Department of Public Works and PMTE on their 2015/16 Annual Report, with Minister in attendance

Meeting report

Minister’s opening remarks

Mr Thulas Nxesi, Minister for Public Works, said the Deputy Minister and some Deputy Directors General (DDGs) were not available for the meeting due to the Expanded Public Works Programme (EPWP) conference scheduled to commence on 15 November. The EPWP had prevented the Department from achieving a clean audit as a result of the poor records of municipalities. He explained that while it was justifiable to withhold grants if necessary documentation was not provided by municipalities, the Department was faced with the dilemma that if grants were withheld, ordinary citizens would suffer, and if necessary documentation was not provided by municipalities, the Department would continue to obtain poor audit opinions.

The Minister said and the annual report was presented in the context of the second phase of the turnaround strategy which addressed issues of efficiency enhancement. The strategy was underpinned with questions addressing the origin of the Department, its current position, and the future of the organisation.

Annual Report: DPW and PMTE

Mr Mziwonke Dlabantu, Director General: Department of Public Works (DPW), said the report, which was presented in the context of efficiency enhancement, revealed the five programmes of the DPW. These were administration, inter-governmental coordination (IGC), the EPWP, property and construction policy regulation, and prestige management. Highlighted programmes of the Property Management Trading Entity (PMTE) included administration and management, real estate investment, construction project management, real estate management, real estate information and registry, and facilities management. The shared services of the DPW and PMTE included finance and supply chain management, corporate services, governance, risks and compliance, and inter-governmental coordination. As regards performance, key areas that received priority attention by the Department included:

• Transversal business improvement (PMTE and the Department);
• Construction project management;
• The Expanded Public Works Programme;
• Legislation;
• Municipal debt;
• Oversight and concurrent mandate support;
• Contribution to the Oceans Economy.

An overview of achievements for transversal business improvement revealed that there were critical interventions aimed at enhancing and strengthening corporate support for the core business of the DPW and PMTE. The organisational structure of the DPW had been reviewed, the PMTE structure had been finalised, and both had been submitted to the Department of Public Service and Administration (DPSA) for approval. The Department’s structure sought to enhance its capacity to consolidate the fight against fraud and corruption, and also to strengthen the investigative capacity of the Department, and capacitate the state with technical and professional infrastructure skills, amongst others. Other highlighted achievements included implementation of the retired professionals programme, impacts in the skills development area with programmes for water treatment, artisan development and internship, and monitoring the institutionalisation of the Infrastructure Delivery Management System, coupled with a roll-out of the functional generic structure.

Achievements in construction project management included interventions as regards the Capital Hill Precinct in Tshwane, the completed refurbishment and upgrade of the Agrivaal building, interventions at the Diepsloot police station, upgrades at the correctional centre in Matatiele, notable planned maintenance projects across provinces, construction of main border posts (Skilpadshek land port of entry), the repair and maintenance at Thaba Tshwane Correctional Centre, construction of a new shooting range for the SAPS, and repairs, renovations and additions for SAPS in Bishop Lavis (Western Cape).

Regarding the achievements of the  EPWP, 741 540 work opportunities out of the targeted 1 127 186 had been created, while some work opportunities created had not been reflected on the reporting system due to a failure by public bodies to prepare for a new reporting system. An Inter-ministerial Committee (IMC) on Public Employment Programmes (PEP) was launched in July 2016, and chaired by the Deputy President.

Notable achievements on legislation included progress with the review of the Expropriation Act 1975, which had resulted in submission of the Bill to provincial legislatures for consideration. Progress had also been made on the Agrément South Africa (ASA) Bill, and transitional arrangements were under way in preparation for ASA to be a fully-fledged entity by April 2017. The Independent Development Trust (IDT) business case to establish the IDT as a schedule 3A public entity had been finalised in the financial year. As regards regulations on Prompt Payment and Adjudication for the Construction Industry, a draft had been published for comment by the Minister of Public Works in Government Gazette 38822 of May 2015. In promoting black enterprise and supplier development and skills acquisition, a property management empowerment policy had been developed through the alignment of the sector codes of the Property Sector Charter Council with the revised Broad-Based Black Economic Empowerment (BBBEE) Act, No 46 of 2013.

As regards achievements on municipal debt, the DPW was spearheading the project to verify government debt owed to municipalities by government departments to ensure settlement by sector departments. As at 31 March 2015, the programme had uncovered a total debt of R96 billion owed to municipalities by households, businesses and government. During the financial year, arrears and current obligations had been settled, leaving unsettled arrears of R177 million. By the end of the financial year, R3.5 billion of the R5.2 billion debt had been verified by the sector.    

Whist reporting on achievements pertaining to oversight and concurrent mandate support, it was highlighted that the planning process of the provinces had been carried out in June 2015, where Customised Performance Indicators (CPIs) in interrelated and inter-dependant programmes, which were monitored quarterly, were developed. To strengthen support to the provinces, performance reviews had been conducted on an individual provincial basis, as well as quarterly deliberations in the Planning, Monitoring and Evaluation Forum. Since the establishment of the CPIs in 2012, much progress had been achieved in terms of understanding the sector in areas such as property and construction management, asset registers, facilities management and job creation, while the oversight function had been strengthened through engagements at different platforms.

As for its contribution to the Oceans Economy, the Department had pursued its commitment to Operation Phakisa through engagements with the Departments of Environmental Affairs (DEA), Agriculture, Forestry and Fisheries (DAFF), and Planning, Monitoring and Evaluation (DPME) and local municipalities, as well as the private sector, in August 2015 to discuss the further development of 13 proclaimed fishing harbours in the Western Cape. The engagement had been aimed at sharing work already done in the oceans economy stream of Operation Phakisa, as well as the final spatial and economic development framework for 13 identified harbours, detailing proposed infrastructure repair and maintenance projects for each harbour commencing in the 2016/17 financial year, and ending in March 2019.

The DPW’s overall annual performance against target had been 60.7%, while the PMTE had achieved 60.9%. As regards performance per programme for the DPW, the management and administration programme had achieved 100% as regards the initiation of investigations of reported allegations within 30 days, but had achieved only 38% of its 50% target pertaining to a reduction in fraud and corruption. The finance and supply chain management (SCM) function of the programme had achieved all targets except those of settling invoices within 30 working days and the procurement cost of goods and services purchased. In the EPWP programme, unachieved targets were related to the creation of work opportunities through the EPWP phase 3, the creation of work opportunities in rural municipalities, youth participation, and the participation of people with disabilities. As regards policy and research in the property and construction industry, the Department was continuing with a process to develop the white paper on public works. A final draft of the DPW property management empowerment policy which had been developed, was continuing the process for consideration within the internal governance structures. In the  prestige policy programme, draft prestige norms and standards for category III clients had been completed but not yet approved by Parliament, four prestige norms and standards, adapted for provincial public works, had been compiled, with information for five provinces outstanding, and 17 state events had been supported with movable infrastructure.

The PMTE had achieved all targets for programme 1 (management), with the exception of those related to invoice payments within 30 days of receipt and the procurement cost of goods and services purchased. All targets for the real estate investment management programme had been achieved, and for programme 3 (construction project management), all other targets had been achieved except the one to create 15 000 work opportunities through construction projects. In the real estate management programme, 849 vacant land parcels had been secured to let out towards economic development initiatives, 646 lease agreements had been reviewed according to the rental rate per square meter and escalations, 518 of 646 leases were renewed before expiry date, and 27 of 53 surplus freehold property were allocated towards BBBEE. Programme 5 (real estate information and registry) had failed to achieve its target in respect of identifying the real estate assets verified, and the number of real estate assets verified. Programme 6 (facilities management) had achieved all its targets, notably savings in water and electricity consumption, the identification of buildings with facilities management contracts, and the allocation of 82% of facilities management contracts towards BBBEE.

Challenges encountered during the period under review had affected performance. The low performance on creating work opportunities was identified as a major challenge and the challenge was aggravated by the inability of public bodies to timeously report on the work opportunities created. As a remedial action, targeted assistance would be provided to reporting bodies to assist them with data capturing, the quality of data and the Portfolio of Evidence (POE), as per the special Ministerial determination. The development of a new public works White Paper had also been highlighted as a challenge and to mitigate this, a task team of the Department’s executive committee had been established to drive the White Paper project to completion. Challenges had also been encountered in the area of the Independent Development Trust (IDT) business case and contractor development implementation. As a remedial action, National Treasury had been consulted on 5 April 2016 and at the same time, the DPME had approved the Socio-Economic Impact Assessment System (SEIAS) for the IDT business case, and progress had been made afterwards.

Other challenges identified included the delays within the construction value chain and updating of the system, which had been major contributing factors for the backlog. To address this, the Department was in the process of creating a dedicated capacity to clear projects and update the system. Challenges had also been encountered in completing school projects, and the organisation was continuing its discussions with relevant stakeholders to improve on the programme and realise the goals. Measurement of occupancy rates had not yet been established, as the asset register was being updated.  This had also been identified as a challenge and to mitigate this, measurement would be determined only once the occupancy rate had been established, as the asset register was being updated. Limited advertising of state-owned properties also posed a concern for the Department and to eliminate this, it was launching and implementing a National Treasury online state-owned property listing service to advertise and facilitate the letting out of state properties to the private sector.

The mapping of coastal reserves under the custodianship of the DPW also posed a challenge, and the office of the Chief Surveyor General was currently conducting research along the coast to identify all the coastal reserves. Challenges had also been identified in the areas of efficiency for unscheduled maintenance on freehold property and the installation of building management systems, and remedial action had been taken.  

Through the department’s governance function, the fight against corruption had been intensified, the Department had demonstrated incremental improvement in its Management Performance Assessment Tool (MPAT), and support to provincial departments of Public Works had been rolled out.

Dr Cox Mokgoro, Chief Financial Officer: DPW, reported that audit outcomes had improved from a disclaimer in 2011/12 to unqualified in 2015/16, and from unqualified in 2014/15 with three findings to unqualified in 2015/16 with two findings – which involved the restatement of corresponding figures and the reliability of the performance information. As reported, functions relating to the PMTE had been transferred to the entity in 2015/16 and its budget structure had changed over the last financial year. The total budget had increased from R6.12 billion in the 2014/15 financial year, to R6.31 billion in 2015/16. As regards actual expenditure against appropriation per programme, 99.8% of the allocated budget for the administration programme had been spent due to accruals under machinery and equipment, while 97.2% of the allocated budget for Inter-Governmental Coordination (IGC) function was spent. As for the EPWP, 99.3% of the allocation had been spent, mainly due to vacant positions and goods and services which were not delivered before the end of the financial year, while 99.8% of the allocation for property and construction industry policy and research had been spent due to unfilled vacant positions and the late receipt of invoices which could not be processed. 99.5% of the allocation for the prestige programme had been spent, with under-spending related to employee compensation, goods and services, and machinery and equipment. In terms of actual expenditure per economic classification, 99.5% of the total appropriation had been spent.

The CFO reported that the outsourcing of contractors had been reduced by R257.72 million compared to the previous financial year, and the surplus reduced from R115.41 million in 2014/15 to R38.18 million in 2015/16. Net assets had fallen from R10.64 million in 2014/15 to R4.99 million in 2015/16, no unauthorised expenditure had been incurred in the financial year under review, and there was a closing balance of R261.16 million. There was an overdraft of R648.52 million due to unauthorised expenditure that had been incurred in the prior year awaiting, authorisation, and the overdraft would increase by the amounts to be surrendered to National Treasury later in the year. Irregular expenditure had been reduced in 2015/16 due to improved SCM processes and preventive measures being implemented. R67 000 of fruitless and wasteful expenditure was related to interest paid on an overdue pension account from a prior year which had been discovered in 2015/16, and R1.5 million in interest had been paid on overdue TV licences and to suppliers.

The PMTE had improved its financial performance by achieving a qualified audit opinion from the AG, with two qualified findings and seven compliance findings compared to the 2014/15 year, in which the entity had received an unqualified audit opinion with three qualified findings and 18 compliance findings. There was an increase of 2% in total assets, due to an increase in non-current assets, while an increase of 30% in current assets was mainly due to receivables from exchange transactions during the period. Total liabilities had increased by 37% from the previous financial year, current liabilities had increased by 38%, while net assets had reduced by 1%. Total revenue had decreased by 1%, expenses increased by 17%, and the deficit for the 2015/16 financial year was R923 million. 97% of the projected revenue for 2015/16 had been received. Deposits which had not been identified and allocated to the relevant accounts, had accounted for a variance of 301% under “other revenue”.

In terms of expenditure analysis, the entity had spent 101% of its allocation, as opposed to an expenditure of 96% in 2014/15 financial year. As regards irregular expenditure, the opening balance of R31 billion had been significantly reduced due to transactions up to 2012 being deemed not recoverable according to National Treasury guidelines on irregular expenditure, as well as internal condonations. With fruitless and wasteful expenditure, the opening balance of R261 million had been reduced to R246 million due to prior errors involving transactions that could not be substantiated and confirmed due to insufficient information to support the assertion. The balance of R246 million was still being investigated and progress would be reflected in the 2016/17 financial year.  

Discussion

Ms D Kohler Barnard (DA) sought clarity on the administration programme, which reflected that the vacancy rate had increased from 54 to 1 157, and 1 103 posts filled, with an additional 804 filled as a result of restructuring. She asked if the restructuring of posts aligned with National Treasury determinations. Why had 38% been achieved in reducing the fraud and corruption risk instead of the targeted 50%? A reduction in the fraud and corruption risk level should be a core focus for the organisation, considering the number and breadth of the Special Investigating Unit (SIU) investigations into 649 of the department’s leases, and the fact that one in three leases of the Department was under investigation by the SIU. Whilst acknowledging that the timeous payment of invoices had been a challenge for the Department for a while, she said that small companies were being driven into bankruptcy when large entities like the DPW paid invoices late, and even with the entity’s technology, only 75 out of every 100 invoices were timeously paid. She inquired about measures in place to mitigate the late payment of invoices. Referring to prevented judgments, she inquired if the Department was found innocent, or if taxpayers’ money was used to appeal judgments until the affected companies “threw in the towel” on the cases. Because the EPWP target was not achieved – a shortfall of 385 007 work opportunities -- she sought clarity on the stringent requirements identified by the Minister as a cause of the failure to achieve it.

Ms Kohler Barnard asked about the plans in place to obviate “endemic corruption” throughout the programmes, as there was an on-going investigation into ANC councillors in Umlazi and Illovo, where citizens without ANC membership cards were prevented from benefiting from any EPWP work opportunities. She suggested that councillors should rather invite communities into stadiums to randomly select names from boxes to award jobs, to ensure fairness. The awarding of jobs left to councillors with zero oversight, was a recipe for disaster.

Ms Kohler-Barnard described programme 4 as “catastrophic,” as there had been a 0% success rate while R3.74 billion had been spent. She said there were no reasons why the entity should not be shut down. As regards the prestige programme, she inquired if the guidelines which had been drawn up were in relation to the national key points and if the policy on security for the members of the judiciary had been forwarded to the Committee, as it had an oversight role over such guidelines. She asked why staff kept exiting the Department at an alarming rate, and the succession plan to ensure that expertise and institutional memory were not lost. She asked why bids were not awarded immediately after the close of tenders. She also sought clarity on the report that invoices worth R12.191 billion were older than 60 days. Why had there been an increase of 12% in the immovable asset portfolio, against the targeted 2%? How had the entity been able to secure the increase to 849 against the target of 100, for vacant land parcels secured to let out towards economic development initiatives? Regarding real estate assets, she inquired how many buildings had not been accounted for, and added that in Durban, there were lots of abandoned assets that were not accounted for and the process of trying to track the owners of abandoned properties took over two weeks, as there were unnecessary referrals between national and provincial departments, and municipalities. While the process was being unnecessarily prolonged, drug lords remained in the areas and there were slum buildings that affected the property values of the affected areas.

Mr K Sithole (IFP) expressed concern that since the Minister assumed the position and had a “souvenir strategic plan”, there had been some improvements, but he had not been included in the Cabinet reshuffle plan. He inquired why targets had not been achieved for programmes 4 and 5. He asked why a service delivery agreement had been not signed with Parliament, as indicated in the annual report. Why had only 7% of the 500 been achieved with the surplus freehold for revenue generation? Why had 500 work opportunities created through maintenance programmes been targeted, and 3 269 achieved? As for the payment of contractors, he said the failure of the Department to pay invoices within 30 days killed businesses.

Ms E Masehela (ANC) commended the DPW for the unqualified financial audit and for the completion of asset register. She added that the payments from municipalities had also improved, as this had been a major challenge for years. She asked how expenditure for office premises could be reduced and if the Department could rather use its own buildings. She inquired about the plans of the Department to assist municipalities to resolve the challenges with the EPWP. She commented that under-spending in EPWP projects of about R10 million was unacceptable, as it was a core programme to reduce poverty and unemployment.

The Minister responded that the EPWP programme had been politicised. He said there had been problems with the EPWP, where some municipalities never followed the guidelines provided by the Department. He asserted that it was not in the ANC municipalities, but there were serious allegations in DA municipalities in Cape Town.

Ms Kohler-Barnard interjected, and said that Umlazi and Illovo were ANC municipalities, and not DA municipalities.

The Chairperson urged that Members should allow responses to be given to their questions. He said that the issue had been raised on several occasions, and cut across all political parties.

The Minister said that an investigation had been conducted in Umlazi and there had been no evidence, but rather mere accusations, and issues could be properly addressed only when evidence was provided.

The Chairperson urged Members to provide evidence whenever such issues were encountered so that they could be investigated without favour or political affiliation.

Ms Masehela sought clarity on the unauthorised expenditure of R261 million which had been reflected in the 2014/15 and 2015/16 financial years.

Ms S Kopane (DA) said that according to the last annual report of the PMTE, the bank overdraft had been R674 million, and it currently reflected R1.74 billion. The current liability of the entity exceeded the current assets, which implied that the entity was technically bankrupt. What measures were in place to resolve the issue of the overdraft, which kept escalating? She commented while programme 4 was crucial for policy formulation for construction and property, important targets were not being met. She was concerned that the development of IDT business case had not been submitted to Cabinet for endorsement, and the first draft bill for the amendment to the State Land Disposal Act had not been developed, while some others had not been drafted for the approval of the Minister. Regarding the human resources of the entity, she asked if the high vacancy of 969 was responsible for the non-achievement of targets, and if the Department had instituted any succession plan. As regards the 452 contracts that would be expiring, she asked about the levels and fields in which the persons were employed, and sought clarity on the 97 retired persons and the filling of posts. She said the entity’s irregular expenditure had a historical background, and according to the AG’s report, the Department had failed to take preventative steps to curb irregular expenditure. She asked if any steps had been taken and whether plans were in place to fill vacant posts at the management level.

Ms Kohler Barnard said that not one of the 774 schools had been completed within the planned construction period, and asked why the Department had blamed the Department of Education for not supplying funds while there had been a highly successful (100%) achievement for inter-departmental coordination. She quoted from the AG’s opinion, which had said there was ownership of properties for which rates had been paid, but the ownerships had not been confirmed. Why had rates been taken from properties which did not have verified owners?

Ms Kopane inquired about the time frame for the remedial actions to mitigate the challenges highlighted by the Department.

Mr Paul Serote, Head: PMTE, said that of the 774 employees who had exited the Department, 37 had died, 172 were resignations, 452 were expired contracts, one related to transfers, 11 were discharged due to ill-health, four were dismissals due to misconduct, and 97 were retirements. Over 500 were employees below level 3, and only two senior managers had exited the organisation. As regards a succession plan, he explained that the Public Service Act had a recruitment policy which stated that all positions must be advertised but nevertheless, the Department had a succession plan which included a programme in skills development in various fields. As for the default judgment, he said that the Department had improved by defending pending cases which had never previously been defended.

The Chairperson raised his concern about the chairperson of the DPW’s audit committee, who was seen sleeping in the meeting.

The DG said that governance structures had been established to strengthen the environment in mitigating the risk of corruption. The entity had established an anti-corruption and risk unit and the compliance branch played a major role in risk management. As regards availability of land for economic development, he said that the lands were on the asset register. As per the stringent requirements, he said that the requirements included that before considering the use of properties for investment decisions, engagements must be made with other organs of state and stakeholders. He added that coincidentally, requests had been received from municipalities and state-owned entities, and there had been use of properties for economic development ranging from energy programmes and projects, to human settlement development, among others.

Regarding lost properties, he said the issue had been addressed on various platforms after the finalisation of the asset register. It pertained to about 1 200 properties where there were errors in their geographical location, which had culminated in difficulty in locating such properties for verification. Only a few hundreds were awaiting verification. As regards abandoned properties, he said that the Department often had to deal with inquiries to ascertain if the properties were owned by the national or provincial departments. When the asset register was being compiled, the Department had ensured that there was reconciliation with the deeds registers, and the variances were a consequence of vesting processes which had not been thoroughly completed in respect of whether properties were national or provincial properties, and auditors had checked for the flaws.

Mr Kohler Barnard asked whether KwaZulu-Natal was incorporated into the national asset register, and when other eight provinces would be incorporated into the register.

The DG replied that there had been no incorporation. The national Department basically accounted for the national assets by obtaining information from the provinces, and a database was being built for all assets to account for all national and provincial assets. He said the utilisation of state-owned facilities was about 96% and of the 92 000 properties, 54% constituted specialised facilities like police stations and prisons, among others.

He said the Department’s flagship precinct development programme was assisting it in resolving challenges associated with facilities. The central business district of Pretoria constituted just over 706 000 square metres of office space, and the DPW was considering the next phase of precinct development in Pretoria with a development potential of 700 000 square meters, which would change the landscape in terms of the occupancy of state-owned facilities in Pretoria. In 2015, the entity had acquired Telecom Towers, which had provided an additional 106 000 square meters of state-owned facilities, and feasibility studies indicated that over a ten year period, the acquisition would result in savings of at least R1 billion.

The DG said that various progressive exercises had been undertaken, and the fully functional research unit furnished the entity with proactive information on important decisions.

The Chairperson said that although permission had been sought to round off the meeting at 5pm, there was a three-line Whip in the Parliament on 15 November 2016, and members were expected to be in Parliament by 2pm.

Mr Imtiaz Fazel, Deputy Director General: Governance, Risk and Compliance, DPW, said that the projects in Umlazi and Illovo were not EPWP projects, and were fully funded by the Thekwini municipality. He said investigations had been conducted, complainants had been interviewed at both Umlazi and Illovo, and affidavits had been compiled in the presence of SAPS officials, alleging that they had been informed by certain councillors that they would not be receiving any EPWP opportunities without ANC cards. The young complainants, which were in groups, were represented by speakers. The Speaker of Thekwini municipality was interviewed, as well as senior staff and the EPWP office, and it had been established that they were not EPWP projects, but rather Thekwini municipal projects. The speakers had interviewed the councillors accused of favouritism and the councillors had denied all allegations. Although the allegations could not be substantiated with evidence, a circular had been sent to officials of the municipality which stated that with respect to job creation, EPWP initiatives must not be accompanied by any form of favouritism.

The Chairperson said that the Department should submit a detailed report to the clerk of the Committee as regards the allegations and responses, for record purposes.

Ms Kohler Barnard inquired if there was a consideration of her earlier suggestion that in various municipalities, to eliminate any possibility of bias, the community should be called and the names of community members randomly selected from boxes for employment in projects.

The Chairperson suggested that a formal submission should be sent by the Department to deal with future recurrences.

Mr Fazel added that as regards allegations that one-third of the Department’s leases were under investigation, weekly media statements made a lot of assertions. In 2012/13, as part of phase one of its turnaround programme, the Department had investigated all its leases, which had resulted in the reviewing of 2 162 leases as part of the overall lease investigation. At the conclusion of the investigation, the Minister had taken a view that given some of the findings of the lease investigations conducted by the Department, the entire lease portfolio should be handed over to the SIU for further investigation. The SIU investigations were meant to determine if leases had been awarded without formal procurement processes and also to ascertain if any of the initiatives were accompanied by any elements of fraud and corruption. The Department had initiated the investigation process and all leases were subject to review. The DDG said that on 27 August 2014, the President had issued proclamation R59 of 2014, which had culminated in an investigation of all leases that were acquired between January 2003 and 27 August 2015, and the SIU, which had commenced its work in April 2015, was completing 267 investigations as part of phase one of 500 priority leases. He said the SIU had recommended that the Department discipline 13 of its staff, which the Department had duly referred to its labour relations unit for further processing. The SIU was also engaging in four civil matters to recover funds from private companies, 12 criminal matters had been referred to SAPS, three acknowledgements of debt for R213 000 had been obtained and there were overpayments and recoveries to the value of R50 million currently being undertaken between the SIU and the Department. After the conclusion of phase one, the SIU would determine whether to progress with investigations or not, taking into account the cost benefit.

Ms Kohler Barnard suggested that a formal submission of the DDG’s response and vital figures be forwarded to the committee.

Chairperson concurred with Ms Kohler Barnard’s suggestion.

Mr Fazel reported that mitigation measures had been developed to reduce the level of fraud risk, and the 50% reduction in the first year had been over-ambitious for the Department, considering that it had been a major issue for the entity for some years. He said fraud and corruption had been reduced to about 30% - 40%, and the organisation aimed to adopt a longer-term approach to reduce fraud and corruption to a minimal level over a five-year period. He added that DPW anti-corruption strategy was very vast and holistic in the extent to which it sought to addresses fraud and corruption.

Dr Mokgoro referred to the late payment of invoices to contractors, and said contributing factors included the operation of 11 regional offices which were located hundreds of kilometres from the actual work sites, considering that work had to be verified before invoices were processed. The operating context of the entity was challenging. He confirmed that the Department had introduced an invoice tracking system which had been developed in-house and would be integrated into the operating system, to give vital information about invoices. The SCM processes of the entity and the supplier database were extremely complex, but that was not a justification for the late payment of invoices. Regarding programme 4, where R3.7 billion was reportedly spent and there was a zero achievement, he said the amount had been lost and the DPW might as well shut down the branch. He explained that the bulk of the funds related to transfers, such as those for the PMTE, the Council for the Built Environment (CBE), the Construction Industry Development Board (CIDB), Agrément SA, amongst others. He said that about R3.6 billion of the R3.7 billion went to the PMTE, which was fully accounted for in the financial statement of the PMTE.

He said the R12 billion for invoices that were received covered leases (R4 billion), capital (R3.5 billion), planned maintenance programmes (R2.5 billion), and unplanned maintenance (R1.5 billion). As per the PMTE budget structure, transfers from the national PWD had been R3.5 billion, but the PMTE programme was about R14 billion.

The under-expenditure on the EPWP (roughly R10 million) had had no effect on the creation of job opportunities at the required levels, and the only under-expenditure under transfers had been R600 000 to the provincial Department of Health, and the under-expenditure related to the office of the EPWP within the DPW, and not the actual transfers to municipalities and provinces where the actual impact of job opportunities were being felt.

The CFO said that the bank overdraft in the previous financial year was as a result of fiscal dumping and in the financial year under review, about R800 million had been spent monthly, which would amount to R2.4 billion at the end of 2016/17 financial year. He confirmed that there was an on-going change in the business process of the PMTE to accommodate the bank overdraft. With regard to the AG’s comment that management had failed to act on irregular expenditure, he said a trend in the irregular expenditure which had originated in the particular year had revealed a significant decline, and the main challenge was that the irregular expenditure was aggravated by compliance issues.

Mr Dlabantu said steps had been taken and a policy had been developed on irregular expenditure to follow-up. Some irregular expenditure had originated from on-going contracts which were signed in the previous years. There were steps to investigate irregular expenditure when it occurred, and action would be taken against the concerned parties. He said if the adjudicating committee missed the date of a tax clearance certificate, for instance, and then made a decision after the expiry of the certificate, the contract became an irregular expenditure which was also classified as a form of non-compliance. He affirmed that the DPW had a policy which was comprehensive enough to address the occurrence of irregular expenditure.

The Chairperson re-emphasized that the chairperson of the audit committee of the Department was a delegate of the Department, and should not be found sleeping during the meeting.

The CFO responded to the inquiry about the R261 million in the 2014/15 and 2015/16 financial years, and said it was not an unauthorised expenditure but an account balance which had been brought forward from the previous financial year. According to the audit findings that the AG could not link property rate payments to actual assets in the assets register, he clarified that after 1994 asset registers were pulled, consolidated and applied to the new custodians, which were the nine provinces. He added that there were two main national custodians, namely the DPW and the Department of Rural Development and Land Reform, and legislation which initially exempted departments from paying rates had been repealed in 2005. In terms of current practice and law, all properties belonged to the property custodians and in an event where a property could not be attached to any custodian, it was deemed to be in the custodianship of the DPW.

The Chairperson suggested that further issues should be addressed in future engagements with the Department. He said there was also a challenge of the BRRR process which must be addressed by the Committee. He thanked all members and attendees for their participation.

The meeting was adjourned.