvements.
Mr Booi said that issues of capacity, gaps and lack of process maps and procedures were three of the biggest challenges. There had been an alignment of policy now so that these gaps had been closed. A transformation process had been embarked upon, which dealt with capacity, and officials had now been trained. NHBRC made a commitment that the problematic issues would not recur.

Mr Chikane noted, in answer to questions on irregular expenditure, that a body had been established to look into this and it came up with findings and recommendations which were sent to management. Supply chain management issues were to be improved. Most problems were not very serious and dealt with things like articulation challenges. He asked that if Members were not happy with the presentation, NHBRC could possibly present again.

The Chairperson said that NHBRC would be given another opportunity to present on 8 November and she hoped that more women would be included in the delegation.

Community Scheme Ombud Service (CSOS) 2015/16 Annual Report presentation
Reverend Dr Vukile Mehana, Board Chairperson, CSOS, said that CSOS had achieved much that indicated that CSOS was likely to achieve its mandate. CSOS was busy putting the CSOS Act into operation and the Minister had signed off on the regulations in August 2015. There were public consultations which produced a lot of suggestions and insights. The board approved amendments in December.  The legislative framework was now ready, and the CSOS had opened its doors.
Mr Themba Mthethwa, Chief Ombud, CSOS, said that dispute resolution processes had been finalised. Conciliation had been conducted voluntarily. There were offices in three provinces; Gauteng, Kwazulu-Natal and Western Cape. Some of the key highlights included that the board had met six times and there were 22 subcommittees in place. The risk framework had been completed and implemented. No fraud was reported or found. The audit and risk committee was effective.

Speaking to performance, he noted that in the area of resolving community schemes, one out of three targets were completed. The main challenge was disempowerment because of legislation;this had not allowed CSOS to function optimally. The legislation now passed would allow the entity to function properly. In respect of the target on taking custody and control, 50% of the target was achieved. 76% of the target on management efficiency was met. 59% achievement was seen on performance information. Budget constraints, delays in the approval of the CSOS Act and agreements were the problem in this financial year but going forward, the proclamation and new legislation would assist in countering these challenges.

Mr Themba Mabuya, Chief Financial Officer, CSOS, said that the balance sheet listed total current assets at R10.3 million and non-current assets at R9.3 million. Current liabilities amounted to R4.2 million.  Revenue from exchange transactions was R1.1 million, and there was also other income. The total expenditure had been R54.8 million, which meant that there was a deficit of about R14 million.
He added that the bank balance at 1 April was R30 million. Cash flow from operations equalled R8.2 million. The government grant was received and fully utilised. The deficit arose as a result of an over-budgeting of R13.4 million on personnel, depreciation of R3.1 million and over expenditure of R4 million. Furthermore, the levy income initially budgeted for had led to a deviation of R20.8 million which was never realized.

He noted that CSOS had received an unqualified audit result, but some of the issues commented on by the Auditor-General resulted from capacity issues within CSOS, which had since been remedied when more staff were brought in. Other comments were made about the refurbishment of office furniture. Employees had to work outside CSOS because offices were not available. There was a deviation of R2.3 million. A service provider had been appointed at a cost of R1 million. The extended provision resulted in increased spending.
Mr Mthethwa said that 2014/2015 was the year that CSOS had designated to concentrate on planning and capacity building. CSOS then built capacity in 2015/2016. Staff gained experience and confidence for the work ahead. The legislative framework had come through, and so now CSOS expected to see an increase in operational experience and in CSOS generating its own income. CSOS could save many lives through conciliation. 2016/2017 was seen as a year of expansion depending on the demand. Income generation capabilities were expected and good contributions towards human settlements in South Africa should be achieved.
Discussion
Ms Mganga-Gcabashe noted the explanation on irregular expenditure, that there was only one employee doing multiple tasks, which meant that the proper procedures and separation of functions were not followed. She asked what the plan was to solve irregular expenditure associated with office expansion.

She noted that the CSOS had been judged as achieving only 33% on the quality of the Annual Performance Plan and this was not acceptable. She wanted to know what CSOS intended to do to address this in the future, and urged it to rise at least above the 50% achievement mark. She furthermore stated that two indicators had not been achieved because management did not ensure that targets and indicators were realistic. CSOS, in future, would have to convince the PC that tools were in place. Furthermore, it was not acceptable that CSOS had been unable to prevent irregular expenditure, and she stressed that management must comply.

The Chairperson said she was rather disappointed with CSOS. In the first year there was a clean audit but already by the second year, there were issues of irregular expenditure. Mr Mabuya’s explanation was not convincing, and spoke to only some of the amount. CSOS was slowly going downhill in its financial reports and CSOS would have to be committed to ensure that this was curbed. She was also worried about loss of staff members in CSOS’s first operational year, asked how many were likely to be lost, what the problems were that led to staff leaving, and it did not inspire confidence when these issues were raised just as CSOS became operational. She urged that CSOS should tighten up.

Mr Mthethwa responded that CSOS had come up with a plan to address all audit findings. Management was aware of the problems and CSOS would improve as it acquired more resources. At the time that the irregularities happened, there had not been a supply chain policy, but supply chain management was now in place and committees with clear policies and limitations were now in place. CSOS would improve as it acquired more resources.
With regards to performance, the first year was rather easy. CSOS under-estimated the parliamentary processes, and it had noted some targets that it was unable to achieve. At that time, the adjudication processes were not in place, but they were now and CSOS would be able to do what it said it could do.
Mr Mabuya said the other irregular expenditure had to do with clearance certificates, and in the future CSOS would be able to capacitate itself and its various units. He agreed that CSOS needed to tighten up and there were plans to reverse the decline in the audit report findings.

Dr Malada added that the Board would be considering the findings of the Auditor-General on the following Thursday. He added that CSOS had thought that government would fund its Annual Performance Plan (APP) but CSOS budgets had been cut and funding was an issue so that CSOS was not able to do what it said. A realistic APP was to be developed so that CSOS could be self-sustaining. He agreed that the loss of staff members was serious but people had felt insecure when they saw CSOS's financial situation and some key people had left. He reiterated that there should be a far better report in future.

The Chairperson hoped CSOS and the government were working together to resolve challenges and the Department of Human Settlements should assist. She repeated that CSOS was expected to produce comprehensive plans to address the issues.

Estate Agency Affairs Board (EAAB) 2015/16 Annual Performance Report
Mr Bryan Chaplog, Chief Executive Officer, Estate Agency Affairs Board, said that two of the main functions were to assist with identification of home-ownership, and ensure transactional support. The EAAB took into account the National Development Plan. In this year, some inspection powers had been taken away and that had an impact on the numbers. Some strategic objectives could not be met. However, this should be resolved.
The main challenge in consumer protection was that people were often not aware whether they were dealing with properly-licensed estate agents, and in order to counteract that, every email address of every registered estate agent now carried a seal of authentication confirming that they had a valid licence.

6.3 million title deeds were registered, which amounted to R4.5 trillion of value available nationally. This was good information for consumers. EAAB looked at how many people were operational in the market. There was an upward trend in the number of licences issued. In regard to fidelity fund certificates, the most prominent provinces were Gauteng, the Western Cape and Kwa-Zulu Natal. Registrants needed to be put in place in Limpopo.
The EA industry was showing more growth in representivity,  as more African, coloured and Indians had come into the industry and stayed. Under new registrations, there were now 6 000 intern estate agents. There was an upward trend. People came into the industry and EAAB wanted them to own business.
With regard to education and training, he noted that estate agents needed to meet the Board's qualification requirements. EAAB looked at how many members had either level 4 or 5 qualifications. EAAB had created professions through professional designations.
EAAB was also looking to second level compliance. Complaints were received from various sources that EAAB had tried to verify. There was an upward trend of more complaints being lodged, but that was ascribed to the increased awareness of the Board. EAAB would also be able to refer some matters to CSOS.

He noted that inspection was a major Key Performance Indicator but it was one that EAAB could not achieve as it was unable to complete all inspection cycles. EAAB was able to say which agents had contravened which requirement. EAAB also looked into whether money laundering and other related issues were taking place.

Mr Chaplog noted that in the last few years there had been a fairly low level of compliance on audit requirements but in 2015/16 EAAB had reached 85% compliance and it was getting good audit reports. If any claims did not meet the compliance requirements they would not be accepted.

Mr Silence Mmotong, Chief Financial Officer, EAAB, said that EAAB had achieved a clean audit in the last year, wanted to maintain that, and hoped that it would translate to cleaner administration. He noted that the EAAB was in a sound financial position at the end of the year but there had been some decreases in revenue and this would have to be addressed. Infrastructure would need to be maintained. EAAB would need to accumulate its reserves. In this year the EAAB was expecting to post a loss of R138 000. He added that the EA Fidelity Fund was developed to reimburse those who had lost deposits as a result of fault on the part of estate agents. It was adequately capitalised but there was an increase in the number of claims as unscrupulous agents continued to embezzle and steal from their clients. Adequate preventative measures were needed. 

Discussion
Mr L Khoarai (ANC) said that the programme called “Speak Out” had run a feature on agents who had cheated people in the rural areas and he wondered if the EAAB could assist in any way. He wondered what was happening in poor provinces.
Mr H Mmemezi (ANC) asked for a detailed report on unscrupulous estate-agents mentioned, and a focused report dealing with transformation and training of estate agents and their role in the market. He urged that the new legislation be driven forward to assist the Committee.

Ms M Nkadimeng (ANC) asked for clarity on issues around title deeds. She pointed out that the pie-chart diagrams presented did not correlate with the information noted in the presentation.

Ms V Bam-Mugwanya (ANC) said she had a personal experience of being excluded on the basis of her race and did not receive good service. She would like the EAAB to look into soaring property prices that were being asked by some of the high rating estate companies. She wondered if there was any way to verify the value of properties and wondered also if regulations on pricing would intrude on the rights of the estate agent companies.

Ms Mganga-Gcabashe appreciated the clean audit. She too was concerned about the large gap in regard to transformation and said that a detailed report was needed. She asked for clarity on the claims.

The Chairperson urged the DHS to tell Parliament when the new legislation could be expected. Issues around title deeds were indeed very important. She asked for clarity on the comments about claims pending. She also agreed that transformation in the real-estate sector was a bugbear and EAAB would need to present its transformation agenda, which she suggested should be done on 8 November 2016.

Mr Mbulelo Tshangana, Director General, Department of Human Settlements, said that the new Bill was due to be presented to the Minister that afternoon. It would be put into the government system and should be published very soon for comment. He agreed that this piece of legislation was behind schedule because the Minister had asked for certain parts of it to be reworked.

The Chairperson would be pleased if this Bill could possibly be fast-tracked.

Mr Chaplog said that EAAB had a close relationship with the programme that would enable people to be reimbursed for any funding misappropriated, and would assist the people in making and receiving payment of claims. He agreed that more awareness of the Board was needed in the rural communities and this would be done through community radio stations. He agreed that EAAB should speak out about unscrupulous agents. He also agreed that a report on transformation would be needed. EAAB would look at training.

Furthermore, He agreed that there was an error on the slide relating to the title deeds. As at 31 March, 14% of the title deeds backlog had been resolved. The Property Practitioners Bill was intended to rectify some of the personal issues that people had cited in regard to how race impacted on their ability to buy properly. There was little power to call in people whose speech was racially motivated, to rectify some of the personal experience people had with regards to race and houses. There was little power to call in people like Penny Sparrow who had made racist remarks, and the legislation was not sufficiently strong for the EAAB to actually address the issues. However, the DHS was working on it.

Prices were moving up as black people were buying houses. Property assessors needed to test what was called value for money. The Director General was pushing to get this through to the Minister. The Bill would solve some of these issues.
With regards to transformation, he agreed that the gap was too wide, at around 17%, and economic participation of black people was currently around 2% or 3%. EAAB would need to look at the new government housing schemes, to try to raise this figure.

He pointed out that “claims” represented claims from all consumers to the Fund. If the number of claimants rose, this was both a positive and negative; an increase would suggest increased awareness both of the Board and its services, but equally a decline in that meant that people were probably not aware.
Social Housing Regulatory Authority (SHRA) 2015/16 Annual Report briefing
Mr Zolile Ngcakani, Chairperson of Council, SHRA, said that the Annual Report marked the end of the first year of the Council's three years term. The year under review was described as a year of strategic planning and identification of any blockages to the SHRA being able to meet its Medium Term Strategic Framework (MTSF) target. The report highlighted many gains, as well as other areas where greater collaboration was required.

Mr Rory Gallocher, had recently been appointed as the Chief Executive Officer of SHRA. He noted that it had achieved 53% of targets overall, with a breakdown into the various programmes of Regulation: 40%; Institutional Investment 33%; Administration 75%; and Investment Management 100%. SHRA was confident that there could be yet further improvements.

He added that a new Council, appointed by the Minister., was in place.  The Council did the job of alignment.

SHRA had achieved an unqualified audit. There was a strong emphasis of scaling up delivery by building confidence in stakeholders. Standard operating procedures had been developed, moving SHRA into a pro-active mode.
Mr Gallocher said that SHRA’s targets for the first two years were moderate but increased in subsequent years. With regards to accreditation, one of SHRA’s major impediments was management capacity. SHRA had accredited a number of institutions. There were now 82 accredited institutions and he briefly described that there were no problems in Eastern Cape, Gauteng and Kwa-Zulu Natal. However, there was not such good achievement throughout. There had been problems  in Limpopo, North-West and Northern Cape, where no units were achieved. Other provinces were doing relatively well.

He added that the programme was also about improving the quality of people’s lives. A number of projects were implemented. He cited a project at Nelson Mandela Bay as particularly positive, and positive human elements had also been apparent.

He noted that the biggest issue raised by the external auditors was whether the SHRA as an entity was viable as a going concern. Because SHRA had previously been put under a form of administration by the Minister, auditors now needed to comment on its going concern status.

There had been a material finding in regard to expenditure, had been irregular expenditure that was not rectified and management was required to attend to some issues around performance information. Improvement was needed to make the APP indicators S-M-A-R-T. 
Irregular expenditure had occurred when contracts were approved by the Council despite the fact that at the time it did not have sufficient members to give that approval. This had since been rectified and condoned.

With regard to balance sheet, there was a large liability amount. R106 million was designated for contacts but as a result of SHRA not paying out this, the money was declared as a liability. There was a reduced net asset. There was also a budget problem. What SHRA spend was more than what it received from government. The total deficit was R50, 7 million. This could become a long term budget problem if performance improved.
With regards to intervention, with the limited number of units other avenues were needed such as investigating in private sector methods and catalytic projects. Furthermore, Intergovernmental arrangements were needed to support housing projects. SHRA were signing a number of cooperation agreements. Lastly, the viability of financing model was needed for social housing. This was a top agenda in the council of SHRA. The council would make recommendations.
He added that SHRA was worried with the Northern Cape. There was a backlog of 53    000 units which needed to be addressed. The obstacle was that after developers build houses capacity was not there to handle these houses from the governing point of view. Some initiatives were being set up to deal with this.
Discussion
Mr Gqada wanted to understand what the graphic page which was handed to the PC and that accompanied the presentation meant. 
Ms Mnganga-Gcabashe noted that the Committee should applaud the work done and its great improvement. The Department had performed well in assisting SHRA. However, more was expected going forward. She asked for clarity on why there appeared to have been an audit regression.

Mr M Shelembe (NFP) wanted to know how disabled people would reach the upper buildings and asked how SHRA was assisting those with disability.

The Chairperson suggested that Mr Shelembe should pay a visit to the sites. She commended the presentation although she noted that there were fewer accredited entities and that performance had diminished. She also noted that little was said about North West. She made the point that if social housing delivery was not improved, it would affected the overall target of the Department. She was worried about the Limpopo and North West and enquired what was to be done to improve them

Mr Gallocher said that the picture he was presenting depicted scale and life-style in the most realistic way. He said that highly technical issues had caused the regression and it was the auditors who had the final call whether or not to qualify something. However, he still thought that there was a positive in creating the foundation and tying up the loose ends, one by one. He assured Members there was no cause for alarm.

Mr Gallocher noted that there were provinces and rural areas where restructuring zones were problematic and this was holding SHRA back. Some provinces did well because of good drivers in the system, with some support in North West.

SHRA had been establishing capacity, and although each province was at a different stage, Limpopo was behind.

Mr Ngcakani said that it would be appreciated if an easy way to get zones approved could be found.  SHRA would fast-track approval of these restructuring zones.
The Chairperson said that restructuring zones was always a problem and that a more permanent solution was needed. 
Mr Tshangana said that officials from SHRA were part of the team dealing with restructuring zones. Initial plans were rejected by officials. He explained that when attending to restructuring, the officials would demarcate an area, within a municipality. Social housing was not being built anywhere. The process was almost complete. The Western Cape, KZN and Eastern Cape were still lagging behind. The Department wanted to synchronize the approach to restructuring zones with the spatial plan.
The Chairperson said that Committee would hear from the Department when SHRA was expected to meet, and then SHRA would report back to the Committee.

The meeting was adjourned.