Department of Human Settlements 2016/17 Annual Report, with Auditor-General & DPME input

Human Settlements, Water and Sanitation

03 October 2017
Chairperson: Ms N Mafu (ANC)
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Meeting Summary

Annual Reports 2016/17

The Auditor General of South Africa (AGSA) reported that most of the Department of Human Settlements’ entities had received a financially unqualified opinion, with findings regarding financial statements, performance information and compliance with legislation. The Department unfortunately also had one unqualified opinion with the Community Scheme Ombud Services (CSOS), which had material mistakes in the financial statements, with amounts that were not correct.

The housing development finance programme had a budget of R30 696 356, with 57 targets. They had spent R 30 587 231 but achieved only 29 of the 57 targets. This meant that they spent 99.6% of their budget, but achieved only 51% of their targets. Programme 2, Human Settlements Policy, Strategy and Planning, had a material finding. 93.8% of its budget was spent, yet only 69% of its targets were met.

South Africa accommodated 4.9 million households in formal housing between 2005 and 2016. The government subsidy housing programme contributed 1 930 454 formal houses during this period. Informal dwellings as a proportion of total households had decreased, with an absolute increase in the number of households living informally, from 1.87 million to 2.3 million, over the same period. New household formation had outpaced population growth, with the national average household size reducing from 4.6 in 1996 to 3.5 in 2015.

The Department of Human Settlements (DHS) achieved an unqualified audit opinion with findings on compliance and/or performance information. The AGSA had placed an emphasis of matter on the fact that prior year financial statements had to be restated due to an error in the value of the investments.

The Social Housing Regulatory Authority (SHRA) reported that they achieved an unqualified audit opinion, with no material findings for the 2016/17 financial year. A total of 3 058 social housing units were delivered in 2016/17, while a total of 6 529 social housing units were approved for capital grant awards.

The Committee asked what the major contributors to corruption and irregular spending were, and to elaborate on the title deeds report. They wanted to know why certain targets had not been met, and requested the government to monitor and intervene instead of waiting until the end of the deadline. Members also questioned whether the government was doing enough in the area of social housing and asset building, and what it could do to improve and ensure that the people of South Africa were benefiting. 

Meeting report

Office of Auditor General South Africa (AGSA): Briefing

Mr Ahmed Moolla, Senior Manager: Auditor General South Africa (AGSA), reported that most of the Department of Human Settlement entities received a financially unqualified opinion with findings regarding financial statements, performance information and compliance with legislation. The Department unfortunately also had one unqualified opinion with Community Scheme Ombud Services (CSOS), who had material mistakes in the financial statements with amounts that were not correct.

There had been a regression in the audit outcome in the current year. Previously most of the audit outcomes were unqualified with findings. Unfortunately CSOS had regressed to financially qualified with findings. They were unable to account accurately and completely for revenue from their levies. There was a further qualification reported on contingent liabilities. The surplus for the 2016/17 financial year could be retained only with the approval of National Treasury and should have been accounted for as a contingent liability. Compliance with legislation in the portfolio remains a concern as all entities still have material non-compliance with legislation findings.

Material adjustments had to be effected to the Annual Financial Statement (AFS) submitted for audit at the National Department of Human Settlements (NDoHS) and CSOS. All three entities incurred irregular, fruitless and wasteful expenditure. Controls were not yet mature to prevent incurring fruitless and irregular expenditure. None of the entities had material usefulness findings.

He mentioned that it was possible for the Department of Human Settlements to receive a clean audit. Interventions and commitment were required to improve the audit outcome. Leadership, governance and performance management at CSOS had to improve as a matter of urgency so that they could come out of a qualification and move into a possible unqualified space. Leadership must ensure that there were proper action plans in place which would address the root causes. The level of assurance by senior management at all entities and the accounting authority of CSOS needed to be enhanced. This could be achieved by developing and implementing post audit action plans to address audit findings. Internal audit and audit committees must place intense focus on driving improvement in key controls with the objective of moving the entities towards clean audit outcomes.

The housing development finance programme had a budget of R30 696 356, with 57 targets. They had spent R 30 587 231 but achieved only 29 of the 57 targets. This meant that they spent 99.6% of their budget, but achieved only 51% of their target. Programme 2, Human Settlements Policy, Strategy and Planning, had a material finding. 93.8% of its budget was spent, yet only 69% of its target was met.

Key projects were selected as part of the statutory audit. The Human Settlements Development Grant (HSDG) was allocated R18.284 billion, to be split between the nine provinces. Four provinces did not meet the delivery of their targets, although all nine provinces spent more than 90% of the grant allocated. The key findings were:

  • There were no audit findings identified relating to the national Department’s transferring and monitoring of the HSDG.
  • Supply Chain Management (SCM) processes were not followed on projects, which resulted in irregular expenditure in the Free State, Mpumalanga and Gauteng, which did not meet their targets by more than 70%.
  • Non-compliance with the Division of Revenue Act (DORA) was reported in Gauteng, as funds were not spent in accordance with the grant framework.
  • Two provinces -- Limpopo and Western Cape -- had an overachievement on total delivery, while seven provinces under delivered on their delivery programmes to date.
  • The qualifications at Free State, Limpopo and North West were due to slow responses by management, and staff not fully understanding the requirements of the financial reporting framework.
  • Management did not implement adequate controls to review and monitor compliance with applicable laws and regulations. The Free State had irregular expenditure of R974 million, Mpumalanga of R745 million, and Gauteng of R559 million.

Predetermined objectives findings were due to the fact that at eight provincial departments the systems were inadequate to collect, collate, verify and store performance information to ensure valid, accurate and complete reporting of actual achievement. Management did not exercise oversight responsibility to ensure targets were measurable, as these findings had occurred in the prior year as well.

Concern over usefulness was reported at six provincial departments. This was a direct result of action plans that were not adequate. People were not held accountable. Officials were not acting in the best interests of the Department. The more accountability, the less corruption, and the less accountability, the more the corruption.

Non-compliance was reported in the audit report of the NDoHS and CSOS. At the Department, R1.6 million had been spent on vehicles rented when there were departmental vehicles available. At the National Home Builders Registration Council (NHBRC), R13 000 in interest payments was due to late payments. At the CSOS, R32 000 was due to cancellation fees.

Discussion

Mr K Sithole (IFP) asked about AGSA’s engagement with the accounting officers, and the outcome in respect of the CSOS.

Mr M Malatsi (DA) asked what the major contributors to corruption and irregular spending were, and what the response from the Department was.

The Chairperson asked what AGSA’s assessment had been when they enquired about compliance. He requested more details on the title deed report.

Mr Moolla replied that AGSA had been continuously engaging management and CSOS, and had even issued a warning. The entity understood now that they did not have an adequate system in place and had to account for the revenue of the levy available. They were looking at what system was best for this matter, as there was no current system available. They had even approached the South African Revenue Service (SARS) for assistance with regard to an adequate system that they could make use of, to audit the levy properly.

Regarding the status of CSOS, effective leadership was providing ethical leadership and oversight responsibility. They needed to understand the problem, and review the suggestions by management. They should engage with the auditors. Management should be held accountable, be skilled with resources, and have trained and skilled staff to deal with matters. Leadership had a huge role and must ensure management follow up.

A root cause of what was happening at SCOC was the slow response by management, which needed to respond to the auditor’s concerns within days. The auditor wanted more details on the title deeds report. The Department had failed to provide the correct amount when requested by the auditor.

The same issues arose every year -- irregular spending and non-compliance with legislation. The Department’s response regarding irregular spending of money for vehicles had been that it was for the Minister. Management now had to come and explain the irregular spending, and identify who was responsible for it.

Department of Performance Management and Evaluation (DPME): Input

Mr Ahmed Vawda, Outcomes Facilitator: DPME reported that their objectives were to break apartheid spatial patterns through improved coordinated spatial planning and investment, to build and retrofit settlements to offer all South Africans access to adequate housing in better living environments, and enable a functionally equitable residential property market.

The preliminary findings of the evaluations were:

  • Subsidised housing had contributed significantly to addressing poverty and stabilising society, providing a foot on to the property ladder.
  • The Integrated Residential Development Programme (IRDP) supports integrated settlement making when based on specialised implementing agents, capable of managing the complex interface between planning. Financing and implementation of projects with clear agreements of responsibility and accountability.

Stats SA’s General Household Survey (GHS), covering the years between 2002 and 2016, showed that:

  • South Africa accommodated 4.9 million households in formal housing between 2005 and 2016.
  • The government subsidy housing programme contributed 1 930 454 formal houses between 2005 and 2016.
  • Informal dwellings, as a proportion of total households, had decreased from16.0% to 13.9% during this period, between 2005 & 2016, with an absolute increase in the number of households living informally, from 1.87 million to 2.3 million.
  • New household formation had outpaced population growth, with the national average household size reducing from 4.6 in 1996, to 3.5 in 2015.
  • In informal settlements there were 1 439 000 households, with a distinct reduction of average household size down to 2.64 people.
  • 23% of the population rented formal and informal housing, and 6% rented from government.

Recommendations:

  • Embed the asset-based approach to housing development towards enhancing overall property value.
  • Build concerted programme support for core housing instruments.
  • Develop new forms of adjudicating settlement level development and performance by building the requisite skills and mechanics across spheres, with the involvement of the private sector and civil society
  • Create a coherent policy/legislative programme for investment and an implementation framework between the Departments of Housing and Human Settlements, and the built environment, to better incentivise the private sector and social partners.

Discussion

The Chairperson asked if government was doing enough in the field of social housing and asset building, and how they could improve and ensure the people of South Africa were benefiting. What was the DPME’s assessment of the title deeds issue? What was the DPME’s opinion on customised targets -- targets that would be consistent in all nine provinces? How did the increase of poverty effect social housing projects?

Mr Vawda replied that social housing must be looked at in a broader perspective, considering how they could segment the housing better, how they understood the demand and how they should respond to it. Social housing played a role in social development. Four to six households move through a social house within 20 years. This allowed for the paying off of the house, which allowed the system to provide housing for the next generation at no cost to government.

With regard to the title deeds, people were less fearful of evictions. Title deeds were important because they created conditions to raise money. The biggest problem was succession. Title deeds would stabilise families once issued. The banks agreed to subsidise some housing developments, but only if the standards of the Reconstruction and Development Programme (RDP) housing would increase. The point of social development was to keep the family together. The family could refinance the house for other financial reasons -- it was not there for the purpose of reselling. This, in effect, created layers of jobs within a 20-year cycle.

Mr M Bara (DA) said that one of the problems the Committee had regarding monitoring the evaluation was waiting until the end of the programme. If they could monitor the entire process from the beginning to end, they would be more informed as it happened, and would be able to intervene accordingly. He asked what the Department did regarding monitoring and intervention, instead of waiting until it was too late. It had been mentioned that the housing policy should be reviewed, and it would be interesting to know what the view of the Department was.

Department of Human Settlements

Mr Mbulelo Tshangana, Director General: Department of Human Settlements (DHS) felt the AGSA was over-stretched, with a high volume of work. As a result, the AGSA missed deadlines, resulting in a slow management response.

He commented that the DHS was not out of the woods yet. There were provinces like Gauteng that were pulling them down. They had deployed officials in Gauteng to assist with the situation. Limpopo had also taken a dip. These provinces had been put under surveillance, and the Department provided hands on support to provinces. This year, expenditure had increased. Cape Town was also not where they would like it to be, yet they had seen improvements in other provinces.

The DHS used various platforms to inform and educate consumers on subsidies available from the Department and also educating beneficiaries about their responsibilities and how to care for their homes.

Progress in the priority mining towns’ intervention programme from 2014/15 until 31 March 2017 had been:

  • 56 informal settlements in Category A had received full upgrading – rapid formalisation and full services.
  • 118 informal settlements in Category B1 had received interim basic services, leading to eventual formalisation.
  • 58 informal settlements in Category B2 emergency basic services, leading to eventual relocation.
  • 124 informal settlements in Category C would have to be relocated rapidly to a site which was already available or imminently available.
  • A total of 338 projects had been implemented in municipalities with mining towns.
  • A total of 187 501 sites and 265 271 were provided form 2014/15 financial year until the period ending 31 March 2017

During the year under review, the Department, as the overall accounting organisation in the human settlements sector, did not fully achieve the following targets:

  • Title deeds restoration programme.
  • Households in informal settlements upgraded.
  • Subsidy housing units delivered.
  • Affordable rental housing opportunities.
  • Hectares of land rezoned for new developments.
  • Draft White Paper.
  • Physical integration of the development finance institutions.
  • Master spatial plan

A summary of policy and delivery targets partially achieved was:

  • The audit plan was not fully implemented  due to audits that overlap beyond the financial year
  • The anti-fraud and corruption plan not fully implemented due to capacity constraints.
  • The human resources implementation plan not fully achieved, which was attributed to the process of filling vacant positions that was initiated at the end of the Quarter 4.
  • Statutory requirements on human resources were not complied with in full.
  • The training of officials, consumers and military veterans on human settlements capacity programmes was not achieved.

The overall departmental performance was that 58% of the targets was achieved, 39% was partially achieved and 4% was not achieved.

Summary of audit outcomes:

  • The Department achieved an unqualified audit opinion, with findings on compliance and/or performance information.
  • The AGSA placed an emphasis of matter on the fact that prior year financial statements had to be restated due to an error in the value of the investments.
  • An amount of R230 million had been appropriated during 2014/15 for the recapitalisation of the National Housing Finance Corporation (NHFC).
  • The amount was transferred to the NHFC as appropriated, but was reported as a grant transfer to the NHFC instead of a recapitalisation amount. This was also mainly due to changes in the reporting requirements by National Treasury.

The audit findings in respect of fruitless and wasteful expenditure were the R13 480 interest charged by the Public Service Pension Fund in respect of a pension contribution for a new staff member, whose pension contribution was unfortunately left out. Additionally, interest of R3 233 had to be paid for an arbitration award paid after a 21 day period had lapsed.

The Department’s response to the audit outcomes had been:

  • To address the material findings on performance information, the Department was developing standard operating procedures that detailed how indicators were developed, applied and verified across the sector.
  • Customised sector indicators would be used to assess the alignment of plans to the medium term strategic framework (MTSF) priorities, and also to verify and test the accuracy of the reported information.
  • An audit action plan to address all audit findings had been developed ,and progress would be monitored and reported against quarterly through the internal audit unit of the Department.

Discussion

Mr H Mmemezi (ANC) said that some programmes were not fully achieved. These were targets that had been planned by the Director General, and the Committee did not accept that 13 targets were not achieved. The relevant parties were highly qualified people, and should achieve their own targets. Almost 99% of the budget had been spent, yet only 51% of the targets had been achieved. He requested an explanation, as it was a serious matter. The other area of concern was that it seemed that the current system was not working. AGSA was using its control methods, whereas the Department should have its own control methods and own targets.

Ms L Mnganga-Gcabashe (ANC) said that the DG must act on the findings in order to prevent further risks, adding that the internal auditor should have had risk management factors in place. The internal auditor would be able to advise the Department on how to mitigate and prevent risks.

The Chairperson gave the Department credit for the good work done instead of just focusing on the negative aspect of the report. She said that if there was fruitless and irregular expenditure, someone was doing something wrong. She and her team would like to hear the action plans on how the DG was going to deal with these matters. The problem was there were not unified standards for all the provinces. She wanted to hear a better explanation for the issue of the title deeds, because although the Committee realised that managing the target was a challenge for various reasons, it needed to establish how this would be normalised. She asked for documentary proof that the number of title deeds had indeed been issued.

DHS response

Mr Tsangana responded that they had been surprised by the title deeds issue, and they would be attending to the Committee’s concerns. 

The car in question had been in an accident and was written off.  The Department had to get another car with the correct specifications. When it arrived, the car had the wrong specifications, but instead of returning the car, the DG had decided to use it. The car had eventually been returned to get the right specifications. The Department would learn from this, as it was indeed fruitless expenditure.

The internal auditor had said the title deeds should not be included in the external auditor’s report, but now that it had been raised, the DG would be dealing with it as soon as possible.

Social Housing Registration Authority (SHRA)

Mr Rory Gallocher, Chief Executive Officer: Social Housing Registration Authority, reported that the SHRA had achieved an unqualified audit opinion with no material findings for the 2016/17 financial year. There had been a range of interventions implemented as part of the organisation development project. A total of 3 058 social housing units were delivered in 2016/17, while a total of 6 529 social housing units were approved for a capital grant award. There was 65 accredited social housing institutions.

The Imizi Housing Association had won the Best Social Housing Project category for the Fairview link project in Port Elizabeth at the Govan Mbeki Awards in November 2016.

South Africa had gone into partnership with the Canadian government, which aimed to create a pipeline of 4 500 units which would focus on urban regeneration.

The strategic outcome-oriented Goal One aimed to stimulate social housing delivery by up-scaling and fast-tracking social housing development in order to deliver 27 000 units by 2019. Goal Two was to create an effective, risk-based, automated accreditation and compliance regulatory system by 2019, allowing for a more effective and streamlined regulatory system. Goal Three aimed to create a professionalised and sustainable social housing sector by implementing accredited social-housing training programmes by 2019 in order to ensure the required expertise and capacity were created to propel the sector forward. Goal Four was to enhance performance of the entity by restructuring the entity and implementing new systems, policies and procedures by 2019 to enhance its performance and reputation. Only 30% of SHRA’s targets had been achieved, and the balance of 70% had to be reached by 2019.

Turnaround of the entity was well under way. The SHRA was no longer under administration. Capital grant adjustments had been recommended. 138 new restructuring zones had been gazetted and approved. A new structure had been approved by the Minister in December 2016. The new structure was aligned to the new strategy. The focus for 2017/18 was to capitalise on key policy amendments and recruitment in order to capacitate the SHRA.

Positions had been filled, and staff had increased from 20 to 33 people, allowing the vacancy rate to decrease.

Discussion

Mr Mmemezi reminded the Committee that the constitution obliges the government to correct the imbalances created by apartheid, so it should look at empowering young black real estate agents to let out government property.

Mr Bara said that targets had not been met, yet money had been spent. Social housing was the way to go. He asked what the challenges in Limpopo and Mpumalanga were regarding lack of units delivered over the period.

The Chairperson asked how comfortable SHRA was at meeting its 27 000 unit target by 2019. What plans did it have to fill the vacancy rate, because the vacancy rate was still at 32%. She also asked the CEO to consider the inner city revitalisation situation, and to unpack the improvements and how far that relationship was.

Mr Gallocher replied that SHRA would like its management to the obtain information on the main contractors, sub- contractors and the professional teams, to ensure all requirements were met, including B-BBEE. Three provinces -- Gauteng, Limpopo and Mpumalanga -- needed a lot of support and they would try to work with the provinces on a governance level.

The meeting was adjourned.

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