Estate Agency Affairs Board turnaround & transformation strategy; Community Schemes Ombud Services
Human Settlements, Water and Sanitation
31 October 2017
Chairperson: Ms N Mafu (ANC)
The Portfolio Committee on Human Settlements received presentations from the Estate Agency Affairs Board (EAAB) and the Community Schemes Ombud Services (CSOS) which were in response to issues discussed at the previous meeting, as well as concerns raised by the Auditor-General’s report.
The main issue raised by the CSOS was the implementation of an efficient, working funds management system. The entity had been in consultation with SARS to assist in the implementation of such a system in the interim period, and was awaiting approval from the Minister of Finance and the Minister of Human Settlements for its permanent implementation. While waiting for approval, the CSOS management was considering other options to begin registering the schemes and providing stakeholders with the reconciliation of statements. It was confident that the correct accounting system would be in place by the end of the 2017/18 financial year.
The EAAB presented a short-term turnaround strategy. The entity had assessed its shortcomings, and three main points had been identified. These were the failure to meet budget targets, significant transactions during the financial year under the guidance of the previous CEO, and systemic issues that had plagued the entity. One reason for the failure to meet budget targets was the lack of a capacity for the entity to recognise its own revenue, as well as its outdated information technology (IT) system. Questions were posed about the high turnover rate of senior executive staff, the implementation of an efficient IT system, the progress of their transformation programmes, and the intake of interns. The Chairperson was satisfied with the presentation and noted that the representatives were still in the process of compiling a comprehensive strategy.
The Chairperson opened the meeting by advising that Mr H Mmemezi (ANC) and Ms L Mnganga-Gcabashe (ANC), were no longer Members of the Committee. They had been appointed as chairpersons of the Portfolio Committee on Public Works and the Portfolio Committee of Public Enterprises respectively. She said they were in the process of being replaced. She also announced that Ms M Mokause (EFF) was no longer a Member of Parliament.
The Chairperson then read the apologies for the meeting. She reminded the Committee that at the last meeting there had been a shared sentiment to invite the Minister of Human Settlements to the next (current) meeting. The Minister was not able to attend the meeting, and the Chairperson read her apology. The apology stated that some of the concerns of the Portfolio Committee were shared by the Minister. Recognising that the Estate Agency Affairs Board (EAAB) was an entity in distress, she had met with the board in September 2017, where it had been agreed that it would present its turnaround strategy to the Committee. The Minister had further stated that a representative from the Community Schemes Ombud Service (CSOS) would be presenting its remedial plan to deal with issues raised by the Auditor-General. She said that her absence from the meeting was due to prior engagements in Gauteng, and had given her apologies.
The Chairperson asked for an indication of the acceptance of apologies.
This was proposed by Mr L Khoarai (ANC), and was seconded by Mr K Sithole (ANC).
The Chairperson moved to begin with the presentation from the CSOS. Giving a brief reminder to the Committee, she said that the concerns raised pertained to the management plan, particularly in respect of the management of new funds. According to the Auditor-General (AG), an amount of about R30 million was not accounted for. She further emphasised that the issue with the CSOS was more about the lack of a management plan, rather than the mismanagement of funds.
Mr Neville Chainee, Deputy Director General: Department of Human Settlements (DHS), was asked to give his opening remarks before allowing the CSOS to present.
Mr Chainee said that the Director General (DG) was being held up by security at the entrance of the Parliamentary buildings, and would be present shortly. He said that the Department had been in regular consultation with the CSOS around the accounting and management of the levies, and it had been agreed that the CSOS needed to ensure a credible system was put in place. He added that the AG’s report indicated that it was not satisfied with the method used to account for the levies, and not that they were not accounted for.
Community Scheme Ombud Services: AG’s concerns
Adv Seeng Letele, Chief Ombud: CSOS, said that to address the concerns brought up in the Auditor-General’s report, three entities had been approached to assist. These were the Estate Agency Affairs Board (EAAB), the National Home Builders Registration Council (NHBRC) and the South African Revenue Service (SARS). Of the three entities, SARS had indicated that it was willing to assist in the interim period to provide a system for the registration and collection of levies. The CSOS was currently waiting for approval from the Minister of Finance so that SARS may offer more comprehensive assistance beyond the interim period. She added that while waiting for approval from the Minister of Finance, the CSOS management was considering other options to begin registering the schemes and providing stakeholders with the reconciliation of statements. She was confident that the correct accounting system would be in place by the end of the 2017/18 financial year.
Adv Letele said that most of the CSOS’s targets had not been met due to a lack of capacity. Most of the positions had been advertised in newspapers and it was hoped that they would be filled by the end of the current financial year.
The Chairperson thanked Adv Letele. She asked Mr Chainee if the Minister of Human Settlements had been consulted and involved in the process of the signing of a Memorandum of Understanding (MoU) between the Minister of Finance and SARS. She suggested that the Minister of Human Settlements should be notified, since she would be the one who ultimately approved the MoU, and could therefore apply pressure on the relevant stakeholders to fast-track the issue.
In response Adv Letele said that they were waiting on SARS to report back to the CSOS on approval from their respective management structures. She agreed with the Chairperson that involving the Minister of Human Settlements would speed the process up.
Mr Chainee reiterated that the CSOS was aware of the fact that it had not engaged the Minister of Human Settlements, but felt that the discussions between SARS and the Minister of Finance should be concluded before involving the Minster of Human Settlements.
The Chairperson thanked Mr Chainee and Adv Letele for their responses, and asked the Members of the Committee to raise any questions or points of clarification.
Mr M Bara (DA) said that he was concerned about the time frames mentioned by Adv Letele, particularly the fact that they were too open-ended. He asked for clarification on this point.
Ms V Bam-Mugwanya (ANC) concurred with Mr Bara’s point of clarification. She asked why SARS had been chosen as one of the three entities approached.
The Chairperson commented that perhaps Ms Bam-Mugwanya may not have heard that her question had been answered, as Adv Letele had addressed it in her presentation. She explained that SARS had been chosen as they had been the first entity to respond. It was for the better that SARS was the entity to assist, as it was the very same entity that administered penalties for any irregularities. Working with SARS also gave their process credibility and comfort to stakeholders and clients.
Adv Letele responded to Mr Bara and Ms Bam-Mugwanya by indicating that the process was largely dependent on external factors, particularly as SARS, the Minister of Finance and the Minister of Human Settlements had to engage before the CSOS could continue with its processes. She added that under normal circumstances, SARS would not be allowed to share sensitive information with an entity. Since this was an exception they had to make, the process to have it approved would need time.
The Chairperson suggested that the Committee should compel the CSOS to return to the Committee with a progress report on a quarterly basis. This would allow the Committee to monitor its progress efficiently. She asked that the Department of Human Settlements assist with this task. She was impressed by the CSOS’s request to the National Treasury to retain the surplus funds until the accounting systems were replaced.
The Members of the Committee agreed to this suggestion.
Mr K Sithole (IFP) asked for clarification on how the Department of Human Settlements (DHS) felt about the fact that the EAAB and NHBRC had not responded to the calls for assistance by the CSOS.
Mr Mbulelo Tshangana, Director General: DHS, responded that the relationship between CSOS and EAAB was cordial, and that the Board had made the decision not to use their services. He added that considering the systems used by the NHBRC and the need for their upgrades, it would not have been beneficial to use their assistance.
The Chairperson thanked the Director General for his response and the CSOS for its presentation.
Estate Agency Affairs Board: Turnaround Strategy
The Chairperson gave a brief introduction to the EAAB’s presentation, and stated that it was to present a turnaround strategy in response to concerns raised by the Auditor-General’s findings. She asked that the DHS give a brief summary of its discussions with the EAAB before allowing the presentation to begin.
Mr Chainee said that the EAAB board had been in consultation with the Minister of Human Settlements and the Department in relation to the recommendations of the Committee. He indicated that the presentation was not a complete turnaround strategy, but rather served to highlight key areas in need of being addressed. Therefore, together with management, the Minister of Human Settlements and the board, a comprehensive, diagnostic plan would be formulated from the insights gained from the EAAB’s presentation.
The Chairperson accepted Mr Chainee’s comments, and asked the EAAB to proceed with its presentation.
Mr Nkosinathi Biko, Chairperson: EAAB, introduced himself and the Deputy Chairperson, Mr Yusuf Patel. He said that Mr Khwezi Ngwenya, Transformation Executive: EAAB, would present, but he wanted to explain the context within which the Auditor-General’s report had to be read.
The departure of the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO) had come into effect on 22 May 2017 and 19 June 2017 respectively. The Auditor-General’s report had therefore been conducted while the CEO and CFO were in office. The resignation of the CFO was not supported by the board and was being contested at the Commission for Conciliation, Mediation and Arbitration (CCMA) against the claim of constructive dismissal, which Mr Biko believed would result in a success. Furthermore, the company secretary had resigned on the last day of the previous financial year. He pointed out that the departures of these persons had happened after the time period that the EAAB was under review. Therefore, that team was entirely responsible for the financials presented in their report.
The release of the CEO had prompted the entity to assess its shortcomings. Three main points had been identified. These were the failure to meet budget targets, significant transactions during the financial year under the guidance of the CEO, and systemic issues that had plagued the entity. One reason for the failure to meet budget targets was the lack of a capacity for the entity to recognise its own revenue, as well as its outdated information technology (IT) system. He added that staff costs had contributed significantly, reporting that they had doubled from the previous financial year to about R122 million in the current period for the same number of workers. This was due to a conversion from the pension fund to a defined contribution pension fund.
Mr Biko said that the EAAB had an acting CEO and CFO, had employed a company secretary and had advertised for the Audit and Risk Committee members. He thanked the Chairperson for allowing the board to present on their progress to the Committee.
The Chairperson thanked Mr Biko and appreciated that the board members were present at the meeting, as it showed a commitment to the issues brought up by the Committee.
Mr Ngwenya began the EAAB presentation, saying it would focus on the financial and operational challenges. The short-term issues identified were to be dealt with as they underpinned the overall turnaround strategy to be presented at a later stage of the year. The issues of the clearing of the suspense account and the allocating of overpayments were important for the entity. They had identified a need for effective engagement with the banks to align their systems with those of the banks. Furthermore, in moving to a “paperless” system, strong ICT infrastructure was required in the short-term. This would be done through consistent upgrading of the EAAB’s systems.
Mr Ngwenya highlighted the issue of eliminating a backlog in queries. This was seen to affect the effectiveness of addressing client and stakeholder queries. He pointed to the issue of the EAAB’s communication with their clients and stakeholders in terms of receiving feedback. This issue was linked to the status of the ICT infrastructure, which had been mentioned before. It was hoped that these issues would be solved within two to three months.
Regarding the EAAB’s transformation initiatives and strategic programmes, Mr Ngwenya spoke about the success of the R500 million project in Mangaung municipality. The success of the project was to serve as a blueprint to be used in other provinces. He described the aggressive consumer campaign the EAAB had been undertaking, which involved distributing information on buying, renting or leasing property through the use of an estate agent, as well as how to become an estate agent. He said that this had translated into an increased number of new black entrants into the market.
Mr Biko added that the EAAB had procured and upgraded its IT system in August 2017 to deal with the various issues mentioned by Mr Ngwenya. Responses from the industry had mostly been positive.
Mr Thomas Makupo, Acting CFO: EAAB, presented the short-term financial aspect of the turnaround strategy. The deficit of R52 million incurred in the 2015/16 financial year had been the trigger for this turnaround strategy. He gave two reasons for this deficit. Firstly, the conversion from the pension fund to the defined contribution pension fund had contributed R39 million of the R52 million deficit. Secondly, over-budgeting of about R12 million had contributed to the deficit. The EAAB had devised revenue-generating strategies to compensate for this deficit. There was no need to go into detail, but that generally it involved a significant reduction of assets and the revision of planned spending for the financial year, without compromising the objectives to be met.
Referring to the issues raised in the qualified audit opinion, Mr Makupo addressed those that were related to the IT systems. It was decided that a holistic approach should be adopted, involving the implementation of a complete end-to-end diagnostic review of the IT infrastructure. On the issue unallocated receipts, he said that the EAAB had engaged with its main bank, ABSA, to allocate these in the proper manner. Other banks were in the process of being engaged in a similar fashion.
The Chairperson thanked Mr Makupo, and asked if the EAAB had any last remarks.
Mr Patel added that in respect of the ICT issues, it had been emphasised in the report that a human interface must be incorporated in the query processes. He believed that the engagement of warm bodies with clients and stakeholders would improve the quality of their services.
The Chairperson thanked Mr Patel. She commented that as a Committee, it had mistakenly prioritised provinces and tended to forget entities in conducting oversights. Thus, in the next oversight visits, entities should be given more attention.
The Black Property Practitioners’ Association from Khayelitsha entered the meeting, and were welcomed by the Chairperson. She asked the Members of the Committee for their questions of clarity, adding that they should bear in mind that the presentation was not a complete strategy, but rather a work in progress.
Ms Bam-Mugwanya asked about the intensity of the consumer campaigns. She queried the reasons behind the EAAB’s many issues with its IT systems, as well as the board’s feelings on the progression of their transformation and empowerment programmes.
Mr M Malatsi (DA) commented on the high turnover rate of senior executives, and asked for clarification of the root causes and ways to mitigate this. He asked what the plans to fill the positions of CEO and CFO were, given that these were currently filled temporarily. He referred to the use of the German company, SAP, for the EAAB’s IT system overhaul strategy, specifically referring to the relationship, given the recent developments in that company. Lastly, he asked if the task team for the turnaround strategy mentioned in the document had been appointed yet.
Mr K Sithole (IFP) asked about the plans to fill the positions of the CFO and CEO. He also enquired about the state of transformation, which had decreased since the 2015/16 financial year. He asked about the plan for the intake of interns, which had also decreased. Lastly, he asked the presenters to unpack the comprehensive sustainable recovery point mentioned in the report.
Ms M Nkadimeng (ANC) referred to the EAAB’s indication that there was a need for a separation of the functions of the CFO and corporate services, and asked why the functions had been combined initially. She also raised the issue of the partnership between the South African Graduate Development Association and the EAAB, and wanted to know what the progress and challenges encountered to date had been.
The Chairperson said that in January, the Committee would need to spend some time interacting with and engaging the EAAB and CSOS.
Responding on the departure of key personnel, Mr Biko explained that the departure of the CEO was a request to be transferred to another company. The board had been in support of this. The resignation of the company secretary was done under ordinary circumstance. Having served for seven years, the secretary had wanted to move on. As was mentioned in the presentation, the resignation of the CFO was a matter that was before the CCMA. He said that the board and EAAB had worked hard to retain the two persons in the position of CEO and company secretary. Regarding the task team, the appointment was incomplete, and they were in the process of consulting with the Department and other stakeholders for assistance.
With regard to the IT systems, Mr Biko said he was aware that there may be better solutions to assist the EAAB to interface better with their clients and stakeholders. However, due to the urgency of the issues, the implementation of a short-term solution system was required. He confirmed that as far as he knew, the company in question was indeed the German SAP.
Mr Ngwenya, responding to the question of the consumer campaigns, said that the EAAB was satisfied with their intensity, as they were educating consumers of their rights when it came to the buying, renting or leasing of property. Radio interviews had been conducted and the use of social media and national radio advertising in different languages and across all provinces had ensured that the information was being spread.
Mr Makupo said that there was an agreement in place for the placement of 2 000 learners, and this was currently in progress. He said that service delivery needed to be improved, and the training of staff was geared towards a customer-focused line within the EAAB. In terms of the dual responsibilities of the CFO, it had been found not to be viable to have the CFO responsible for corporate services while concurrently running the financials of the entity.
Adding on to the point of the separation of the CFO and corporate services functions, Mr Patel felt that it was very important in terms of streamlining processes and having proper accountability. He commented that there was still a need for a proper delegation framework for the powers and functions of each position. Regarding the temporary CEO and CFO positions, he said that the board felt strongly that these positions must be filled as soon as possible.
The Chairperson asked for concrete time frames.
Mr Biko said that since the process could take six months, and their aim was to have it done by next year.
The Chairperson thanked Mr Biko and noted that issues of transformation had purposefully been left out. She felt that an ample amount of time was needed to deliberate and discuss this. She suggested possibly setting a time in January 2018 in Johannesburg during an oversight trip.
Mr M Wolmarans (ANC) asked for clarification of the role of the banks in relation to the EAAB.
The Chairperson noted this, and suggested the EAAB prepare a response for the meeting to be held in January 2018.
She thanked the two entities for their presentations, and remarked that it was evident that there was progress. However, there was still room for improvement. She also thanked the Black Property Practitioners’ Association for attending the meeting, commenting that it was good to see them taking the initiative to network with the relevant stakeholders in their industry.
Adoption of minutes
The last item on agenda was the adoption of the minutes of the meeting of 24 October, which had been an engagement with the Housing Development Agency (HDA) on their catalytic projects.
Mr L Khoarai (ANC) moved to adopt the minutes.
Mr Wolmarans seconded.
The minutes were adopted.
The meeting was adjourned.
Mafu, Ms NN
Bam-Mugwanya, Ms V
Bara, Mr M R
Khoarai, Mr L P
Nkadimeng, Ms MF
Shelembe, Mr ML
Sithole, Mr KP
Wolmarans, Mr M
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