The Minister of Water and Sanitation in his overview told the Committee that the DWS has inadequate financial management as many of its senior executives had resigned. DWS had committed to Parliament to have a turnaround plan as soon as possible. However, this has not been finalised as anticipated. The Department of Water and Sanitation (DWS) explained why it was necessary for it to have an adjustment to its 2018/19 Budget Vote appropriation as provided for in the Adjustment Appropriation Bill.
It spoke about its performance over the past year. DWS completed the 2017/18 financial year with accruals to the value of R2 billion. These invoices were not included in the new budget. The main reason for over expenditure is these liabilities which were not budgeted for. DWS had under expenditure for compensation of employees due to its vacant posts. However, recruitment is underway for the filling of critical posts. There is underspend for the budget allocated to transfer for subsidies due to non-compliance of claims / invoices with the Division of Revenue Act. There is underspend for payments for capital assets due to invoices that still have to be certified, verified and approved for work done for the Indirect Regional Bulk Infrastructure and Water Services Infrastructure Grants. DWS had over-expenditure for Goods and Services. This was due to the R610.286 million paid to the implementing agents for the War on Leaks National Strategic Programme. DWS had over-expenditure for interest on overdue accounts.
▪ DWS had a total virement of R405 million which was transferred from various programmes to the Water Infrastructure Management programme.
▪ DWS has received an additional R1.3 billion allocation for drought relief from Treasury which will be used in 71 projects across different provinces.
Members expressed concern about the poor achievement of targets and both over and under expenditure in some DWS programmes as well as the Department’s failure to fill critical posts. DWS was asked to explain why its targets were not achieved while there was over expenditure. They asked why money was used for projects that were not budgeted for in the annual performance plan (APP). Members urged DWS to do proper planning and align targets with the budget. DWS was asked to provide the Committee with a report on the consequences applied to people involved in financial misconduct and irregular appointments. DWS was also requested to prepare a financial recovery plan.
The Chairperson welcomed the Minister of Water and Sanitation. DWS should convince the Committee why Parliament should approve the proposed adjustment. The Committee is interestedto know if there are virements in excess of 8%. In terms of the Money Bills Act, the Committee may recommend to Parliament to either reject or approve the proposed adjustment. The Committee is interested in seeing value for money and service delivery to the people of South Africa. She noted that the Minister had another commitment and would leave early. The Deputy Minister had tendered her apologies.
Minister of Water and Sanitation overview
Minister Gugile Nkwinti said that DWS tried to adhere to the policy budget which was approved by Parliament despite challenges faced in financial management positions. Several senior executives resigned including the Chief Operations Officer and Chief Director for Financial Management. As a result DWS is struggling because of inadequate skills in financial management. The Department now has an Acting Director General, Acting COO and Acting Chief Director for Financial Management. He assured the Committee that the vacant posts will be filled as soon as possible because they are all critical. DWS committed to Parliament to have a turnaround plan as soon as possible. However, this has not been finalised as anticipated. The Minister thanked the Treasury for assisting DWS in its turnaround.
The Minister hoped that the adjustments would address the concerns raised by the Committee in a letter to the Department. He has been going around the different provinces to help municipalities deliver water and he was satisfied with the progress made. He hoped that DWS will continue to work with municipalities that do not have the capacity to provide decent services. Most municipalities do have capacity to provide clean water and the department is working to bridge the gaps. In conclusion, he said that the virements in DWS are within the 8% prescribed by law.
Department of Water and Sanitation briefing
Ms Deborah Mochotlhi, DWS Acting Director General, informed the Committee that the Director for Policy Co-ordination and Stakeholder Management would present the proposed adjustments to the 2018/19 appropriation as well as a summary of the financial and non-financial statement.
Ms Babalwa Manyakanyaka Director for Policy Co-ordination and Stakeholder Management, said that 68% of the total budget was specifically and exclusively appropriated, while 14% was earmarked and 18% was un-earmarked. An analysis of DWS non-financial performance showed achieved 36% of its targets and failed to achieve 52%. On the other hand, DWS’s spent 46% of the budget and has 52% unspent.
In terms of its programmes, it achieved 29% of the targets for Infrastructure; 30% for Regulation; 67% for Administration; 34% for Planning. The overall expenditure of DWS for administration, water planning management, water infrastructure development, water regulation is R7.1 billion. Therefore, DWS has R8.4 billion of its budget not spent.
DWS had an under expenditure for compensation of employees due to its vacant posts. However, recruitment is underway for the filling of posts which are critical. There is underspend for the budget allocated to transfer for subsidies. The reason is due to non-compliance of claims or invoices with the provisions the Division of Revenue Act. There is underspend for payments for capital assets due to invoices that still have to be certified, verified and approved for payment of work done for the Indirect Regional Bulk Infrastructure and Water Services Infrastructure Grants.
DWS had an over-expenditure for goods and services. This was due to the R610.286 million paid to the implementing agents for the War on Leaks National Strategic Programme. DWS had over-expenditure for interest and rent on land as a result of penalties on overdue accounts and cancellation of courses.
DWS had a total virement of R405 million which was transferred from various programmes to the Water Infrastructure Management programme.
DWS has received an additional R1.3 billion allocation for drought relief from Treasury. It will be used in 71 projects across different provinces. DWS received business plans for the 71 projects and is now in the process of finalising the procurement processes.
Mr M Shackleton (DA) stated that Committee members are allocated different areas to monitor service delivery and he is responsible for Hammanskraal in the City of Tshwane. Many wards in Hammanskraal do have not had running water or sanitation. What is DWS doing to accelerate delivery of clean water in areas that do not have basic sanitation across the country? He was interested in seeing money being spent in areas that do not have water and expected DWS to report on its water and sanitation projects. He asked why DWS was unable to achieve its targets and what can be done to reach the targets. He asked why there was over spending in some programmes where targets were not achieved.
Mr Shackleton was worried about unpaid contracts. Many departments are not paying service providers and he referenced contractors who abandoned projects at 37 schools in Eastern Cape because of a government debt of R104 million owed to them. He asked if there is a plan to ensure that the payments to service providers are made within the required timelines.
Ms D Senokoanyane (ANC) was concerned about the low level of achievement of targets in programmes where money was overspent. She asked for the reasons and implications for failure to achieve the service delivery targets. She noted the underspending on compensation for employees. For how long has the recruitment been going on? It is a critical problem if crucial posts are not filled. She asked why DWS was overspending on interest and rent on land. What was meant by ‘specifically and exclusively appropriated’?
The Chairperson asked why the Committee should approve the virements of R172 million and R179 million which is above the prescribed 8%.
Ms Mochotlhi replied that there are various reasons for over expenditure and non-achievement of targets. There are four projects related to classification of water resources under the Planning programme. The Act requires that there should be stakeholder engagements. However, if there are serious objections from the community, the process will be delayed.
Another reason for delays to implement projects and spend the money is because some municipalities change the focus of projects from the agreed terms and conditions. Once a municipality changes the focus of a project or decides to implement something that has not been agreed to, the process will be delayed since new feasibility studies will have to be conducted.
There are delays in filling of vacancies in DWS. Applicants who apply do not qualify or fail to meet the requisite skills and sometimes the applicant does not agree to the salary bracket. DWS is focusing on administration and critical skills.
Mr Frans Moatshe, DWS Acting CFO, replied that DWS completed the 2017/18 financial year (FY) with accruals to the value of R2 billion. These invoices were not included in the budget. During the budget speech, the Minister had said that the budget should be aligned with the spending as well as the Annual Performance Plan (APP). Since the invoices were not included, DWS had made commitments with the different service providers and had to make payments for goods and services. The main reason for the over expenditure is these liabilities which were not budgeted for.
He replied that the interest was paid due to overdue accounts. DWS went through a process of reprioritising the budget and taking stock of all invoices. After completing that process, some payments were not made on time. As a result, suppliers claimed interest and penalties which DWS paid. These amounts are reported as fruitless and wasteful expenditure and are being investigated by the Department’s risk management division.
He pointed out that an amounted listed as “specifically or exclusively appropriated” may only be used for the specific purpose, unless the purpose for which it is allocated is amended by Parliament. The earmarked amounts can only be used for the intended purpose and cannot be used for anything else.
Ms Zandile Makhathini, DWS Deputy Director General: National Water Resources Infrastructure, referred to the two grants, one for Regional Bulk Infrastructure and one for Water Services Infrastructure. Hammanskraal is part of Tshwane. As Tshwane is a metro, Hammanskraal does not qualify for the grant. However there are other special infrastructure grants for metros. There was a borehole rehabilitation programme which focused on Ngobi. Hammanskraal could be covered by the Magalies Borehole project. The challenge faced by the Department is budget cuts while the demand for services is increasing. She suggested that the funding model should be reviewed since there is high reliance on government funding. DWS should look beyond the government fiscus to get funding. She hoped that the Department will review the funding model.
Mr Moloto Mathala, DWS Chief Director: Water Infrastructure Management, replied that DWS has a Back to Basics (B2B) programme run in collaboration with the Department of Cooperative Governance and Traditional Affairs (COGTA). The programme puts emphasis on how to address water shortages and sanitation in district municipalities. DWS and COGTA are designing reliability plans to ensure that the number of houses without water is reduced.
Ms Makhathini stated that the current water supply service model is one of the challenges in DWS. It is looking at cooperative governance given the fact that water infrastructure is a network. Within the network, there are different departments that are responsible for specific matters. There is a problem within different departments in failing to plan together. In instances where DWS implements bulk water infrastructure, COGTA may take long to do its part. There are communities where the reticulation has been completed but they do not have running water from the source because there are no pipes. Therefore DWS is looking at how to work together with other departments like COGTA.
She reiterated that stakeholders in government should work together to ensure that the backlogs are closed. This will ensure that the infrastructure is utilised optimally. The water delivery model should be one value chain. DWS may plan to construct a dam. However, the water may not reach the households if COGTA has not done its work to ensure that there are pipes with running water.
She emphasised that in future departments should plan as a team to ensure that implementation is smooth. DWS is working on a water national master plan which focuses on the whole value chain. Therefore, when a dam has been constructed, all players should work together to ensure that the water is delivered up to the taps in households
The Chairperson asked if DWS has a water master plan. A master plan is the best solution to avoid working individually so that people can receive quality services. The Committee once asked for the master plan but did not receive the document.
The Chairperson was concerned about the R5.3 million over spending for War on Leaks. From which spending areas did DWS source money for the War on Leaks? She was concerned that DWS used money for a project which was not budgeted for. She asked what DWS will do in future to avoid deviations and using money not budgeted for certain projects.
Mr Shackleton said that DWS should ensure that they present comprehensive reports so the Committee knows what it is doing around the country and how much money is spend on those projects. He hoped to get detailed information on projected and actual expenditure on DWS programmes. There is limited information for the Committee to hold the Department accountable
Mr N Gcwabaza (ANC) said that the level of overspending and underspending was alarming. The over expenditure must be reasonable and able to be explained. He asked why there was overspending in areas where targets were not met. His concern was that DWS was failing to achieve its targets while overspending money allocated for a programme. There were many vacancies for critical posts. Why was there no budget for the War on Leaks which resulted in overspending on Goods and Services? The War on Leaks programme is always budgeted for since it is a government project.
He asked how long the invoices remained unpaid. Small and medium enterprises would be affected if DWS does not pay them. He asked if the Department interacts with the service providers to ensure that the invoices are honoured.
Ms Senokoanyane was concerned that DWS only spent 10% of the budget for projects and 21% for the implementation of water resources management activities. She was worried that DWS is not spending its budget for bulk water supply which is its core mandate. The Committee recently went to the Free State and the province has a bulk water supply crisis.
Ms S Shope-Shitole (ANC) was pleased that the challenge hindering service delivery had been identified by DWS in that it, COGTA and municipalities were working separately. She proposed that the Committee receive a plan prepared by DWS and COGTA and hold a meeting with both departments. Water is very important and people should receive services. She appreciated that DWS and COGTA are working together and hoped that there will be better service delivery when the departments work together.
The Chairperson told the Minister that the targets set by the department were unrealistic, hence the low level of achievement and implementation. She was of the view that the targets were not achievable because there were too many and they were too huge. What are you going to do to ensure that the targets are adjusted and aligned with the budget?
The Chairperson asked if the procurement plans for the 71 projects had been submitted to Treasury for approval as required. She asked Treasury to comment on Members’ questions.
Ms Ulrike Britton, National Treasury Chief Director: Urban Development and Infrastructure, replied that she would check in the Procurement division if the plans were submitted. The R1.3 billion allocated for drought relief was appropriated in terms of section 32 of the Division of Revenue Act. She replied that the budget shifts within departments will have consequences for projects. However, the shifting of funds between different programmes in a department indicate that the planning process might not have been done properly
She agreed with Ms Makhathini’s remarks that there should be cooperation within the water supply value chain. Collaborative planning amongst all players is crucial. The departments should evaluate how much it costs to implement an entire project and not focus only on their part of the project. Hence, there should be planning alignment, implementation alignment and budget sequencing amongst all relevant players.
Ms Mochotlhi replied that there is Water Master Plan which was submitted to Cabinet. The Cabinet said that it should be submitted to Phakisa. There is an inter-ministerial committee between DWS and COGTA which focuses on what should be done by each department. She replied that the partial achievement of targets means that the DWS would have implemented over 50% of the project. Hence, there is expenditure on partially achieved targets. She informed the Committee that there are other DWS responsibilities which are not part of the APP which cost money.
Mr Gcwabaza asked Ms Mochotlhi to explain if the overall expenditure was proportionate to the targets fully achieved and partially achieved. The expenditure did not tally with the targets achieved coupled with those that were partially achieved.
The Chairperson said there should be an alignment between achieved targets and expenditure. She asked Ms Mochotlhi to explain what she meant about other mandates that are outside the APP. The Annual Performance Plan should be linked to the budget according to the PFMA and Treasury regulations. Money should not be taken from the budget to fund programmes that are not part the APP. DWS must change its way of doing things and align programmes with the budget. It is important to comply with the APP and PFMA. She reiterated that DWS should set realistic targets that are in line with the approved budget.
Ms Mochotlhi apologised to Members and noted the comments made by the Chairperson.
Mr Moatshe, DWS CFO, replied that the War on Leaks programme contributed to over expenditure and was initially run from the Water Trading Entity. After engagements with Treasury, DWS came to realise that the programme should not be part of the WTE. The programme was moved to the DWS main account. When the programme was moved, there were obligations and invoices already, which had to be paid. At the time the programme was moved, the APP and Budget had already been finalised. DWS is facing challenges because there are invoices which had to be paid and those invoices were included in the budget speech.
He agreed with the Chairperson that the Department should comply with the APP and allocated budget. The Infrastructure and Planning allocation of R122 million had to be shifted to defray the over expenditure. This impacted on the work of the DWS because operational budgets like travelling had to be reduced. This will have a negative impact on service delivery.
DWS will need to change its way of doing this in the next FY. However, the challenge for the Department will be the contracts which were entered into in previous years. DWS is therefore reviewing contracts which can be set aside and those that should remain in existence. The invoices were included in the accrual. Some of the invoices are causing disputes as some implementing agencies entered into irregular contracts. DWS took the decision to return some of the invoices to implementing agencies.
The procurement plan was amended recently. DWS met with the Chief Procurement Officer of Treasury to ensure that DWS officials working in the procurement division and supply chain process are trained. The training focused on how to handle procurement issues.
There are some municipalities that have started with the procurement process to implement the drought relief projects. As such, the department will have to account for the R1.3 billion received from Treasury at the end of the financial year. DWS compiled the Revised Demand Management Plan and it will be submitted to the Committee when approved.
The Chairperson asked if the Committee could call the Minister again. The Committee would like to make recommendations that will assist the Department. DWS is described as the worst for financial and non-financial performance. Therefore the Committee should ensure that services are delivered to the people. DWS should provide the Committee with a report on what was done to people involved in financial misconduct as well as the Public Service Commission Report on irregular appointment of senior members.
DWS should prepare a financial recovery plan and operate within the infrastructural budget reforms. She told DWS to work with Treasury so that the department can be assisted with planning and budget reforms. She would like to meet again with the department.
The meeting was adjourned