Independent Development Trust 2016/17 Annual Report, with Minister of Public Works

NCOP Economic and Business Development

31 October 2017
Chairperson: Mr M Rayi (ANC, Eastern Cape)
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Meeting Summary

Annual Reports 2016/17

The Independent Development Trust appeared before the Committee to present its 2016/17 Annual Report.

Before the entity’s briefing the Minister of Public Works remarked that the IDT had received several disclaimers over the past few years. A major challenge related to the delivery of infrastructure programmes over the past four years. Besides governance and fiscal challenges the IDT also had financial stability challenges. Other challenges included poor performance levels, poor leadership and lack of consequence management. Outdated business systems also affected efficiency of service delivery. The outdated organisational structure which was top heavy also did not help things. There was poor oversight, with regulatory and organisational compliance lacking. The IDT also lacked strategic direction. In June 2017 the Minister of Public Works had requested the Draft Turnaround Plan and Strategy. He had only received the Draft Turnaround Plan and Strategy this week. The Draft Turnaround Plan and Strategy would be presented to the Committee. It would speak to the underlying principles of the approach that was taken. This would have to be done at another opportunity as the Draft Turnaround Plan and Strategy still had to be finalised.

In its presentation, the IDT said that over the past four years it had lost a significant amount of business especially in the Free State, Mpumalanga, KwaZulu-Natal and North West Provinces. This had an adverse impact on the IDT’s revenue generation and its ability to fund its operating costs. Supplementary funding from the fiscus was thus necessary. The IDT was currently in a transition mode from a grant funded to a self-funding mode of operations. The Draft Turnaround Plan and Strategy would be backed by a financial model which would map out the actual turning point for the IDT where its revenue would sufficiently cover its operating overheads. The IDT would therefore have to secure an adequate revenue pipeline with a baseline programme expenditure of R7bn per annum to avoid any bailout from National Treasury/DPW. The IDT would therefore operate at a restricted overhead base of R350m per annum to breakeven or less to generate reserves. On performance under Strategic Objective 1 the annual target had been set to support 40 government departments. Actual performance was that the IDT had secured business with 35 government departments. Performance was thus 87.5%. On delivery of projects on new/replacement schools the annual target was 20, actual performance sat at 4 which was only 20% performance. Under Strategic Objective 2 which spoke to annual performance, the target set was to have a unqualified financial audit outcome. The actual performance was a disclaimed audit outcome. Performance thus sat at 0%. However on the target of paying of invoices within 30 days actual performance was that on average 64% of invoices were paid in 30 days. Given the findings by the AGSA it was envisaged that the Draft Turnaround Plan and Strategy would amongst others address the financial viability and sustainability of the IDT, ensure service delivery improvements and have an organisational development exercise to reconfigure the IDT. Some project management interventions were to develop norms and standards, improve supply chain management processes and also to enhance systems and controls. The IDT also had a short term plan ie October 2017 – March 2018. Amongst the interventions was to strengthen the technical and financial capacity of regional offices, to fast track and massify project implementation and to strengthen the contracting model to reduce exposure to risks of litigation.   

Members pointed out that development underlined the work that the IDT ought to do. The Committee was pleased that the IDT had a Draft Turnaround Plan and Strategy in place and that it would be presented to the Committee. The IDT was asked when it presented the Draft Turnaround Plan and Strategy to the Committee that it provide detail on where funds had been lost in the past. Lost funds had to be recouped. The IDT needed to take things further and prosecute people. Criminal charges should be laid. Members felt that without a turnaround plan there was no way in which the IDT would be able to fulfil its mandate. The IDT was asked what was planned in terms of its remedial plan. The Committee needed to engage on the Draft Turnaround Plan and Strategy. Members felt that the Draft Turnaround Plan and Strategy should set out clear activities with timelines. The IDT was asked why its Chief Executive Officer (CEO) had been placed on special leave. Members felt that instead of him sitting at home and drawing a salary he should have had other work designated to him. The process around the CEO had to be expedited. When was the disciplinary hearing of the CEO to take place? Members stated that on 14 August 2017 an investigating unit had been set up. What progress had the investigating unit made to date? Members also asked what actions were taken when projects failed. The IDT was asked whether it retrieved funds that had been lost by illegal actions. Members observed that many projects had failed and were simply swept under the mat. What types of accountability measures did the IDT have in place? Members felt that the problem was that funds were paid up front. Members also felt that the strategies implemented by the IDT needed to be pragmatic. Given that schools and work opportunities were part of the strategic objectives of the IDT members pointed out that on oversight the Committee had observed that rural schools in the Eastern Cape were in a dire state and that Early Childhood Development Centres received little support from government. Children could not be taught in an environment that was not conducive to learning. It was a major challenge in the development paradigm. On work opportunities members stated that there were problems on the recruitment of people for Expanded Public Works Programme (EPWP) projects. Members had received complaints that the same contractors were appointed for projects over and over again. A huge problem was that the construction industry was still largely untransformed. What strategy did the IDT have to get contractors out of level one? Contract management was an issue that needed to be looked at. Members observed that the briefing was silent about specific issues that were outlined in the actual Annual Report. There were for instance two IDT officials who had signed acknowledgements of debt and were paying back funds. There was also a litigation matter around a sum of R3.9m. The IDT was asked to explain. When would the IDT establish its internal audit committee? 

Meeting report

Opening remarks by Minister
Mr Nkosinathi Nhleko, Minister of Public Works, spoke to the challenges of the Independent Development Trust (IDT) for the last 3-4 years. There had been a litany of disclaimers from the Office of the Auditor General of SA (AGSA) over the years. The IDT had many internal challenges. The fortunes of the IDT needed to be turned around. The main challenge related to the delivery of infrastructure programmes over the past four years. There had also been client dissatisfaction. Besides governance and fiscal challenges the IDT also had financial stability challenges. Other challenges included poor performance levels, poor leadership and lack of consequence management. Outdated business systems also affected efficiency of service delivery. The outdated organisational structure which was top heavy also did not help things. There was poor oversight, with regulatory and organisational compliance lacking. The IDT also lacked strategic direction. In June 2017, he had requested the Draft Turnaround Plan and Strategy and had only received it this week. Every effort had to be made to improve the IDT’s performance. A new Chairperson and new Deputy Chairperson had been appointed to the IDT Board. New ideas and direction was needed. The IDT Board had also taken a decision to place the then Chief Executive Officer (CEO) on special leave, hence the appointment of an Acting CEO. The Draft Turnaround Plan and Strategy would address immediate, medium term and long terms challenges of the IDT. The Draft Turnaround Plan and Strategy would stabilise the IDT. Losses in business had to be stemmed and efforts should be intensified on business generation. There was a need to introduce an expanded business portfolio and new service offerings. The Draft Turnaround Plan and Strategy would be presented to the Committee. It would speak to the underlying principles of the approach that was taken. This would have to be done at another opportunity as the Draft Turnaround Plan and Strategy still had to be finalised.

Remarks by IDT Board Chairperson
Mr Nhlanhla Ngubane, Chairperson, ITB Board, said that the IDT Board had to take critical decisions. The picture of the IDT was a bleak one as the organisation was in distress. The indicators were clear. For the past three years the IDT had received disclaimers from the AGSA. Support from the Ministry and Department of Public Works (DPW) was appreciated. He assured the Committee that the IDT would return to present its Draft Turnaround Plan and Strategy.

Briefing by IDT on its 2016/17 Annual Performance Report
Ms Yvonne Mbane, Acting CEO, IDT, said that over the past four years the IDT had lost a significant amount of business especially in the Free State, Mpumalanga, KwaZulu-Natal and North West Provinces. This had an adverse impact on the IDT’s revenue generation and its ability to fund its operating costs. Supplementary funding from the fiscus was thus necessary. The IDT was currently in a transition mode from a grant funded to a self-funding mode of operations. The Draft Turnaround Plan and Strategy would be backed by a financial model which would map out the actual turning point for the IDT where its revenue would sufficiently cover its operating overheads. The IDT would therefore have to secure an adequate revenue pipeline with a baseline programme expenditure of R7bn per annum to avoid any bailout from National Treasury/DPW. The IDT would therefore operate at a restricted overhead base of R350m per annum to breakeven or less to generate reserves.

On performance under Strategic Objective 1 the annual target had been set to support 40 government departments. Actual performance was that the IDT had secured business with 35 government departments. Performance was thus 87.5%. On delivery of projects on new/replacement schools the annual target was 20, actual performance sat at 4 which was only 20% performance. Under Strategic Objective 2 which spoke to annual performance, the target set was to have an unqualified financial audit outcome. The actual performance was a disclaimed audit outcome. Performance thus sat at 0%. However on the target of paying of invoices within 30 days actual performance was that on average 64% of invoices were paid in 30 days.

The AGSA made the following findings:

-The IDT remained stagnant with a disclaimed audit outcome for 2016/17. However, there is an improvement on issues as compared to 2015/16. Out of five issues raised, two were addressed  and not subject to a qualification.
-Material misstatements were identified in the AFS submitted for audit which were subsequently adjusted and corrected.
-Intervention is required in the Key controls such as  Financial and Performance Management.
-Though there is some assurance provided through Internal Audit and the Audit Committee, the effectiveness of these assurance providers have not yielded the desired results due to management failure to adequately implement recommendations.
-On the Key Projects audited, the School Infrastructure Project, in particular, twenty three (23) schools were visited. Ten (10) projects visited had quality concerns. No concerns were noted on the budget.

Given the findings by the AGSA it was envisaged that the Draft Turnaround Plan and Strategy would amongst others address the financial viability and sustainability of the IDT, ensure service delivery improvements and have an organisational development exercise to reconfigure the IDT. Some project management interventions were to develop norms and standards, improve supply chain management processes and also to enhance systems and controls. The IDT also had a short term plan ie October 2017 – March 2018. Amongst the interventions was to strengthen the technical and financial capacity of regional offices, to fast track and massify project implementation and to strengthen the contracting model to reduce exposure to risks of litigation.   

Discussion
Mr L Magwebu (DA, Eastern Cape) asked what the IDT was planning to do in terms of its remedial plan. The Committee needed to engage on the plan. The remedial plan had to set out clear activities with timelines. He asked why the CEO was placed on special leave. He was drawing a salary whilst sitting at home. He could have been designated to do other work rather than being put on special leave.  There was a need for processes had to be expedited.

Mr Ngubane replied that the deadline for the Draft Turnaround Plan and Strategy was the end of November 2017. The CEO who had been placed on special leave also had rights in terms of labour law. There were issues of non-performance by the CEO. The IDT’s Board had the responsibility of looking at the organisation’s performance. The disclaimers by the AGSA was proof of non-performance by the IDT. The IDT had charged the CEO with non-performance the day before. The process in regards to the CEO would be completed by the end of 2017. Timelines had been set. The IDT and the CEO had discussed the option of a mutual separation. 

Mr W Faber (DA, Northern Cape) noted that on 14 August 2017 an investigating unit was set up. What progress had been made by the investigating unit? What action was taken when projects failed? Did the IDT retrieve funds that had been lost by illegal actions? He pointed out that there were many projects that had failed and were simply swept under the mat. What types of accountability measures were in place? The problem was that funds were paid up front.

Mr Ngubane replied that the Special Investigating Unit’s (SIU’s) investigations related to the work that the IDT was doing with the Department of Correctional Services (DCS). The DCS had been a client of the IDT. The IDT had a planned meeting with the DCS the following week in relation to misdemeanours in the project. The IDT was cooperating with the DCS. There were discussions about setting up a task team. The IDT had not yet been approached by the SIU.

Mr Alan Baloyi, Deputy Chairperson, IDT Board, said that there was awareness that things had gone wrong at the IDC in the past. The bigger challenge was the loss of credibility and reputation by the IDT. In the eyes of Parliament, IDT’s poor performance was to blame for this. The IDT had unpacked failed projects, disclaimers, lack of consequence management and litigation processes. Whilst dealing with these issues it still had get its business right. The IDT should get its business in good shape. The IDT could not speak to its Draft Turnaround Plan and Strategy as yet as the financial impact of interventions had not yet been quantified. The main issue was to address the disclaimer and to correct everything linked to it. When the IDT appeared before the Committee next to present its Draft Turnaround Plan and Strategy it hopefully would have ticked all the boxes. 

Ms Mbane on blocked and stalled projects said that the IDT was taking stock of projects in KwaZulu-Natal and the Eastern Cape. She said that the IDT did not make payments upfront. She said that project implementation contracts were strict. 

Mr E Makue (ANC, Gauteng) noted that development underlined the work that IDT ought to do. If huge losses were suffered in the Free State, KwaZulu-Natal and Mpumalanga, the IDT had to ensure that relationships with those provinces should be restored. When the IDT engaged with provinces the Committee needed to be kept abreast of things. If the IDT had disclaimers for three years members were yet to see reports in this regard. He was pleased that the IDT had a Draft Turnaround Plan and Strategy in place and that it would be provided to the Committee. He asked that the Committee also be provided with the latest financial report. If the IDT required R7bn per annum to prevent a government bailout how would it operate on a restricted overhead base of R350m to breakeven or less to generate reserves. IDT’s strategies needed to be pragmatic. From the briefing, schools and work opportunities were part of the strategic objectives of the IDT. Schools were high on the agenda of the Committee. The Committee had on oversight observed that classrooms in rural schools in the Eastern Cape were in a dire state. The Committee had also observed that Early Childhood Development Centres received little support from government. Children could not be taught in an environment that was not conducive for learning. It was a major challenge in the development paradigm. The Committee wished to see how the IDT in its plans addressed issues. On work opportunities there were problems in the recruitment of people for Expanded Public Works Programme (EPWP) projects. On contractor development, he had received constant complaints about the appointment of contactors for projects. The same contractors seemed to be appointed over and over again. What strategy did the IDT have to get contractors out of level one? The construction industry lacked transformation. One of the IDT’s short term plans was to harvest infrastructure budgets that were available in client departments. He noted that there would be belt tightening in the fiscal framework. The IDT was asked whether it had already considered what would be workable for it.

Mr Baloyi said that the IDT was signed up to the developmental agenda. It was primary to what the IDT needed to do. In the past there were successes and challenges. One of the IDT’s biggest challenges was growth and sustainability of the organisation. The IDT needed to secure business. The IDT needed to have correct capacity and systems in place. The R7bn amount was the minimal revenue required to generate a certain level of management fees to break even. The R350m figure was for the IDT’s overheads base. The organisational development process showed that there was a need to reduce it. In his view, R150m would be sufficient to cover the IDT’s overhead costs. On contract management, he said that there were instances where the wrong contractors had been contracted to projects or where client government departments had not paid contractors on time. There were many issues related to contract management. The IDT needed the right systems with the right people. A long term goal was to put in place the correct information technology system. The intention was to bring on board a board member who had information technology as a strength.    

Mr Ngubane stated that the intention was to improve relationships with the provinces. Work had already begun in the North West Province. There had always been good relations. The only issue that the provinces had was on the IDT’s developmental agenda. Provinces and the IDT had sat down and had agreed that a localisation strategy was needed. There is work in progress on reviewing procurement plans and strategies. There needed to be a holistic approach when a building was to be built. The IDT was aware of the developmental agenda and knew what it should do. There was a strategy in place. Parties needed to come together on issues like skills development and finance etc. He said that the Contractor Development Programme of the DPW would be drawn in. The experience of the DPW would be leveraged around this. The sourcing of budgets was an ongoing activity. The IDT would offer a full turnkey proposition to its clients. The IDT’s approach for departments was from the core planning initial stages. A clear and working framework was needed. A challenge that the IDT had encountered was fiscal dumping by departments. This led to problems as proper planning was not done. The IDT’s value proposition would include infrastructure planning of clients.

Ms Mbane said that the IDT would look at its processes as well as its people. The IDT partnered with the Construction Education and Training Authority (CETA) to build capacity of its professionals. In the past financial year only 13 Early Childhood Development Centres had been built. All developmental agencies like the IDT needed to work together. On the harvesting of budgets, she pointed out that the focus had been on education and health. The IDT tried to extend its clientele to include universities and other institutions of government. She confirmed that the IDT had agreements with CETA on contractor development. The Department of Labour was also taken on board. Contractors should perhaps first get certificates before they went on site.    

The Chairperson asked about two IDT officials who had signed acknowledgements of debt to the amounts of R484 000 and R680 000 respectively. He asked that the matter be clarified. There was also a R3.9m litigation matter. The presentation did not shed light into these types of matters.

Ms Mogorosi explained that the two officials had admitted guilt and were repaying the funds to the IDT. Both officials were no longer in the employ of the IDT. 

The Chairperson asked about progress on litigation processes. What was the R1.5m penalty on tax and interest about?

Ms Mogorosi explained that the South African Revenue Service (SARS) had raised issues. The officials who had worked on a matter had resigned at the end of the last financial year and the SARS had issued a penalty for late submissions. There was R3.9m relating to the litigation around the previous CFO. The matter was sub judicae. The litigation matter had not yet been finalised. The investigation had not been handled by her office.

Mr Ngubane stated that the Committee would be provided with full details on the CFO matter the next time the IDT appeared.

Ms M Mhlanga (ANC, Mpumalanga) pointed out that the governance and financial management problems were serious. What had caused it? There were also issues on capacity in relation to contract management. He asked what had been done about contract management. Without a turnaround plan he did see the IDT meeting its mandate. The IDT was asked when it would establish its internal audit committee. Notwithstanding projects in the provinces, he asked what the IDT did. He asked if the IDT had a national uniform plan.

Mr Baloyi, on governance, said that in the IDT there was no system or rather inadequate systems and processes. The IDT had done a skills audit and had found that the employee profile had a mismatch. 40% of the IDT’s employees were in the build environment and 60% in administration. Many of those in administrative positions lacked technical skills. The IDT had not made adequate investment in technology. Processes were still manually operated. The IDT’s development process would look at addressing these types of issues. There would be a proper Enterprise Resource Planning (ERP) system for information technology.

Mr Ngubane stated that the restructuring of the IDT’s Board Committees had been approved. There was an Audit & Risk Committee that had been restructured. The IDT had asked the Minister of Public Works to strengthen the Audit & Risk Committee. The current Audit & Risk Committee had overseen all three disclaimers that the IDT had received. The current Audit & Risk Committee had justified the current state of affairs by stating the AGSA did not understand how the IDT functioned. It was therefore deemed necessary to restructure the current Audit & Risk Committee. 

Ms Mogorosi, on the disclaimers, said that previously the IDT had not audited projects implemented until 2013/14. From 2014/15 the AGSA had inspected transactions which had led to the first disclaimer. The problem was that systems and records were not in place. The IDT was however putting systems in place. In 2015/16 there had been improvement. The IDT had identified all transactions up until 2002. Progress certificates were the bone of contention. It affected management fees, receivables and liabilities the disclaimer was the result. The IDT was engaging their professionals to value the IDT’s projects closer to the cut off to get rid of disclaimers.

Mr Magwebu echoed Minister Nhleko’s concerns that the IDT had received so many disclaimers. When the IDT presented its Draft Turnaround Plan and Strategy to the Committee it should not leave out detail on where funds had been lost in the past. The IDT needed to find the funds that had been lost. The tendency was to look at the future but one could not forget the past. The IDT had to go beyond employees signing consent orders to pay funds back. Criminal charges had to be brought against people. Prosecutions had to take place. Wasteful a fruitless expenditure funds had to be recouped by the IDT.

Ms Mbane said that the IDT would consider criminal prosecutions.

The Chairperson asked where SIU investigations started.

Ms Mbane explained that the SIU investigation would go back to the inception of projects. It would investigate everything from start of the projects to where they were now.

The Chairperson asked when the disciplinary hearing of the CEO would take place.

Mr Ngubane responded that the IDT was waiting on the CEO’s lawyers. The CEO had taken the IDT to the Commission for Conciliation Mediation and Arbitration (CCMA). The CEO alleged that it was an unfair labour practice for the IDT to charge him.

The Chairperson reiterated that the Committee needed to see the Draft Turnaround Plan and Strategy of the IDT.

Mr Baloyi said that the IDT was doing the costing of the Draft Turnaround Plan and Strategy. It would be finalised by the end of November 2017.He pointed out that one of the reasons why the CEO had been charged and suspended was because he had not provided a turnaround plan to the IDT Board.

The Chairperson said that the programme of the Committee would not allow for the Committee to meet with the IDT in the current term. The Committee had to be provided with a copy of the audit report of provinces, also information on which departments had not paid contractors on time and as well as information on losses that had been made in construction projects.

Minister Nhleko stated that he had just handed his copy of the Draft Turnaround Plan and Strategy to the Chairperson. He still had to sign the document. The repositioning of the IDT was important. He pointed out that at a recent meeting he had attended in KwaZulu-Natal the KwaZulu-Natal Provincial Government wished to get rid of the IDT. These types of issues needed to be resolved. Governance issues of the IDT should also be addressed. He asked whether there was a way to fast track the Committee’s interaction with the IDT over the Draft Turnaround Plan and Strategy. It would be preferable to deal with it still in 2017 than in 2018. 

The Chairperson reiterated that the Committee’s Programme for the current term was full. The best that the Committee could do was to have a sitting with the IDT at the end of January 2018. 

Committee Minutes
Minutes dated 24 October 2017 was adopted unamended.

The meeting was adjourned.

 

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