Department of Public Works and PMTE 2016/17 Annual Report, with Minister & Deputy Minister

Meeting report

Chairperson’s opening remarks

The Chairperson welcomed everyone in the meeting and indicated that some Members had asked to be excused from the meeting as early as 11:30 am and that was something that would need to be taken into consideration. The Committee would ask the Department of Public Works and Property Management Trading Entity (PMTE) to make their presentations and then allow Members to pose questions but the responses would have to be provided to in writing.

Briefing by the Department of Public Works

Mr Imtiaz Fazel, Deputy Director General: Governance, Risk and Compliance, DPW, indicated that the 2016/17 Annual Report was presented in the context of the 2nd Phase – Efficiency Enhancement - of the Department's Turnaround Strategy, as announced in 2012. The following thematic areas received priority attention as the Department strived to improve efficiencies and effectiveness:

• Policy and regulation
• Management practices, systems and internal controls
• Intergovernmental coordination and concurrent mandate
• Coordination of public employment programmes
• Property management
• Construction project management
• Facilities management
• Human Resources Plan and the capacity-building programmes 

Mr Fazel informed the Committee that a number of projects had been completed for various government departments, including Department of Justice, Department of Defence, Department of Correctional Services and South African Police Services (SAPS). During the 2016/17 financial year, an amount of R196 million was paid towards the historical municipal debt. The total paid to date towards the historical debt was R538 million, which represented 79% of the Department’s debt, and 46% of the debt for the Department together with other custodians. The Department had achieved 69% (94 of 137) of the target of 100% positions filled within four months of the date of advertisement as per the approved Recruitment Plan. An additional 25 positions advertised in the 2015/16 financial year had been filled during period under review. The Department had trained 538 employees, an achievement of 103% against the target of 60%. 1 542 Beneficiaries had participated in the DPW Skills Development including, 54 Young Professionals, 108 artisan trainees, 525 interns and 690 learnerships and 52 management trainees.                                                                                                                    

Mr Fazel said that the Department had convened 11 out of a targeted 12 intergovernmental forums. 10 of 10 agreements had been signed for joint service delivery with provinces and municipalities. 2 out of the 2 targeted survey reviews had been conducted. 4 out of 4 targeted corporate plan assessments had been conducted on DPW entities. 4 of 4 quarterly reports had been completed on PEPs within the Extended Public Works Programme (EPWP), 386, against a target of 300, Non-Profit Organisations (NPOs) had been contracted for the implementation of the non-state sector: NPOs programme. A total of 297, against a target of 290, public bodies had been provided with technical support. A framework on the sector convergence on recruitment guidelines of EPWP participants had not yet been approved. In relation to Programme 4: the Property and Construction Industry Policy Research and the draft White Paper had not yet been developed and could therefore not be gazetted. The draft Construction Industry Development Board (CIDB) Amendment Bill was developed and would be ready for consultation with stakeholders, as was the draft Council of Built Environment (CBE) Amendment Bill. In relation to Programme 4: Prestige Policy, no prestige policy had been developed. 7 736 out of 15 567 requests had been responded to within 20 working days. A total of 6 372 out of 14 354 requests had been completed within four days, and 13 state events supported with movable infrastructure.

Mr Cox Mokgoro, Chief Financial Officer (CFO) of DPW, stated that the PMTE financial model had not yet been approved. 87% of compliant invoices had been settled within 30 days (target 100%). 98% (target 30%) reduction in non-compliance to Supply Chain Management (SCM) prescripts had occurred. 31% (target 60%) of bids had been awarded within the prescribed timeframes and 75% of quotations had been awarded within 30 days of requisition date (target 85%). 42 of 42 User Asset Management Plans (UAMPs) had been received by government departments and 9 out of 10 instances of signed-off infrastructure work had been listed. 2 of 2 precinct development proposal reports had been completed for Howick and Durban Centrum sites. 3 of 3 sites had been established for integrated precinct development. 210, against 300, approved infrastructure project designs and 144, of 406, approved infrastructure projects were ready for tender, 186 of 216 infrastructure sites had been handed over for construction and 6 (target set at 3) Infrastructure Programme Management Plan (IPMPs) for new construction projects had been submitted to the Project Management Office (PMO).

Mr Mokgoro said that 60% of disposals approved in 2016/17 had been processed for transfer, meeting the target of 60%. 100% of immovable assets had been updated on the Immovable Asset Register (IAR) for completed infrastructure projects. 62 of 62 capital projects had been capitalised and added to the IAR and 9 of 9 provincial IARs had been assessed for compliance. In terms of Facilities Management, 881 out of a targeted 350 buildings with scheduled maintenance contracts were in place. 94% of Small, Medium and Micro Enterprises (SMMEs) contracts were awarded on the planned maintenance programme, well above the target of 50%.  8% of a targeted 70% of unscheduled reported maintenance incidents had been resolved within prescribed timeframes. There had been a 274 316 368.2 kWh reduction in energy consumption, against a target of 250 000 000 kWh, in identified property portfolios and 4 459 707.00 kl, against a targeted 4 100 000 kl, reduction in water consumption in identified property portfolios.

Mr Mokgoro mentioned that the strategic challenges included the following:

• Ongoing work on the Immovable Asset Register which was not yet fully compliant
• Capacity challenges in construction management (project managers and technical professionals, such as architects, engineers and quantity surveyors)
• Poor performance of service providers, both consultants and contractors
• Absence of Facilities Management/Framework/Maintenance Strategy as evidenced by poor condition of state-owned properties and vacant properties being exposed to illegal occupation and vandalism
• Inability to generate substantial revenue through the letting of state-owned properties
• High cost of lease rentals. A financial model was being developed.
• Inadequate processes, norms and standards for the provision of movable assets in the Prestige portfolio

Mr Mokgoro stated that the Department had received an unqualified audit opinion with matters of emphasis, specifically focusing on reliability of the performance information. The Department had moved from a qualified audit opinion in 2013 to an unqualified audit since 2014. That showed that the Department had been able to perform at a consistent pace. However, PMTE had obtained an adverse audit opinion and the main issues were on non-compliance, poor performance and planning. The performance of PMTE had moved from a disclaimer in 2012 to adverse in the 2016/17 financial year. There was under expenditure of R18 million under EPWP, equivalent to 0.8%, of which R17 million related to goods and services, and the balance of R579 000 for machinery and equipment payments for capital assets. The reported accruals relating to the EPWP as at 31 March 2017 amounted to R22 million. No unauthorised expenditure had been incurred in the current financial year.

In conclusion, Mr Mokgoro highlighted that the opening balance of R5 billion had been reduced significantly by prior year transactions deemed not recoverable and not condoned, as well as internal condonations. The balance of R3.7 billion, which included newly identified transactions of R268 million, was being investigated and progress would reflect in the 2017/18 financial year. An amount of R106 million currently included in property, plant and equipment had been identified as potential fruitless and wasteful expenditure.  Management still needed to validate the amount in line with the National Treasury Guideline on Fruitless and Wasteful Expenditure and the Policy on Management of Financial Misconduct. The investigations were ongoing and management would appropriately conclude and make the necessary disclosures on the remaining balance of R99 million in the new financial year.

Discussion

Ms C Madlopha (ANC) appreciated the presentations which had been good and had detailed several areas. She suggested that the Committee should congratulate the Department for achieving an unqualified audit opinion. Page 19 of the presentation under programme 3 spoke about delays in programme design and infrastructure planning. Planning was critical important for the success of any project. What action had been taken against defaulting contractors? It was unclear as to whether the Department was focused on real-estate or leasing. It was already known that the Committee had a problem with leasing, especially as far as the duration of leases.  The Committee had observed during an oversight visit that there were buildings in Hout Bay that had been leased for 10 years. The Department should provide the Committee with a report on the number of leases and the duration of those leases, including the report on minimal rates.

Dr Madlopha noted that there were serious problems in and around EPWP as beneficiaries were said to be directly linked to the Department of Home Affairs. The audit report had also noted several problems with EPWP and those included decreased beneficiaries, lack of submission of registers and some names of beneficiaries had been found in different EPWPs. It would be important to know if there were any strategies in place to address those problems within EPWPs. The way PMTE planned in terms of deploying the work force was problematic. The budget for the upgrade of Correctional Services had been doubled but there was no indication of consequence management. Why had the budget for the upgrade of Correctional Services doubled? The Department had not taken drastic action against people who had committed fraud and corruption. It was unclear as to whether any action had been taken in relation to those who had failed to detect fraud and corruption.

Dr Madlopa said that the Committee appreciated some of the improvements within the Department but the reality was that the Department was, in fact, regressing, especially in terms of compliance on SCM prescripts and irregular expenditure. The regression was due to lack of consequence management. The challenges within the Department and PMTE were problems in fighting unemployment, poverty and inequality. There was a lack of financial management discipline within the management and this highlighted the fact that the problem lay within the management. It would be important to know if there were performance contracts at Senior Management Level in the Department.

Mr Nkosinathi Nhleko, Minister of Public Works, responded that the challenges that were faced by the Department were linked to capacity, for example in project management. The escalation of cost was linked to delays in completing the projects as prices kept increasing due to inflation. The capacity within the Department was not able to keep up with the challenges and demands. The consequence management was based on the Public Finance Management Act (PFMA) and Public Service Act (PSA). Therefore, every action that was taken by the Department had to be guided by those Acts. Consequence management was very important and that was provided for in the Legal Relations Act (LRA). The person who pursued consequence management was often victimised, harassed or even sidelined.

Mr S Sithole (IFP) noted that the Turnaround Strategy focused on the stabilisation of the Human Resources (HR) within the Department. However, the Department still had an acting Director-General (DG). The CFO had previously promised that the Department would have an unqualified audit opinion with no matters of emphasis but this promise had not materialised. It was clear that the presentation was a cut and paste of the presentation of the previous year. What support was being provided to small harbours in Cape Town? What was the progress on the inner-city regeneration? What was the Department doing regarding the fact that IDT had obtained a disclaimer audit opinion?

Dr M Figg (DA) highlighted that the disclaimer audit opinion of IDT was completely unacceptable and that was something that the Committee should emphasise. The R20 billion misstatements was a huge error and it was clear that error was intended to hide either a deficit or surplus. There were massive financial errors that had been made and that once again highlighted a lack of respect in terms of accountability. It would be important to know why the error had resulted in R26 billion of overstatement of assets. The overdraft of R1.9 billion was wrong and unacceptable. Why was there such an overdraft? Why were there not enough project managers? Why were there major delays in various projects? Why was the Department aiming at targets with not enough resources, and many risks involved? Why was there a problem of under-expenditure?

Dr Figg stated that the fact that the Department was still using Excel spreadsheets to record assets was rather embarrassing. What was the cost of the system that was being used to record assets? There should be further explanation of the expenditure on the computer programmes and computer packages in the Department. Why was the Department spending money on contractors who were not up to standard? What were the reasons for 864 people leaving the Department? Why were employees resigning in such high numbers? Were those individuals still required in terms of their skills and expertise? It was concerning to see that the Department was spending a huge amount of money on computer programmes while still using Excel spreadsheets.

Mr D Ryder (DA) indicated that, in reflecting on the performance of the Department, the Committee should congratulate everyone achieving an unqualified audit opinion. However, it was concerning that the Department had spent 98% of the allocated budget to achieve 58% of the targets. There should be consequences for failure to achieve the targets.  That was regarded as misconduct. The public perception was that the Department was not fulfilling its mandate. The Minister should visit local police stations, clinics and schools to hear about the public perception of the Department in relation to its mandate. The role of public servants is to provide social services to the people on the ground. The Turnaround Strategy was indeed possible through the stabilisation of the Department. Stability was imperative for the Turnaround Strategy to be a success. There was so much pressure to provide basic social services to the people, especially when considering the problems of huge urbanisation and population growth.

Mr Ryder said that there should be reflection on refocusing on main priorities. Transformation was important but the most important part of transformation was providing services to the people. The Committee should be provided with the risk management plan of the Department. The problem of unauthorised expenditure needed to be addressed. There should be an agreement in place to pay the service providers within the period of 30 days. The problem of lawsuits or litigation was one of those risks that needed to be fixed.  The service providers, including construction workers, should be paid as soon as possible as that was another aspect of transformation. The fact that the PMTE was still using the Excel spreadsheet was diabolical as that was a major risk. The overdraft by PMTE needed to be fixed. The Committee should summon Treasury to address the issue where government departments were not responding to their mandates. Was there any consequence management in place within the Department?

 The Chairperson indicated that the Committee would meet on 17 October 2017 to allow the Department to respond to the questions that had been asked by Members. This meeting would be dedicated solely to answering the questions and no presentations would be made.

Mr Jeremy Cronin, Deputy Minister of Public Works, stated that progress had been made by the previous Minister and the focus now should be on continuing with the legacy of bringing stability to the Department. Members should stop that narrative that there was some kind of an ongoing purge within the Department as that was not true. The reality was that there was always some discomfort when, there was a new Minister. The priority should be to go back to the basics and to get to the bottom of the challenges that had been identified. The issue of a disclaimer audit opinion of IDT was one of the issues that was being taken care of by the Department.

The meeting was adjourned.