Department of Public Works audit action plan, with Deputy Minister

Public Works and Infrastructure

17 October 2017
Chairperson: Mr F Adams (ANC)
Share this page:

Meeting Summary

The Department of Public Works (DPW) presented a three-part plan of action to deal with the issues raised by the Auditor General of South Africa (AGSA) in its findings regarding the performance of the DPW and its entity, the Property Management Trading Entity (PMTE) during the past financial year.

Following the transfer of functions from the DPW to the DMTE, the Department had been allowed three years in terms of Directive Two to account for the immovable assets in accordance with generally recognised accounting practice (GRAP) standards. In the period under review, Directive Two had no longer been applicable, so it had obtained an adverse opinion due to qualification in the areas of property, plant and equipment, accruals, provisions and receivables.

Specific action plans aimed at improving performance included a review of supply chain management (SCM) business processes and delegations, as well as hosting regular training for SCM role players.

The Expanded Public Works Programme (EPWP) also had a number of action plans to address the AG’s findings. These included aligning the annual performance plan (APP) for 2017/18 with medium term strategic framework (MTSF) targets, conducting project site verification visits to ensure EPWP adherence, engaging the internal audit and AG on strategies to ensure compliance by the reporting public bodies, and adherence to the Ministerial Determination.

Issues raised in respect of the PMTE’s construction project management and real estate management services had all been reviewed, and corrective action implemented. The facilities management strategies included identifying the top 300 buildings, developing an internal technical skills capacity linked to the resuscitation of workshops, having a fully automated call centre, and enhancing the maintenance and asset management activities through the introduction of systems, such as the new Enterprise Resource Planning (ERP) and telemetry systems. The DPW was developing and implementing new strategies to intensify the fight against fraud and corruption, planning processes that were integrated with risk management and reporting processes, as well as governance frameworks to enhance the quality and functioning of the governance structures of the Department, and improving the oversight of the public entities.

Members asked whether there was sufficient consequence management in the area of procurement and contract management. It was asserted that a primary problem was beneficiaries being recruited according to “party politics,” and that it was widely held that the DPW overpaid for projects. They asked why there was not a concerted maintenance plan to prevent buildings from “falling apart.” The lack of transformation within the construction sector still remained a challenge. Black contractors felt they were not being accommodated when they tendered for projects. Some level of agreement had to be achieved to ensure that the DPW, the AG and National Treasury had common ground to understand what was required from each entity to meet the AG’s requirements. It was said that the financial officers of the DPW were well equipped and able to deal with the findings of the AG, but had not done so, making it look as if they could not see the “gravity” of receiving an adverse audit opinion from the AG, and this attitude needed correcting. 

Meeting report

Opening Remarks

Mr F Adams (ANC), Chairperson, Portfolio Committee, opened the meeting with a welcome to the Deputy Minister in attendance Mr J Cronin, the members of parliament, members of the delegation from the Department of Public Works (DPW), and the members of the public who were also in attendance. The Chairperson then gave apologies on behalf of Ms Q Madlopha (ANC), who as absent due to being hospitalised, as well as Mr Mr K Sithole (IFP). He further mentioned the purpose of the meeting, noting that the Portfolio Committee (PC) asked the Department (DPW) to come back and report on what action plan they had in place with regard to the findings of the Auditor General (AG). He thanked the DPW for keeping to their word and coming to present to the PC. He then handed over to the Acting Director General of the DPW

The Acting Director General, DPW, thanked the Chairperson for the warm welcome. He then echoed the purpose of the meeting outlined by the Chairperson noting that they have prepared a brief presentation as well as responses to the questions that were asked beforehand, of which members would be given the opportunity to engage with and supplement where they felt necessary. He subsequently handed over to the presenter Mr Imtiaz Fazel, DDG: GRC, DPW.

DPW Audit Action Plan

Mr Imtiaz Fazel, Deputy Director General (DDG): Governance Risk Compliance (GRC), DPW, said they had prepared the presentation in three sections -- the DPW overall action plan, the Property Management Trading Entity (PMTE) overall action plan, and the programme specific action plan, where they would deal more with performance issues and the audit findings.

The DPW had achieved a qualified audit in 2013, from which they had improved to an unqualified audit outcome in 2014 and maintained this up until 2017. A number of issues had been raised by the Auditor General (AG). In financial management, the AG had raised particular concern about payments being made 30 days after the receipt of invoices. The root causes had been identified and remedied, so that between April and July, 92% of the invoices were paid within 30 days. The other finding was with regard to the key management personnel disclosure note not being correctly calculated. This was also attended to. The amount disclosed for claims against the Department had differed from the confirmation form from the state attorneys, and this was corrected.

With respect to governance, risk and compliance, certain deficiencies were noted in the manner in which the annual performance plan (APP) was “crafted,” and there were inconsistencies identified between the APP and the annual performance report (APR). The actions put in place to deal with this were to have quarterly reviews in accordance with the APP, so that deviations were corrected when identified.

The findings with respect to the DPW’s predetermined objectives from the 2017/18 APP were that not all targets from the medium term strategic framework (MTSF) were included in the APP. This was due to the Department not reviewing and monitoring compliance with the applicable legislation. The DPW then set out to engage with relevant stakeholders to ensure that the MTSF targets were included in the APP.

On the issue of corporate services, the findings were that in the procurement and contract management, senior management service (SMS) members did not declare their interest, and the Department stated that they had put in place a number of measures to ensure that the proper disclosure would be followed in this regard, citing the number of communiques and reminders that were circulated in the Department between March and April of 2017. Disclosures were also subsequently submitted to the Public Service Commission before 31 May 2017 which showed that their interventions were indeed in effect. With respect to procurement and contract management, no approval for remunerative work had been obtained. For this, the DPW had issued a quarterly remunerative work circular to ensure compliance with the new categories identified by the Ministry of Public Service and Administration (MPSA) for the submission of financial disclosure of all interest by the designated groups to be verified against the Companies and Intellectual Property Commission (CIPC), DEEDS and the Electronic National Administration Traffic Information System (E-Natis). The DPW had also taken up the resolution to forward cases of non-disclosure for investigation and disciplinary action, in line with the recommendations of the relevant directives.

On human resource (HR) management, payroll certificates were reported to have been certified and returned timeously. This was a straight-forward issue of compliance which was being dealt with and the DPW aimed to investigate the possibility of printing payroll certificates in regions, as well as implement payroll delivery registers to the regions. The DPW also wanted to enhance the current payroll register to units. On the issue of leave forms not being captured timeously, the DPW said it reminded all staff of timeous submissions of leave forms every month, with HR to reconcile leave received with leave captured. It was doing regular spot-checks to ensure compliance in this regard. On the management of vacancy rates, they found that the total employee cost budget allocated to the DPW was not sufficient to fill all vacant posts. They were reviewing their organisational structure and experiencing difficulty in attracting and retaining managers and professionals. They had thus decided to undertake the implementation of the organisational structures for PMTE and DPW (matching and placing), and allocate a sufficient compensation budget to fill vacant positions. Lastly, they had held an activation on the establishment of funded vacant positions for immediate advertising and filling.

The status of these actions plan was that the approved organisational structures for the PMTE and the DPW were being implemented with effect from 1 April 2017. Furthermore, a consultation of the migration framework had been concluded and signed off. They had also sent out an email requesting branches to identify and submit the priority positions for advertising and filling. A circular informing employees on the advertisement of positions was issued on 4 August 2017.

On performance agreement deviations, the DPW had found that the HR section did not exercise their oversight responsibility to ensure that performance agreements (PAs) were submitted and signed timeously by all SMS members. For this, reminders were sent to all SMS members for compliance. Disciplinary action was also instituted against those SMS members who had not signed and submitted the PAs for the 2016/17 PMDS cycle, as well as those SMS members who had signed their performance agreements after the due date.

For the issue of management not having adequately implemented security management controls, the DPW had set out to finalise firewall installations at two remaining sites, as well as implement patch management whilst also updating their security policy. The status of their action plan was that firewall installations had been completed for all sites, and their information technology (IT) security policy was in place. Furthermore, patch management had been implemented on all servers. On IT service continuity, it was identified that an ICT disaster recovery plan (DRP) had been documented, but the plan had not been approved. The DPW had noted that without an approved and adequately tested DRP, the Department may be unable to recover critical business functions within an acceptable timeframe in the event of a disruption. Furthermore, this may result in lengthy disruptions which could affect the Department’s delivery on its core mandate. To remedy this, the Department had completely updated the DRP, which they had done, along with the Business Continuity Plan (BCP) document, which were now awaiting signoff.

In the Expanded Public Works Programme (EPWP), the reported achievement was not supported by sufficient evidence, and this was dealt with. The AG found that the DPW did not have adequate filing and record management systems in place to maintain information that supported the reported performance in the annual performance report. This included information that related to the collection, collation, verification, storing and reporting of actual performance information. The DPW said that they would verify documentation before it was submitted for the annual report. Information would also be verified quarterly by an assigned official and the annual audit results for 2016/17 pertaining to poor record management would be communicated to the relevant accounting officers. The DPW would develop a business process flow management template and checklist for the filing of documents of performance data captured in the EPWP reporting system and monitored.

The DPW’s status report showed that performance information for the first quarter had been verified before being submitted for storage so that it could be considered in the annual report for performance information. With regard to transfers and subsidies, the EPWP grants were not effectively monitored. This was due to the lack of appropriate monitoring and reviews by the Department on the reported EPWP projects. The DPW did not implement proper record keeping in a timely manner to ensure that complete, relevant reliable and accurate information was accessible and available to support performance reporting. One audit was planned in collaboration with the internal audit unit to check on projects, in addition to 700 site visits. Up to date, they had conducted 102 site visits, which also included the verification of documents. Regarding transfers and subsidies, the EPWP expenditure reports submitted by public bodies did not indicate what the funds had been used for. They then set out to modify the EPWP integrated grant template to show the reduction in expenditure on different items.

On predetermined objectives, the DPW had errors in beneficiaries reported on EPWP systems for the fourth quarter. The action taken was that all existing validation procedures external to the EPWP reporting system (RS) and prior to the publication of data had been revised to detect quality issues more effectively. The DPW would submit their quarterly performance data to the internal audit for further verifications and continue with the verifications with the Department of Home Affairs on the identity document (ID) numbers on a quarterly basis. All actions had been implemented in this regard.

Mr Fazel said that the EPWP beneficiaries were duplicated on the EPWP reporting system, while also experiencing a non-submission of ID copies, attendance registers and proof of payment. The projects’ financial years, as reported in the EPWP reporting system, would always have different financial years due to the different spheres of government, and projects could cross financial years as well. Furthermore, the person days were also counted afresh from 1 April each financial year for the same work opportunity. The EPWP branch would monitor public bodies to ensure that files for projects were well maintained, whilst also conducting 700 site visits on a sample basis to ensure that compliance with proper record keeping was being met. They would also develop project site verification annual plans.

PMTE Action Plan

On the PMTE overall audit action plan, Mr Fazel said the Department had obtained a qualified audit outcome in 2014 and maintained this outcome up until 2016, after which they had received an adverse audit opinion. He referred to the background of PMTE’s audit outcomes dating back to 2012-2013, when they had received a qualified opinion due to material misstatements in the areas of immovable assets due work-in-progress, irregular expenditure, and commitments. For the financial periods dating between 2014 and 2016, the PMTE had applied Directive Two with the transfer of functions from the DPW and PMTE, which provided the Department with three years in which to account for the immovable assets in accordance with standards of Generally Recognised Accounting Practice (GRAP). Two steps were applied with regard to this, the first being recognition. This meant identifying assets (ownership) and classifying them in accordance with the definitions (property, plant and equipment; investment property and heritage assets). The second step applied was measurement, which was to determine a deemed cost (where cost information was not available – based on deemed cost methodology). In the 2016/17 financial year, Directive Two was no longer available and the Department had obtained an adverse opinion due to qualification in the areas of property, plant and equipment, accruals, provisions, and receivables.

On the PMTE audit action plans and progress, some of the actions taken include having a reconciliation between the Immovable Asset Register (IAR) and physical verification data to identify discrepancies between building counts on the quality assurance system and the IAR. The DPW also planned to conduct a review of the parent/child grouping in the IAR to ensure that properties belonging in the same facility were grouped correctly. They also aimed to identify the high risk areas and conduct a review of Geographic Information System (GIS) drawings against the IAR.

With regard to the Department’s progress on some of the action plans, the due diligence project was currently in progress to identify consolidations and subdivisions in order to secure alignment between Deeds records, municipal valuation rolls, the Chief Surveyor General’s diagrams and the IAR. The DPW had also identified the high risk areas for re-measurement. The DPW also mentioned matching the IAR to the Lightstone property reports, updating BI calculations formula to reflect all buildings of three and four floors as low rise buildings and not high rise buildings, along with engaging key accounts management (KAM) and revisit all African Union Commission (AUC) projects which were not accurately linked. The information should include property details such as the site ID, property code, building/component ID and facility names. The BI calculations had already been done, but the formulae would be updated once the data review exercise had been completed. Significant projects had been verified and correctly linked to the IAR as at 31 March 2017, but projects which were not properly linked by then due to insufficient information or multiple projects being linked to one facility, had been identified.

Programme one of the specific action plans had strategies in place to improve performance. These pertained to administration of supply chain management (SCM) and mainly consisted of reviewing supply chain business processes and delegations, regular training of SCM role players, and implementing compliance ‘gates’ within the SCM business processes.

Programme four pertained to construction project management, and the strategies identified to improve performance included ensuring that project review meetings included commitments, Contract Price Adjustment Provision (CPAP), WCS updating, strict monitoring of APP targets (to be standing items on the agenda), enforcement of reviewed delegations that allocated authority for the approval of extensions on time, terminations, revised project extension plans submitted to executives at Head Office, and reviewing standard operating procedures flowing from new PMTE business processes.

On Programme Six (Facilities Management), some of the action plans included migrating Worx4U to Archibus, and the development of stricter processes by the financial manager at Head Office to ensure that only savings that had complete portfolios of evidence (POEs) were reported. Further strategies to improve performance under facilities management included identifying the top 300 buildings, developing an internal technical skills capacity, linked to the resuscitation of workshops, having a fully automated call centre, maintenance and asset management activities through the introduction of systems such as the new Enterprise Resource Planning (ERP) and telemetry systems, as well as maintenance guidelines.

On the management of risks in the Department, the DPW had identified their top ten strategic risks, which consisted of:

  • Weakening financial viability and sustainability of DPW entities, with an emphasis on the PMTE;
  • Loss of state resources through fraud and corruption;
  • Breaking key legislation prescripts, acts, regulations and policies;
  • Failure to provide quality accommodation within time and cost;
  • Deterioration in the value of the state’s portfolio of immovable assets;
  • Failure to influence the sector with regard to transformation;
  • Failure by the DPW and PMTE to achieve its EPWP broad-based black economic empowerment (BBBEE) and skills development targets;
  • Non-integration of spatial planning activities with national, provincial and local spheres of government;
  • Lack of cooperation that enabled seamless service delivery within the sector departments; and
  • Failure to integrate business information for cross-cutting functions that informed proper planning.

The objectives for this particular phase included developing and implementing new strategies to intensify the fight against fraud and corruption, planning processes that were integrated with risk management and reporting processes, as well as governance frameworks to enhance the quality and functioning of the governance structures of the Department and improving the oversight of the public entities. To achieve their strategy, they had to contend with and manage risk to ensure adherence to the Public Finance Management Act (PFMA) in compliance with National Treasury (NT) regulations and DPW frameworks, and the optimal use of available resources with a focus on implementation of action plans to achieve objectives. Furthermore, the DPW had to ensure effective risk identification by considering the Minister’s policy statement, the Government Technical Advisory Centre (GTAC), and the AG’s and internal audit’s findings. The Department must ensure that decisions were made within approved risk appetite and tolerance levels, and further ensure the effective integration of business processes.

Mr Fazel said that the Department was implementing the SAGE and Archibus software systems to replace the legacy systems (WCS and Property Management Information System (PMIS)) in the management of this property portfolio. Archibus was a management system for real estate management solutions, infrastructure management solutions and facilities management solutions. The IAR had been migrated to Archibus, but the financial reports were developed on Excel. This would be eliminated once Archibus was fully implemented. On the other hand, SAGE was said to be a financial management system for accounts payable (implemented), accounts receivable (implemented), budgeting (implemented), and procurement. SAGE had been used since 2013, and its cost had been R21 million, while the Archibus stores asset register had cost R16 million.

Further issues to be addressed by the system implementation were improved call logging and reporting on scheduled and unscheduled maintenance, automated GRAP reporting, and improved itemised billing capacity.

Discussion

Mr M Filtane (UDM) referred to procurement and contract management, and asked whether there was sufficient consequence management. He commented on beneficiaries being recruited according to “party politics,” which was one of the primary problems he had picked up. On verifying beneficiaries using ID numbers, he asked whether they had been able to identify any people who were not supposed to be beneficiaries -- for example, foreigners who had not yet been naturalised. Regarding the maintenance of buildings, he observed that there was not a concerted maintenance plan, which had led to buildings falling apart, and there had been appeals countrywide to the Ministry to implement a programme that would strengthen the maintenance of buildings. He said there was a lack of transformation within the construction sector, which still remained a challenge for them to resolve. He mentioned the situation in the Eastern Cape and KZN, where in some instances projects worth R1.5 billion were being obstructed by black constructors because of the feeling that they were not being accommodated when they tendered for those particular programmes. The conditions were such that black constructors felt like they could not compete, thus being excluded by the system because of not being able to qualify for tenders. He hoped the Ministry could pay attention to his remarks.

Mr D Ryder (DA) said he felt that a disparity existed between the DPW and the office of the AG, as the Department seemed not to be in agreement with the AG’s findings and considered some of its comments unfair. The reality of the situation was that it would most probably be the same AG that they would have to deal with in the coming year, meaning that their opinion on the DPW might not change. Some level of agreement had to be achieved to ensure that both the DPW, the AG and Treasury could have common ground in understanding what was required from each entity so that they could work together to meet those requirements. The falling away of Directive Two had been blamed for the adverse opinion, and he asked whether there had been a plan in place regarding the falling away of that directive, and identifying it as a risk. These were issues that had to be planned for in advance, and ICT systems should be on risk registers in order for the DPW to work around times when those systems were down.

He also commented the issue of SCM, saying it was a commonly held belief in the public sphere that the DPW overpaid for projects. The DPW needed to balance a number of issues together -- for example, with regard to transformation aspects and the needs of government, amongst other considerations. The point was that the DPW could not sacrifice projects to ensure they satisfied transformation objectives, because it could easily become the case that they tailored projects in such a way that they excluded certain contractors from the bidding process. He concluded this point asking whether there was any proper value for money being brought into supply chain management.

Mr Ryder’s next comment related to the issue of IT. On the matter of the Archibus system being used for the asset register, the DPW’s answer to the question previously addressed in writing had not matched up to the presentation they had just delivered. The DPW was relying heavily on Archibus implementation, meaning that it should then prioritise the implementation of this system if that was the case. He warned that putting a system in place would not automatically change the AG’s opinion, as the work had to be done correctly in order to demonstrate that they had indeed met predetermined objectives. The CFOs of the DPW were well equipped and able to deal with the findings of the AG, but had not done so, and he feared that it seemed as if they could not see the gravity of receiving an adverse audit opinion from the AG. This attitude needed correcting.

On the issue of the DPW procuring the services of a facilities management contractor, Mr Ryder asked whether this was not one of its core functions that should be done in-house instead. Would they be sacrificing money on the salary bill to appoint a facilities manager? He stressed the importance of the risk register, saying that the issues mentioned under facilities management should also be contained in the risk register so that the Department could focus on addressing them in a timeous manner. He was also interested to know what the Department’s criteria were for identifying the “top 300” buildings mentioned in the presentation,

Mr M Figg (DA) said that the audit action plan should also be read as the “Management Action Plan” because of the fact that management had objectives which included the running of an effective department. He said the issues identified in the presentation were mostly a result of weak controls within the Department, and the consequence of an increased audit fee. The DPW had work that was not being done for a number of reasons, and hypothesised that either they were not employing competent people -- which he did not believe to be the case – or else they were employing qualified people who were subsequently not trained to apply the systems that were used within the DPW, which resulted in weaknesses in the Department. He said the issue of financial reporting still being conducted on Excel should be addressed, and that HR leave documents should be processed on an online database as opposed to using manual documentation that then had to be captured, as this may lead to instances such as the one they were facing, where such things were not captured due to administrative failures.

The Chairperson added to the discussion by stating his concern on the issue of Archibus as a system heavily relied on by the DPW. He mentioned how the IT world was changing rapidly, and that hackers were also getting smarter just as quickly as the technology was developing. The point he was making was that Archibus was a universal platform, which meant that it could be hacked by just about anyone around the world with the means to do so, because it was so omnipresent globally. He asked whether the DPW could not rather have just spent all that money they had used for the Archibus system to build their own safe and secure system that could be claimed to be exclusive to the DPW and PMTE.

DPW’s Response

Mr Jeremy Cronin, Deputy Minister: DPW, said that the office of the Minister welcomed the AG’s findings and challenges, and that it was natural for one sometimes to have a sense of feeling cheated, as was said to be the case with the DPW and the adverse audit opinion.

Mr Jacob Maroga, DDG: Facilities Management, DPW spoke briefly on the issues surrounding maintenance. He acknowledged that there was indeed a huge amount of work that was required of the Department to turn some of the situations around. Facilities management was a core function of the PMTE, and they had been working on developing what they called a facilities management turnaround strategy. On the issue of the top 300 buildings, the identification of those particular buildings was not to separate them from the rest of the buildings under the Department, but rather to prioritise those 300 and use them to inform what would subsequently happen to the rest of the buildings in terms of maintenance and development. Those were also facilities related to the DPW’s client departments.

Mr Cox Mokgoro, Chief Financial Officer (CFO): DPW, covered the issue of SCM. He said that the DPW had a positive, constructive and working relationship with the AG. He clarified the meaning of an adverse audit opinion by stating that in this instance, it was a situation where the Auditor General’s calculations of the DPW’s asset values were found to be different from what the DPW themselves had initially calculated, but had not had a chance to correct these values in time, hence the adverse findings.

Regarding supply chain management and overpayment by the DPW, he said that there had been a number of reforms within the public sector’s supply chain environment. The Department should ensure that the test for value for money became a critical test. Their common practice involved determining whether a person could do the job at hand (functionality test), followed by looking at the price and preference, preference being the respective applicant’s BEE score. The old dispensation was that the company with the highest BEE score would be awarded the tender, irrespective of price, which was where the overpayment debates stemmed from. With the procurement reforms, the DPW could enter into a process of negotiations to tailor the price suitably.

On the issue of the appointment of a facilities management service provider, he said that there had always been a tension between deciding whether it was appropriate to incorporate something in one’s line function so that it became part of employment costs, or whether one should appoint a service provider. This brought about the issue of limiting the wage bill.

He addressed the concern regarding the maturity stage of the PMTE, and whether they were at a stage to effectively carry out some of the functions that they had been accused of not carrying out themselves. About dumping work on to the PMTE so that the DPW looked good, he mentioned some of the complex issues surrounding that, like avoiding instances of conflict of interest, for example, where one department set a certain policy and implemented it as well.

On the leave system and why it was not online based, he said the DPW operated off a fairly fixed system used across all of government, meaning that they could not as a department introduce their own system due to being bound by government standards.

Regarding Archibus, the DPW had considered developing its own, in-house system. They had then realised that things had moved on with the advent of the PMTE becoming a trading entity and decided that developing an in-house system would take a long time, and this had led them to employing a system that could work for them in the interim. He stressed how software developers were scarce in South Africa, and that if the concern around Archibus was primarily the security risk, what the DPW should actually be doing was to take mitigating actions, like installing the appropriate firewalls and cyber security systems and strategies.

The representative from the office of the Auditor General said that they had taken note of the action plan that the DPW had presented, and that they would engage with them. She stressed how timeliness was needed for success in correcting the discrepancies, since the Department was left with only about five and half months to implement the action plan. She assured the Committee that the relationship between the office of the AG and the DPW management was good, and that what was needed as part of the way forward was for both the AG and the DPW to engage with each other around the complex audit in a robust debate that was both meaningful and constructive.

The Chairperson, in his closing remarks, said that it was important that everyone understood that if the Department failed in its functions, then everyone else failed as well, because it would mean that the Portfolio Committee were not performing their oversight function well enough and that the Executive was not leading the Department as it should, and this situation should be avoided altogether.

He thanked the DPW, the Deputy Minister and all other members in attendance for their noteworthy contributions and willing engagement in the process.

The meeting was adjourned.

Download as PDF

You can download this page as a PDF using your browser's print functionality. Click on the "Print" button below and select the "PDF" option under destinations/printers.

See detailed instructions for your browser here.

Share this page: