Public Works Department 2001/2: hearing

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Meeting Summary

A summary of this committee meeting is not yet available.

Meeting report

11 June 2003

Chairperson: Mr F Beukman (ANC)

Documents handed out:
Department of Public Works Annual Report 2001/2
Auditor General's Report

Last year's hearing:
28 Aug 2002
Department of Public Works 2000/1: hearings
03 Sep 2002
Evaluation of Department of Public Works Hearing

The 2001/2 financial accounts of the Department of Public Works produced a very unfavourable audit report from the Auditor General. His report criticized:
- the inability to maintain a complete and accurate fixed property register,
- huge discrepancies between the uses of different accounting programmes,
- the lack of supporting documentation for transactions entered into,
- unauthorised expenditure,
- and various other matters.

The Department was questioned on these issues, and in the main, acknowledged a breakdown in management control procedures. The Director General assured the Committee that those people who had made themselves guilty of misconduct and criminal activity, had been duly penalised. Staff in the employ of the Department were receiving skills training in order to better equip them to efficiently perform their tasks. The Director General pleaded for condonement, to enable the Department to start performing its mandate afresh, with a clean slate.

Mr D Gumede (ANC) introduced the proceedings, stating that the Committee's aim was to ensure that Government departments use public funds for the purposes for which they are intended, with purpose and efficiency. When the Committee appears to be tough, it is with the purpose of ensuring that the mandate is delivered. The areas of the Committee's focus would be:
1. The completeness and accuracy of the fixed property register
2. Reconciliation of the PMIS, FMS and WCS accounting systems
3. The lack of supporting documentation and suspense account
4. Satisfaction of all National Treasury disclosure requirements
5. Unauthorised expenditure, with the aim of authorising unauthorised expenditure
6. Other important areas in the Annual Report

The Public Works Director General, Mr James Maseko, was given an opportunity to address the Committee. He said that prior to attending this hearing, he had had a look at transcripts of the previous hearing before SCOPA, which had not proceeded amicably. He and his team would do everything possible to ensure the issues would be dealt with to the best of their ability, also giving due regard to the role played by SCOPA in achieving greater accountability. He stressed that the Department of Public Works views the Auditor General's Office as playing a very important role in the democracy of South Africa. He assured the Committee that since the last hearing, communication between his Dept and the Auditor General's Office had improved drastically.

He pleaded with the Committee that by the end of the hearing, they recommend to Parliament that the Department received a condonement, to enable them start with a clean slate. They were determined to demonstrate to SCOPA the amount of effort that had gone into dealing with issues at hand. He acknowledged that mistakes had indeed been made, and that there had been weaknesses in the systems in the past, going as far back as 1997. However, there were measures in place to attempt to deal with this, which measures would be verified during the course of the hearing.

Asset register and property issues
Mr Gerber commented that the issue of property in Africa is an extremely emotional matter. The Committee's role was to assist the tax-payer in ensuring that there was proper accountability regarding the administering of state land.

He mentioned Section 2 of the Resolution adopted by Parliament for the Department of Public Works in 1999, dealing with asset register and the maintenance of assets. It read to the effect that the Committee was concerned about the deterioration of state property, and problems regarding the maintenance and repair of buildings. The Committee was also concerned that the National Assets Register had not yet been completed, a requisite for the adequate management and disposal of assets. It further stated that the Committee was keen to know what steps would be taken by the Director General in ensuring proper asset management in not only compiling an asset register, but also in ensuring effective acquisition and maintenance of assets.

In the previous year's hearing, it was stated that a company had been contracted for R56.8 million by the Department to do a clean-up of the properties in possession of the Department. On the previous year's briefing by the previous Director General to SCOPA, the Auditor General's finding was, regarding the PMIS, that there was a lack of adequate user-control to ensure the complete and accurate record-keeping of state-owned and leased property. There were several cases where property details were not captured. In other instances, those details were captured more than once on the PMIS. The Auditor General's finding continued that a firm had been contracted at a cost of R56.8 million to coordinate and manage the updating and cleaning up of the data. However, data on the invoice file, the property file and the sole property file was at the time of the audit still incorrect. The preliminary results of a separate audit of the national register of state-owned fixed assets revealed concerns with regard to the accuracy, validity and completeness of the information contained in that register. However, the audit is still in progress, and the final results will be recorded in a separate report in due course. The Department's management's response on this issue was that management was in the process of addressing the inefficiencies and limitations of these systems.

Mr Gerber asked why, after the spending of R56 million, the Department had not completely validated the accuracy of the database. Did a culture of ownership and management responsibility for the fixed property asset register of the Department actually exist?

The Director General responded that an asset register for the state was a key priority for the Department. He reported that tremendous progress had been made in that regard, and his next audit report would reflect some improvements made. There are challenges which still exist. The work of preparing an asset register is ongoing. A key initiative that was taken, was to ensure that all provinces also compile asset registers to ensure that all state assets, both national and provincial, are captured properly and accurately. This is viewed as a priority issue. A workshop was being convened with all the provinces next week to review the progress made with regard to updating the asset register, identifying key challenges experienced by the national and provincial departments, and make available an action plan. He assured the Committee that the work done by the company in cleaning up the register had yielded very good results, resulting in considerable progress for the Department.

The Auditor General, Mr S. Fakie, stated that it would be of great value if the action plans mentioned by the Director General could be made available to the Committee and his Office so that they could advise them of the sustainability of their plans. In the experience of his Office, many departments go through the process of cleaning up their asset register. However, if they fail to develop a sustainable process to maintain the system on an ongoing basis, generally they find themselves in a similar situation in another year's time.

Mr Gerber wanted to know what progress had been made regarding the properties of the TBVC states and of other foreign properties, saying that it had come to the Committee's attention that many state properties are not registered in the deeds office under the name "RSA". He asked if there was a list of all the possible names that had been used in the history of the country in terms of registering properties that belong to the state. Was there the possibility of properties legally owned by the state that had not been registered in its name? On the issue of property owned by the state, but which reverts to provinces, the Constitution provides that where immovable property owned by the state is vested in a particular government, a deeds register must register that property in the name of a government. He asked how the Department was dealing with such property, owned by Government, but which was in the hands of provincial or local government.

The Director General said that progress had been made as a number of properties have been identified as properties that should be in the asset registers of provinces. However, because the administrative processes are kicking in too slowly to finalise that process administratively, that has not been happening fast enough. Part of their action plan involves an interaction between the Department of Public Works and the Department of Land Affairs, to expedite the administrative processes to issue certificates as soon as possible, and so that the registering of the properties can proceed. TBVC state assets that were known by Government to belong to these states, have been incorporated into the asset register. However, he was not able to assure the Committee that all assets from these states had thus far been included. This was because some of those assets might not yet have been brought to the Department's attention.

Moving onto some properties that had been sold, Mr Gerber mentioned the Fernwood property. The Minister had said in a speech in 2002, that on 24 June 2001 the Department had issued tenders for the appointment of a multi-disciplinary strategic asset management partner to advise the Department on fixed asset management in compliance with the prescripts of the PFMA and other legislation. Following a labourers' adjudication process the State Tender Board accepted a recommendation for the appointment of consultants in association - a consortium of companies including Dijalo Property Services. In a response from the Department regarding the sale of Fernwood, a listing of the shareholders in the company included a Mr Dijalo. Mr Gerber wanted to know if this was the same Mr Dijalo who was appointed onto the consortium to advise the Department on asset management. Mr Gerber contended that, should that be the case, it would constitute a conflict of interests.

Mr Potgieter (Department) was not in a position to verify if this was indeed one and the same person, but he would find out. The Fernwood Project had been awarded some time ago. There was no link between the sale of the company and the appointment of the consultants in association, who had never been involved in any aspects of Fernwood before, and would never be in the future, as the consultancy project has been finalised.

Mr Gerber said that it would be good to know if there were any link between the two concerns.

In disposing of Fernwood Properties, Mr Gerber inquired why the Department opted to go for a 65-year lease, rather than for an outright sale. According to the leasing procedure, after the 65-year lease period, the state had the right to buy back the property at 75% of the then valuation, which had to be done by the state, and at the state's expense. He asked this in the light that certain other properties, such as the Silvermine property, had been sold outright.

Mr Potgieter replied that Fernwood was not the only lease entered into by the Department. He mentioned the Tooth Rock Military Base that was also being leased in the same manner. The Department was free to decide if it wanted to retain ownership of its properties or lease a property. The Department was making available a piece of land for development for a period of 65 years, and for a once-off payment of R35 million. The developers would now substantially improve the land, and in terms of common law, the Department would, at the expiry of the lease agreement, be obliged to refund the developer for the improvements effected on the land. He suggested that the 75% should not be seen as compensation for the property, but rather as compensation for improvements made to the land. After the 65-year leasing period, the state would be in possession of a piece of land that would be more valuable than before the lease agreement.

The Director General said that other considerations also influence the decision to lease land, one of which is a consideration for the potential use of a particular piece of land for the future. That might have been one of the factors considered when deciding to lease the Fernwood property.

Mr Gerber commented that only one valuation had been made in the sale of Fernwood, and other high-value properties such as Silvermine, the property on Waterkloof Ridge, and the one in Midrand. He suggested that the Department should have certain criteria involving multiple valuations with regard to the disposal of land, especially with the sale of expensive properties.

The Director General said that he was prepared to review the valuation process. He agreed that one valuation was insufficient, although the Department did have a policy framework in place for managing the process of property sales.

Mr Gerber asked to know the empowerment percentage of black economic empowerment (BEE) in the selling of assets.

Mr Potgieter noted that there were two options available:
- to specify a minimum percentage for empowerment. Should that not be achieved through the tender, that tender would then be non-responsive
- the Department decided not to set a minimum requirement for empowerment, but to look at the empowerment ratio, and make a recommendation to the Minister
The Department was running on an empowerment ratio of 60% plus on their projects.

Mr Gerber noted that the Minister said in a 2002 speech that the Department had a programme in place for repair and maintenance to 720 lifts in government-owned buildings. It was subsequently found that the original suppliers of the lifts were merely continuing to do lift maintenance without contracts. This situation was rectified. The latest report said that there were now 773 lifts. Had the matter pertaining to lifts contracts been sufficiently taken care of since they consumed an astronomical amount of money?

When departments request the leasing or constructing of building space, Mr Gerber asked if the Department made an effort to determine if there were empty state-owned buildings that were available. He cautioned against leasing property at great cost, when there are state buildings available that could be utilised.

The Director General replied that this involved the issue of integrated planning within Government. The Department had put together a draft policy framework, which attempts to send a message to all government departments that fixed assets must be seen as integral to all strategic planning to all departments. The policy looks at such issues as acquisition, maintenance, and disposal of government assets, and makes the point that when a government wants to acquire a piece of land or building, it should be determined what is already available within the ownership of the state.

Mr Maseko continued that when the Department receives a request from a Government department for office space, they check the Department database to see what is already available. They also liase with other Government departments, before making a call for proposals from the private sector. However, the Department has not yet perfected these procedures to ensure that there are no duplications. The Government's policy of integrated planning needs to be applied to fixed assets as well. An aim of the policy framework is to apply integrated planning to national departments, provinces, and local government, so that Government does not acquire assets without taking into account what is already in the fixed asset register.

The Chairperson requested that the Director General supply SCOPA with written details on contract administration within the Department.

Reconciliation of the PMIS, FMS and WCS accounting systems
Mr D Gumede (ANC) asked what action the Department had taken to clear the amounts mentioned in the 2001/2 audit report, and if such action had been taken, was the Department satisfied with the control mechanisms in place to prevent future differences arising.

Mr Ntsaluba said that the discrepancies that had been identified between the various systems were of serious concern to the Department, and still are. The audit team had decided, in terms of National Treasury requirements, that the Department should move away from the FMS system to the system which they are currently using. He assured the Committee that all the discrepancies had been resolved. On the use of PMIS, the Department realised some transactions would always manifest themselves in these kinds of discrepancies.

Mr Andre Meiring said that it had been brought to the Auditor General's attention that there was a number of properties contained in the Department's asset register that would not be found in the Deeds Office, the bulk of which is unregistered state land. He added that there are substantial tracts of state land that the state has no intention of registering, as that would require surveying, which is extremely costly. Other categories of properties contained in the property asset register that would not be contained in the database at the Deeds Office, are properties which are in the process of township establishment. Until the township is formally registered, one would be led to believe that the property is not registered in the Deeds Office, while it is in fact in the process of being established into a township. In the case of expropriations, while the state may have expropriated the land, and duly served an expropriation notice on the owner, the property might still be reflected in his name. Where properties are registered in the former TBVC countries, these could also be difficult to trace in some asset registers. Tribal land is another main category of state land, which may be registered in the name of the tribe.

The Auditor General confirmed that his office had indeed received the explanations regarding the discrepancies reflected by the use of the PMIS, FMS, and WCS systems.

Mr Gumede wanted to be ensured that effective monitoring mechanisms would be put in place, so that, should the present management leave, those mechanisms would still be there ten or twenty years from now.

The Director General assured Mr Gumede that systems that were being implemented would be sufficient to take the Department into the future, and that these systems would ensure a new culture of managing the Department, in order to sustain these gains right into the future.

Lack of supporting documentation and suspense account
Mr G. Madikiza (UDM) referred to the Auditor General's report, Points 4.4 and 4.5, saying it showed there had been inadequate control over the retention of supporting documentation by the Department. This meant that either expenses could have been paid for services or goods not delivered, or the Department was not in a position to substantiate expenses, in order for them to claim from other departments. What steps had been taken to inform National Treasury and the executive authority, in instances where allocations to the correct accounts could not be substantiated, and had the Department complied with due process?

The Director General responded that "tremendous progress" had been made in this regard. He informed the Committee that there were three categories with regard to unavailable documentation:
- documentation which had been destroyed
- those cases where no supporting documentation had been provided to the AG's office
- no submission of supporting documents relating to subsequent payments that had been made, to the tune of R2.7 million.

He said that the destruction of documents was not necessarily a fraudulent exercise. In the public sector, if documentation was more than 5 years old, it was usually destroyed. The Department was presently collecting information on all documentation that had been destroyed. The process of document destruction had taken place without checking that all the documentation was fit for destruction.

Tremendous progress had been made in the category where no supporting documentation had been provided to the Auditor General. The Department may be close to reaching 85% compliance in this regard. The Department had especially identified the Polokwane and Nelspruit offices as areas in which they needed to expedite the process of ensuring that the necessary documentation was provided.

Mr Madikize asked the Director General to elaborate on actions taken to clear the R51.3 million mentioned in the 2001/2 audit report, under 4.4, and also with relation to the lack of supply of documentation.

The Director General responded that the Department was in the process of finding the documentation, for submission to the Auditor General's office.

It seemed general ledger accounts with other departments had not been reconciled or confirmed, resulting in unresolved differences between the Department and client departments, and unsubstantial balances in the financial statement. What control points were implemented, to ensure the Department would recover funds from client departments, for expenditure incurred on their behalf? What steps was the Department taking to ensure timeous invoicing of expenditure to departments for services carried out by the Department of Public Works?

Mr Ntsaluba responded that there had been a stage when the recovery of funds from client departments was problematic. Around December 2001, a task team comprising National Treasury, representatives from the client departments, Public Works and the Auditor General, agreed to a billing arrangement that would be acceptable to all the parties with the purposes of cost recovery. The recovery of debts, therefore, from client departments, was no longer a problem. He was convinced this would be reflected in the results of the next audit.

Ms R. Mabena (ANC) felt, following on the Director General's defence that certain documentation more than five years old had been procedurally destroyed, that this had no link with the Auditor General's 2001/2 annual report.

The Director General tried to clarify that he was referring to documentation five years prior to the 2001/2 report.

Ms Mabena was not yet happy with the explanation given.

The Director General referred to note 3 of the Audit Report, which indicated that the year under review started in May 2002. The problems prevalent in the 2000/1 report would still exist in the 2001/2 report, precisely because by the time that the Department had developed a plan of action to resolve the 2001 problem, 2002 financial year had already begun.

The Auditor General explained that the Committee was currently examining the 2001/2 audit report. Whatever documentations the Auditor General would require to verify numbers in the 2001/2 financial year would relate to documents for the 2001/2 financial year, and those documents were not yet five years old. Therefore, the explanation that documents more than five years old would have been destroyed, was not relevant to the 2001/2 financial year complaints by the Auditor General.

The Director General reminded the Committee that the reason for the entire lack of submission of supporting documentation was not because of the destruction of documents. It was not the case that the majority of documentation had actually been destroyed. In answering Mr Madikize, he had given other reasons as well.

Mr N. Bruce (DA) stated that the documents in question were definitely not five years old, and therefore could not have been destroyed. He continued that if documentation had not been asked for or recorded, that constituted a management failure, and the Department should be candid enough to acknowledge that their management systems were not in place. He asked if definite steps had been taken to ensure that documentation was not lost, that it had been requested, and that it had been recorded.

The Director General made it clear that in his answer to Mr Madikize, there had been definite acknowledgement of a breakdown in management systems. In his explanation, he had mentioned three categories of documentation that had not been submitted, destroyed documents being only one of them. The others related to the inability to submit documentation. He reminded Mr Bruce that he had said the Department had made progress in terms of ensuring that the documentation was provided, to the point where 85% of the documentation had been provided. He stressed that he had never denied the existence of a management problem in the Department. Rather, they were willing to acknowledge it, but added that the Department was deeply engaged in dealing with the situation. In the subsequent audit report, progress made would be reflected.

Mr Bruce asked what precise steps had been taken to stop the problem from recurring.

The Director General responded that, in following a government prescription that documentation more than five years old is open to destruction, measures had been put in place so that, before documents are destroyed, various check points will ensure that documents are not destroyed simply by looking at the date. Secondly, the Department is also ensuring that the necessary post levels are created, so that only people who are qualified for posts are employed. They are also providing appropriate training to enable people to perform their jobs efficiently. That is the reason that so much progress is being made.

Satisfaction of all National Treasury disclosure requirements
Mr Bruce (DA) asked of the Department's leases which were undertaken on behalf of government departments. Were they accurate and up to date?

Mr Samuels responded that the Department managed 5000 residence accommodations, all of which were registered on the departmental database, and updated on a weekly basis. He reported that they were up do date.

Mr Bruce commented that the Department was known to experience difficulties with various governmental departments which at times moved offices, when a lease was still in existence. He asked what the Department was doing to ensure that government departments adhere to the terms of lease agreements.

Mr Samuels responded that great strides had been made in bringing it to client departments' attention that as users, they had certain responsibilities in terms of the lease. Should they vacate the premises, they would have to notify Public Works, and would be held liable to pay rent.

The Director General suggested that perhaps it was necessary to notify departments of a necessity to implement a strategic plan with a vision for the future, in terms of space requirements. The Department wanted to establish a different kind of relationship with client departments, by which they would together determine building maintenance requirements, and what the departments' general requirements would be during the lease period. The Department was making use of policy, and they were also reorganising themselves in order to be able to do this.

With regard to the accounting systems used, Mr Bruce wanted to know what arrangements had been made between the use of PERSAL and FMS. He also asked if the Department's housing guarantee register was up to date.

Mr Ntsaluba replied that the discrepancies between the accounting systems were no longer considered a problem. The reliability of the data on PERSAL has been updated to reflect the true picture, and from time to time, that data is updated with the use of data from the National Treasury. He also confirmed that the housing guarantee register was up to date.

The Auditor General stated that SCOPA needed some assurance that the lease value of R51.2 million that still needed to be disclosed, would indeed be disclosed.

The Director General responded that although that had constituted a problem previously, it had already been implemented as from April 2003.

The Auditor General pointed out that meant, for the year 2003, that particular problem would still be reflected. However, for the year 2004, it would have been resolved.

Mr Bruce pointed out that the Department had not supplied much information on disciplinary and criminal actions, with regard to what those criminal acts had been. He asked if the Department could assure the Committee that appropriate disciplinary steps had been taken in all instances of misconduct.

The Director General reported that the Department could provide the Committee with a list of where it took action against individuals who were involved in misconduct. Criminal proceedings were instituted against them, which had led to the dismissal of certain managers.

Mr Bruce asked the Director General if the Department had instituted a plan to prevent this sort of occurrence in the future.

The Director General responded that there was now an investigation unit in the Department. The Department's awareness campaign included a toll-free line, which people could use to report unprocedural practices, and people who make themselves guilty of these practices, in confidence. The Director General stated that he planned to evaluate these measures within a few weeks.

Furthermore, the Department had decided to bring in private companies to undertake the Department's auditing.

Mr Bruce asked why the Department had not given the details of the Department's audit report thus far, to which the Director General replied that in the Department's report, some detail had indeed been supplied, though not much. He made an undertaking to supply more in the future.

On the Department's intention to bring in private consultants as auditors, Mr B Nair (ANC) voiced his concern that the usual end result of bringing in consultants, was that they eventually become fixtures within the Department. Checks and balances would ultimately be done by the Department itself, otherwise control measures are constantly being externalised.

The Director General acknowledged that this was an important observation, adding that in order for the scenario against which Mr Nair had cautioned not to occur, consultants had to be managed. To this end, the Department would be sure to build up its own capacity, in order to diminish dependence on the consultants. He added that it was not conceivable for the Department to undertake to never make use of consultants.

Unauthorised expenditure, with the aim of authorising unauthorised expenditure
Mr Nair (ANC) asked what punitive measures were being taken to deal with those people who are guilty of misconduct, but who have already left the employ of the state.

The Director General responded that the state had no recourse to punish a staff member who made himself guilty of misconduct, and who had already left the state's employ. However, the state was able to pursue criminal charges against a person who was guilty of a criminal act, whether that person was still in the employ of the state or not. He would attempt to incorporate progress make in this regard in subsequent reports to the Committee.

Mr Nair asked if leasing agreements entered into with client departments were purely verbal, without any formal arrangements made, or if they were actually contractual agreements. When these client departments break the terms of the lease agreement by leaving prematurely, is the Department of Public Works responsible for the payment of accommodation expenses incurred, such as rentals, rates, telephone accounts, and so forth? He also wanted to know if the Department had agreements with prestige clients.

Mr Samuels stated that when a client department requested additional accommodation, they are compelled to sign a certified needs assessment, which is signed by the accounting officer, and by the Director Generals of the relevant departments. All of this is done before the Department of Public Works proceeds to procure accommodation for the client Department. There has been some debate as to whether the Public Works Department could enter into contractual agreements with other government departments. It had been subsequently decided that Public Works would enter into "memoranda of understanding" with those client departments, so that they understand if they should vacate a property prematurely, they would also be held accountable for such vacation, and for the fruitless rent that would come from that.

With regard to prestige clients, the Director General stated that this was a weighty issue. There were not necessarily signed agreements, but a general agreement with the client on needs which the Department would provide, with the understanding that a particular amount of money would be spent. The agreement is then confirmed with the Department writing a letter to the client, and the client signing to confirm that they accept the provisions of the services.

Mr Nair spoke on rates and interests levied by municipalities devolving onto the Department. National Treasury had decided that Public Works is responsible for interest on the late payments of rates. Mr Nair commented that It was untenable for Public Works to enter into agreements that are vague in pinning down the responsibility of the client department, stating that ultimately, it would be to the advantage of public Works to enter into a formalised agreement. He encouraged the Department need to have workshops with client departments to straighten out the payments problems that have arisen. When client departments with whom Public Works had engaged in a leasing agreement, fail to meet their obligations, the resultant rates and interest payments are reflected against the Department of Public Works as unauthorised expenditure.

Point 11.2 of the Public Works report dealt with unauthorised expenditure, irregular expenditure, and fruitless expenditure. Mr Nair observed that there were no details provided in the report of disciplinary steps taken, and of criminal proceedings entered into. He continued that the report states that negotiations with National Treasury are taking place, as under-funding is still prevalent. He asked whether those negotiations had been completed, and if so, what the results were. Mr Nair mentioned a list of criminal actions listed in the report, on page 3, which were pending against certain people. He asked to know if there were any results emanating from these proceedings. Note 3, (page 4) dealt with irregular expenditure. State Tender Board approval was not granted, and the Department sought condonation, and expose factor approval, which was not granted. However, it is reported that the State Tender Board recognised and approved the Department's request to enter into month-on-month lease agreements. The payment of fruitless rent constituted a loss of R24 million. In spite of this, the Department was continuing to pay for unutilised space. Mr Nair stated that the Department was not putting sufficient pressure on client departments who had prematurely vacated their premises, meaning that they had to bear the burden of debt themselves.

The Director General responded that it was true that responsibility to pay interest levied on rates and taxes for properties fell onto the Department, as a result of under-funding. The line departments are not necessarily at fault there, because it is the responsibility of the Department of Public Works, and it's a matter that should be resolved with the National Treasury. When demand from local government is so great, the Department tries to manage its cash flow by delaying payments "here and there", which would result in interest levied against the Department. In terms of negotiations with National Treasury, this is an ongoing thing occurring on an annual basis. Although the Department makes some progress, there has not been a single year that Treasury has given the exact amount of money as required for the allocation. When the negotiation phase starts again, the Department will attempt to make very clear to Treasury the impact which under-funding has on the Department's books.

On the issue of unauthorised expenditure and whether disciplinary action had been taken, the Director General pointed out that not all cases of unauthorised expenditure would necessarily lead to disciplinary action. He made the example that if a person responsible for managing the lease portfolio, or for the payment of rates and taxes, performs the function of paying for services to local government, and the Department overspends on a particular function, that is unauthorised, but not necessarily an act of misconduct, since it emanated from a policy decision taken by the Department to pay their obligations to local government. It would not therefore translate into disciplinary actions. However, where there are liabilities, and people need to be judged for misconduct, they are judged. The Department had submitted a list of examples where criminal liability had been found, and people were charged.

The Director General continued that the Department did put pressure on line departments who did not comply with the terms of their lease agreements. The pressure took the form of through written communication, and these letters would be followed up by formal meetings. Because line departments are not necessarily measured in this particular area for performance, this becomes a challenge for the Department of Public Works. Therefore the Director General felt it was important to formulate a government policy framework, where departments would be required to plan for their space requirements.

Mr Samuels said that sometimes, the under-utilisation of buildings was unavoidable, and client departments could not always be blamed. If a new building is procured for a particular department, for instance, it may be that, that building would be occupied incrementally, as that Department establishes the structure. While the structure is being populated, there would be a considerable amount of vacant space initially.

Other Important Issues
Mr L Chiba (ANC) referred to Point 6.2(a) of the Auditor General's Report and asked what steps had been taken by the Department to resolve the lack of capacity within the internal audit division. He also asked about the Department's lack of a three-year strategic internal audit plan.

The Director General responded that at the start of his term as Director General, the Director of Internal Audit had given him a three-year strategic plan. He continued that the Department had initially identified the lack of capacity as a challenge. However, they are resorting to co-sourcing the Department's functions, getting private companies to come in and provide support to the Department. He acknowledged again, with this approach, the risk of over-dependence on private companies, through failing to build internal capacity. However, co-sourcing has been identified as a short-term solution to dealing with the capacity problem presently experienced.

Mr Chiba asked if the Director General envisaged that the Department would be able to build its own capacity, and if so, by when that process would be complete.

The Director General responded that the Department was in the process of advertising posts in the media, with a view to attracting suitable candidates.

Ms Natasha Manik (Executive Manager: Auditor General's Office) stated that the reference to the three-year strategic internal audit plan in the Attorney-General's report did not state that there was no three-year plan, but that the three-year plan had not been updated. She asked if the Director General could inform the Committee if the three-year plan had been discussed at Audit Committee level, and then approved by Senior Management.

Mr Chiba noted that, under Note 28 (page 69), an amount of R19.8 million had been paid out as performance bonus. Considering the disclaimer for the last three years, meaning that the Department had not performed very well, he requested to know how payment of performance bonuses of this nature was justifiable. In addition, point 2.5 (page 10) of the annual report, stated that the report excluded the performance bonuses paid to Senior Managers, which suggested that had those been included, the amount reflected for performance bonuses would be much higher.

The Director General responded that by the time the report had been prepared, there were significant improvements in performance in a number of areas in the Department. Those improvements might not have been recorded because of the bigger challenge of financial management experienced across the board in the Department. In a number of operational areas, significant improvements had been made. By way of example, the Director General stated that one the major challenges facing the Department in previous years, had been its inability to expand its capital allocation. He mentioned that under-spending in one particular financial year had gone up to R560 million. However, at the present time, the capital allocation was being spent at 100%, as a result of performance improvement of employees. The Director General stated the key challenge for him was that when a figure of this nature was reflected in the financial report, it could be said with a high level of confidence that there was improvement across the board.

Mr Chiba asked if the Department had formulated a set of criteria by which performance could be evaluated and remunerated accordingly.

The Director General responded that the Department of Public Services and Administration (DPSA) had presented a framework for the public service as a whole, which the Department of Public Works had studied and adapted to their own needs. This framework acts as a guide to evaluate closely and comprehensively the performance of individuals. He wanted an evaluation policy that would link individual performance evaluation with the performance of the organisation as a whole.

Mr Chiba said that the Committee would appreciate receiving a copy of the refined version of the criteria provided by the DPSA.

Mr V. Smith (ANC) asked the Director General if he could justify in his own mind the sum allocated as performance bonus to less than 4000 people, when considering that a thirteenth cheque was also issued to these employees.

The Director General stated that Mr Smith's observation was an important one. However, he reminded Mr Smith that these issues are sometimes negotiated by the Central Bargaining Chamber for the Public Service as a whole. Management therefore operates within a particular framework, and does not have discretion over all matters. He felt that he would prefer to look into the matter in greater detail, before giving any further input on the matter.

Mr Chiba noted, with great concern, that according to note 7 (page 64), in the years 2000/1 and 2001/2, consultants had been paid a staggering total amount in excess of R4 billion for consultancy and advisory services. He requested to be informed why so much money had been spent on these services.

Mr Ntsaluba agreed that looking on the face of things, there was every reason for the Committee to be concerned. However, he said that all the costs incurred in the core functions of the Department were included in that amount, including rates and taxes, maintenance and repairs, etc. The Director General added that the figure included that were called in for particular construction projects. In the past, the Department employed various engineers, architects and other technical staff internally. Later on, the decision was taken, however, to outsource many of these functions.

Mr Chiba asked that the Department to update the Committee on the progress made with regard to: (1) implementation of fraud plan, (2) continued investigation of all incidents of fraud and corruption, (3) improved internal disciplinary procedures to ensure effective and appropriate action against employees who fall foul of systems and regulations.

The Director General responded that tremendous progress was being made with regard to all of these matters. He reported that a fraud plan did exist within the Department. He was not attempting to create the impression that the problem had been completely sorted out and that there were no more problems. He acknowledged that there was still scope for a lot of improvement to be made. However, he assured the Committee that there was a plan to deal with the challenge, and the process is underway.

Mr Chiba made the observation that in the course of their interaction, the Director General had made the comment that "tremendous progress" had been made, often. He was sure that the "tremendous progress" would translate into a very "clean" report for the subsequent financial year.

Mr Gumede was asked, in closing the hearing part of the meeting, to provide a summary of the proceedings.

Mr Gumede commented that, subsequent to the proceedings, he had a greater sense of security and hope. The team form Public Works had come across as a goal-oriented, "action-packed" team, He thanked them for their attitude and willingness to provide information. The Committee awaited further progress, and a better report in the new year. A lot would depend on the Department breaking down their financial commitments more efficiently. It seemed to him that the trend to employ consultants was decreasing. However, he was not sure if it was simply attributable to fluctuations, or if it truly was due to a decreasing trend. He thanked the Director General and his team for a good hearing..

The Chairperson thanked Mr Gumede and all the members of the Committee who participated. His thanks also went to the staff of the Office of the Auditor General, and to the team from the Department of Public Works. He commended the Accounting Officer for leading by example.

At this stage, the team from the Public Works Department were asked to leave the chamber, so that the Committee could proceed with its internal evaluation of the hearing.

Internal Evaluation of the Hearing
The Chairperson asked for comments from Mr Gumede, and invited comments from the Office of the Auditor General.

Mr Gumede commented that the Committee now had a bigger, more detailed picture of matters within the Department of Public Works. The management on systems and reconciliation is not sufficient, although the Department is headed in the right direction. He suggested that the Department needed to give a better breakdown of what was happening. The issue of support documentation had been more honestly and clearly dealt with this time around. There seemed to be progress in providing support documentation - of which the Auditor General's Office would be better informed. On the issue of disciplinary and clean-up procedure, they should be told to report according to the PFMA. The Department had not been too clear on unauthorised expenditure, they may have to be requested to supply outstanding information in writing. He felt the Committee would have to further investigate the matter of employee performance bonuses. The Director General had committed himself to beefing up the fraud prevention plan, and perhaps there would be a report from the Auditor General's Office. He concluded that he felt the hearing had been a relative success.

Mr Smith said that perhaps the Committee should re-look the time allocated in hearings, so that the Committee members could adequately cover all the important issues.

Mr Bruce said that there had now been an explicit admission that there was a management problem in the Department, which was now being addressed. However, an aspect that had not been addressed, was to look at what was actually expected from the Department in a much broader sense. The manner in which the Department was run, could cause it to have the same kind of problems again quite easily, since it never receives sufficient resources, and has no control over its clients. He suggested that the departmental officials could look at areas within the Department that could be commercialised, so that the Department could make a profit. This would affect the way they operate in providing clear leases to client departments, and would eliminate the problem of fruitless rentals.

Ms Manik commented that in preparing the present year's audit, the Attorney-General's Office would study the area of performance bonuses paid, and how those amounts were arrived at, with a view to reporting back to the Committee.

Mr John Scott (Auditor General's Office) felt that the budget and the over-spending in the Department would have to be addressed. Unauthorised expenditure and the approval process through Parliament also had to be addressed. The Department had to be assisted to forming a proper focus on fixed assets, in order for them to do a proper evaluation.

Deliberations on the Audit Bill
It was noted that if the Committee had any input on this Bill, such input had to be submitted before the 25 June.

The meeting was adjourned.


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